Sports Authority Is Sinking Under Discounts And Naming Rights

The Denver Broncos are once again Super Bowl champions, and the team has its hometown crowd that packed into the 76,000-seat Sports Authority Field for 10 games this year to thank for all their support. However, come the start of the 2016–2017 NFL season, the Broncos might not have the Sports Authority name backing it or its stadium.

That’s the news from The Denver Post, which reported that Sports Authority missed an interest payment of $20 million on its total of $343 million of subordinated debt. Sport Authority also had another payment deadline on Valentine’s Day, and while no direct news has emerged yet, Steamboat Today reported that the sporting goods retailer has cancelled a newspaper ad campaign planned to run in late February. All of this has led Sports Authority to announce that it will be closing two distribution centers outside of Colorado’s capital, with a likely 200 to 250 locations out of its total 450 to be closed before all is said and done.

“Although Sports Authority currently has sufficient liquidity to conduct its business operations and to make the current interest payment on the subordinated mezzanine debt, after consultation with our senior lenders, we elected not to make the interest payment while we continue these discussions,” a resolutely optimistic spokesman told Fortune.

What brought a seemingly strong operation like Sports Authority — strong enough, at least, to pay for its name on the stadium of the current Super Bowl champions — to its knees? Michael Zuccaro, assistant vice president and analyst at Moody’s Investors Service, which tanked the retailer’s stocks by downgrading its confidence in Sports Authority’s ability to repay its debts on time, told The Denver Post that heavy discounting may have handicapped the brand in the fight against rivals, like Dick’s Sporting Goods. Once the retailer fell behind on clearing inventory, it turned to discounting to sell its way out of the hole it dug; however, this cut into margins so heavily that, combined with shrinking eCommerce revenue, it snowballed into something that seems impossible to stop.

Discounting isn’t the sole culprit of what looks like Sports Authority’s impending demise, though. CBS Denver explained that a mismanaged naming rights deal for the Broncos’ Sports Authority Field is also draining millions out of the retailer’s coffers. Instead of dropping a one-time bounty of $6 million to secure naming rights for several years, Sports Authority instead signed a deal with the Broncos to hand over $6 million every year. Since the new signage went up in 2011, that accounts for $36 million in lost revenue, with reportedly another $24 million spread over a remaining four years.

It might be easy to point and laugh at Sports Authority execs for what seems like an obvious misstep, but further evidence points to them being pushed into a very expensive corner by fast-on-its-heels competitors, like Dick’s.

“You’ve got Dick’s Sporting Goods, who’s a competitor, and they’ve got their name on the Kroenke soccer field — Dick’s Sporting Goods Park — so I think there’s a lot of pressure for Sports Authority to keep their name on the stadium because you don’t want your competitor to one-up you in your home market,” Darren Duber-Smith, professor of marketing at Metropolitan State University, told CBS Denver.

From both a financial and a public relations perspective, it doesn’t make a whole lot of sense to keep a $6 million annual billboard advertising the company’s mismanagement atop the Denver skyline, but even if Sports Authority manages to disentangle itself from its expensive naming rights misstep, it’ll still look up to find itself with plenty more inventory and pricing mistakes to fix.

That is, assuming investors aren’t already prepared to move on to other prospects in the sporting goods world.