Sports Authority Files For Chapter 11 Bankruptcy Protecction

Retail sporting goods giant Sports Authority has filed for Chapter 11 bankruptcy protection. The chain announced that it will shutter their Chicago and Denver distribution centers and shutter 140 locations over the next 90 days. Sports Authority indicated it is attempting to restructure its debt.

Sports Authority stated that it has enough liquidity to remain operational. During the Chapter 11 process, the retailer will continue normal business operations, maintain its website and honor all product warranties. In a statement released by CEO Michael Foss, “We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry.” To stay competitive, Sports Authority must reduce its brick and mortar presence, Foss said, as consumers are shopping more online.

The retail sector, plagued by the consumer migration to online shopping, is stymied in its attempt to attract consumers to their retail locations, in 41 states and Puerto Rico. Discount retailer TJ Maxx is facing competition from the introduction of Macy’s Backstage. JC Penny is going the private label route, with its “Get Your Penney’s Worth” campaign, to combat online discount retailers. Sports Authority competitor City Sports, impacted by a shift in consumer buying patterns, filed for Chapter 11 bankruptcy protecting in October 2015.

In a letter appearing on the Sports Authority website, CEO Foss addressed Sports Authority’s vision for the future. The chain plans to upgrade its remaining brick and mortar locations and revamp its website. Foss commented there has been interest from outside investors to acquire the privately held firm. He stated Sports Authority will explore all options. Sports Authority filed for bankruptcy protection in the United States bankruptcy court in Wilmington, Delaware.

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Investment Banking May Be Facing A Leaner Future

In 1963, banks across America started expansion programs that were almost out of control until the 2008 recession. The remarkable returns that investors enjoyed during that period were the talk of the financial industry. Returns on equity (ROE) ranged from 20 to 25 percent, and some firms enjoyed larger returns then. Bank executives and employees got huge pay increases. Today, 12 of the richest people on the Forbes list are asset managers, investors and financiers. In 1982, no one in the fiancé industry was on that list.

After the 2008 crash, the ROEs for the world’s wealthiest banks dropped considerably. ROEs are now around 13 percent in the United States according to James Dondero, the CEO of Highland Capital Management. Dondero has been around long enough to know how much the investment banking world has changed. Mr. Dondero has been in the business for more than 30 years, and has watched the business grow into what it is now. Dondero and other investors are not as bullish as they used to be when it comes to ROEs. Today some investments only return 6 to 9 percent because of new regulations. Some investment executives thought things would blow over after the 2008 collapse, and ROEs would skyrocket again, but the consensus now is the new norm is lower returns on equity across the board, according to Dondero.

Last year, the investment banking industry produced revenues of $233 billion, and that is about a third less than the $341 billion in revenue the industry produced in 2009. That downward trend continues. This year, banks got off to a very slow start. Dondero and other investors are concerned about the signs they see today. Slow economic growth around the world is causing some concern. Low interest rates have also hurt returns globally, and new regulations are going to eat into banking returns, and that is the most concerning element for investment bankers. Plus people want more for their money from banks, and banks will have to produce incentive programs for their clients that put more money into the publics’ pocket and less on the bottom line.

Some investment bankers say the glory days of big returns are gone and the dog days of new regulations, lower margins and hard economic times are the norm now.