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Monday, May 20, 2024

Lawsuit Alleges ‘Fraudulent Coup’ at Former ‘Sports Illustrated’ Publisher

  • The former CEO of The Arena Group was accused of having ‘intentionally mismanaged Arena’ in a lawsuit filed in Delaware.
  • The suit adds to the legal chaos surrounding the former publisher of ‘SI.’
Akron Beacon Journal-USA TODAY NETWORK

Another chapter in the tumultuous history of the media company that, until last month, published Sports Illustrated was detailed in a lawsuit filed in Delaware last week. 

The plaintiffs are James Heckman and William Sornsin, cofounders of The Arena Group, which until January published SI under a license from Authentic Brands Group. They allege that Ross Levinsohn, who was ousted as Arena CEO late last year, “enacted a fraudulent coup” to seize control of Arena in the summer of 2020, a year after Arena (then known as Maven) entered into a 10-year, $150 million deal licensing deal with Authentic. 

“Once Levinsohn took control of Arena, he intentionally mismanaged Arena and destroyed its value to set up a change-of-control transaction to enrich himself,” the complaint states. “In so doing, Levinsohn violated his fiduciary duties and acted in bad faith by prioritizing his self-interest above the Company’s.”

The complaint, filed in Delaware’s Court of Chancery on April 3, lists Levinsohn and Arena as defendants and seeks more than $10 million in damages. Beyond Heckman and Sornsin, the plaintiffs include investors Mark Strome and David Bailey. Law360 was the first outlet to report the lawsuit. 

Levinsohn declined to comment on the suit.

The lawsuit was filed days after Levinsohn sued Arena in a California court over his ouster as CEO in December, which followed 5-Hour Energy founder Manoj Bhargava taking effective control of the media company. Levinsohn, who later resigned from Arena’s board, argued he was forced out as Arena’s top executive illegally by Bhargava after Levinsohn “attempted to thwart Bhargava’s illegal misconduct, overt self-dealing, and systematic destruction of shareholder value.”

Authentic—which purchased SI for $110 million in May 2019—terminated Arena’s license to publish SI earlier this year and tapped Minute Media as SI’s new publisher last month. 

Many of the allegations in the present case deal with Heckman’s removal as CEO in August 2020, which would be beyond Delaware’s typical three-year statute of limitation period for such claims. 

“We believe the continuing course of conduct extends the statute of limitation until the conclusion of the scheme,” Ryan Downton, one of the lawyers representing the plaintiffs, said in an email to Front Office Sports. “There are also various settlements the company entered into [and subsequently breached] along the way that extended limitations.”

Arena declined comment. 

The lawsuit doesn’t mention that upheaval at SI over the first year of its publishing deal led Authentic to threaten Arena with potentially voiding the contract weeks before Heckman was dismissed, according to two sources with knowledge of that notice. 

Soon after Arena became SI’s publisher, the company instituted layoffs and cut back SI’s print schedule from bimonthly to monthly. That included very public fallout after Grant Wahl, one of SI’s marquee writers, wrote on the site now known as X that he was fired with “no severance” in April 2020 as the impacts of the COVID-19 pandemic led to a lengthy shutdown of most sports leagues.

“This person made more than $350,000 last year to infrequently write stories that generated little meaningful viewership or revenue,” Heckman wrote in an email to Arena employees the same day Wahl went public with his departure. 

Beyond the Delaware lawsuit and the one filed by Levinsohn, Authentic and former Arena exec Andrew Kraft have each sued Arena and Bhargava this month.

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