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Saturday, May 18, 2024

Sports Illustrated’s Publisher Guts Staff. Future Unclear

  • The Arena Group, which publishes SI, recently missed a $3.75 million payment to SI’s license holder, Authentic, leading Authentic to sever the deal.
  • On Friday, Arena started laying off employees.
LeBron James Sports Illustrated
Syndication: Akron Beacon Journal

Staffers at Sports Illustrated were notified on Friday of massive layoffs—some immediately, others in short time, with potential for the entire staff to be gone in three months.

Authentic, the licensing group that purchased Sports Illustrated for $110 million from Meredith five years ago, has terminated the agreement it holds with The Arena Group to publish SI in print and digital, according to an email obtained by Front Office Sports. That move comes three weeks after Arena missed a $3.75 million payment that breached the company’s SI licensing deal, which began in 2019. (Authentic’s notice of termination, meanwhile, triggered a $45 million fee due immediately to Authentic, according to an SEC filing on Friday.)

The fallout: On Friday Arena told SI employees in an email “… We were notified by Authentic Brands Group (ABG) that the license under which the Arena Group operates the Sports Illustrated (SI) brand and SI related properties has been officially revoked by ABG. As a result of this license revocation, we will be laying off staff that work on the SI brand.” According to SI union sources, severed guild members will be given 90 days’ notice (during which time there remains the chance that the licensing deal is resolved); and laid-off non-guild employees will be let go immediately. As of midday Friday, there remained massive confusion about the depth of the layoffs, but at a 2 p.m. staff call it was made clear: Anyone left in 90 days would be laid off, unless the licensing issue was resolved.

“Some employees will be terminated immediately, and paid in lieu of the applicable notice period under the [the union contract],” Arena’s email to staffers said. “Employees with a last working day of today will be contacted by the People team soon. Other employees will be expected to work through the end of the notice period, and will receive additional information shortly.” (An Arena spokesperson did not immediately respond to FOS when contacted about the layoff plans.)

Friday afternoon, the Sports Illustrated Guild wrote on X (formerly Twitter): “We have fought together as a union to maintain the standard of this storied publication that we love, and to make sure our workers are treated fairly for the value they bring to this company. It is a fight we will continue.”

Authentic’s move to terminate Arena’s license and Arena’s eliminating SI’s staff signals a shift in the company that operates SI, weeks after Manoj Bhargava, the founder of 5-Hour Energy, introduced himself to employees of Arena, including SI, as their new leader. Since then, Authentic has had exploratory conversations with and reached out to multiple parties about the possibility of taking over Arena’s role with SI, industry sources with knowledge of the situation tell FOS.

It’s unclear whether Authentic will indeed pursue the path of establishing a new operator or will now allow Arena to renegotiate its current deal. Sources tell FOS, though, that Authentic’s goal is to move the process along as quickly as possible. One way or another, says one insider, “Authentic will see Sports Illustrated through a necessary evolution.” Authentic echoed that sentiment in a statement late Friday, saying: “We are committed to ensuring that the traditional ad supported Sports Illustrated media pillar has best in class stewardship to preserve the complete integrity of the brand’s legacy

SI, meanwhile, has struggled to find its financial foothold in the digital age, culminating in a November report that suggested its website had published AI-generated reviews without disclosure. That fiasco was followed by a head-scratching town hall in December led by Bhargava with SI and other Arena employees that spanned more than 90 minutes and during which Bhargava said, “No one is important. I am not important. … The amount of useless stuff you guys do is staggering.” Bhargava’s Simplify Inventions agreed to purchase roughly 65% of Arena in August, a $50 million deal.

Authentic acquired SI from Meredith in May 2019. The Arena Group—operating as Maven, before changing its name in 2021—then paid Authentic $45 million up front as part of a 10-year licensing agreement. Until a month ago, Ross Levinsohn led SI and Arena as Arena began to purchase other struggling media outlets, such as Men’s Journal

Authentic, sources close to the situation tell FOS, has been irked by Arena in recent years as SI has instituted multiple rounds of layoffs, run off top talent such as Grant Wahl, and undergone constant leadership changes. Authentic’s contact with potential replacement operators predates Arena’s recent missed payment, sources with knowledge of the situation tell FOS.

In addition to Friday’s SI layoffs, Arena fired more than 100 employees on Thursday throughout its organization. But Bhargava, who was tapped as Arena’s interim CEO on Dec. 11, didn’t make those cost-cutting moves. That’s because Bhargava stepped down from that position on Jan. 5 “to avoid any conflicts of interest,” according to an SEC filing. That conflict: Bridge Media Networks, a company completely owned by Bhargava, is in negotiations to make “a substantial investment” in Arena, according to the Arena news release that announced the Thursday cuts. The layoffs were carried out instead by Arena execs, its board of directors, and Jason Frankl, of FTI Consulting, who was appointed as Arena’s chief business transformation officer the same day Bhargava resigned, according to SEC filings.

“My immediate focus is to collaboratively design a growth-oriented media company, ensuring the financial stability necessary to cultivate and grow the brands we cherish,” Frankl said in a statement. “While this week’s layoffs were regrettably necessary, I look forward to sharing detailed plans soon.”

Editor’s note: This story has been updated to reflect the full extent of the layoffs, details of which remain unclear.

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