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Under Armour is Feeling the Effects of Sports Authority’s Bankruptcy

Sports Authority’s bankruptcy is proof that when one name in the sportswear industry takes a hit, it’s bound to effect the whole group. Apparel company Under Armour has taken a hit this second-quarter – to the tune of 57 percent as a result of the bankruptcy and liquidation of one of the largest sellers of its products, Sports Authority.

Under Armour is Feeling the Effects of Sports Authority’s Bankruptcy

According to a statement released by Under Armour, net income dropped to $6.34 million from $14.8 million a year earlier. The company has been spending in an attempt to enhance its e-commerce operations through expanding its products to include footwear and wearables.

The company has also announced it will begin selling through Kohl’s Corp, thus increasing its distribution as well as its attempts to lure more women to the brand.

As Under Armour Chief Executive Officer recently said, the distribution through Kohl’s will help to “widen the playing field in terms of access to our brand.” He went on to say, “There is a massive opportunity with a consumer that is walking into those stores and hasn’t been able to find the Under Armour brand.”

Additionally, the company has plans to expand their offerings in fashion and will be introducing a line of sportswear called UAS to high-end stores. “UAS will bring a young, fresh and modern voice to sportswear and reflects the insights we’ve gained in the performance brand now applied to the everyday wardrobe,” Plank said. “We think there is a massive opportunity.”

It’s projected that movement into Kohl’s will boost Under Armour’s distribution points in North America by roughly 10 percent.

UCLA and The West Coast

This past May, Under Armour also signed a deal with University of California, Los Angeles valued at $280 million in an attempt to market the brand within the collegiate apparel world. The agreement between the apparel company and the school has been key in Under Armour’s attempt to expand its presence on the West Coast. NBA player Stephen Curry, who plays for the Golden State Warriors in Oakland, California has been a top endorser of the company. He has a line of shoes with the company, which helped Under Armour’s footwear sales by 58 percent to $242.7 million last quarter.

Retail Bankruptcy

Sports Authority, a national sports apparel and equipment retailer filed for Chapter 11 bankruptcy protection on March 2. The sporting good retailer failed to re-emerge from its bankruptcy and has plans to close more than 400 stores. In light of Sports Authority’s bankruptcy, Under Armour trimmed its annual sales forecast from $5 billion to $4.93 billion, thus marking a roughly 24 percent year-over-year increase, the smallest since 2009.

Chapter 11 Bankruptcy

Under Chapter 11 bankruptcy, the business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits.  If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.

The Chapter 11 bankruptcy process can be a complex, and lengthy one. If you are facing a Chapter 11, you’ll want to work with a bankruptcy attorney to understand the process and what you will need to do to move through it.  They will be able to explain the terminology in addition to what is legal, and what you will be required to do.

 Sports Authority’s Chapter 11 Bankruptcy

Sports Authority’s Chapter 11 bankruptcy is just another example of how online retailers, in addition to the shifting consumer landscape, have steam-rolled traditional brick-and-mortar retailers. The retailer has now taken on too much debt to remain solvent and is looking to receive a $595 million debtor-in-possession loan in order to continue operations.


A corporation or individual that has filed for Chapter 11 bankruptcy protection is referred to as a “debtor in possession (DIP).” Once the filing has been made they remain in control of any property, or business, that a creditor has placed a lien against. The debtor in possession also retains the power to operate the business in the best interest of any creditors. A DIP is able to operate under the ordinary course of business, but will be required to seek court approval for any action that might fall outside of the scope of traditional business activities. Additionally, the DIP must keep precise financial records and also file any appropriate tax returns.

A Closer Look at Sports Authority

According to bankruptcy litigation lawyer Charles Tatelbaum,“They just didn’t keep up with the times. They didn’t keep up with the online market, and they were hampered by old locations.”

The company is now looking to sell many of its old location, and might even be selling its naming rights at Denver’s Mile High Stadium in an attempt to satisfy creditors. Those name rights are reportedly worth $6 million per year.

“The impending [sic] Chapter 11 filing for Sports Authority is not an isolated instance of a financial failure of a significant retail chain,” said Tatelbaum. ”Based upon certain current industry, economic and financial indicators, the Sports Authority Chapter 11 filing may be the proverbial ‘tip of the iceberg.’”

Outline of Chapter 11 Bankruptcy Process

The bankruptcy process can be a tedious and overwhelming one. That’s why its always advised that you work with a bankruptcy attorney that can walk you through the steps. Below we outline the general process of a Chapter 11 Bankruptcy. Keep in mind that this is just a general process, and your bankruptcy proceeding might require additional steps to discharge your debt.

Preparing the Petition

To prepare your petition you will need to complete a list of your (or your company’s) assets, debts, income, and expenses. Additionally, you will need to create a summary of your financial affairs. Review everything to check for accuracy. Then you will be able to file your petition with bankruptcy clerk’s office. This filing triggers an “automatic stay” which prohibits most creditors from being able to continue their collection efforts against you or your assets until a bankruptcy judge gives them permission to do so.

At this point, new bank accounts are opened which name the debtor in possession. The DIP remains in control of the business operations, but can be terminated at any point by the court if assets are being improperly managed, or if the DIP does not follow court orders. . At that point the court will appoint a trustee which will then maintain the guidelines that have been specified by the United States Trustee’s office.

Disclosure Statement 

You will need to file a disclosure statement containing information about your financial affairs. This will allow your creditors to make informed decisions when they decide if they will accept or reject your plan.

What should be included on the disclosure statement is dependent on the nature, history, and size of the Chapter 11 debtor. For small business cases, a bankruptcy court may decide a separate disclosure statement is not needed because the plan of reorganization provides thorough information.

Here are some of the typical items included in a disclosure statement:

  • financial history of debtor
  • circumstances that led to the bankruptcy filing, including significant events like job loss or injury
  • summary of reorganization plan
  • description and value of debtor’s assets
  • description of claims, liabilities and how they are addressed in the plan
  • tax consequences of reorganization plan
  • plan confirmation procedures and requirements
  • feasibility of plan
  • comparison with Chapter 7 liquidation, and
  • all other information that a creditor would need to make an informed judgment about the plan.

The disclosure statement and proposed plan of reorganization is then mailed to every party in interest, including your creditors. The disclosure statement also includes information for your creditors that explains how they may participate in the bankruptcy. It also includes information regarding how the creditor’s rights may be adversely affected.

Disclosure Hearing

After the disclosure statement is filed, a court holds a hearing to approve or reject it. Typically, a plan will not be accepted or rejected until the disclosure statement is approved.

There will be a hearing for the disclosure statement during which parties involved can object to the language included in the statement. Usually disclosure statements are approved and the hearing is just a formality.

Proposed Plan for Reorganization

You will outline how creditors will be treated in your plan of reorganization. Creditors are assigned as either priority debt creditors, secured debt creditors, or unsecured debt creditors. If a creditor does not approve how they are treated in your proposed plan of reorganization, you are able to file a motion (called a cramdown) asking the judge to force the creditor to accept the plan.

Confirmation Hearing

You will ask a judge to approve your plan of reorganization at your confirmation hearing. All of your creditor classes will need to have accepted your plan for a judge to be able to approve the plan. This is where you would file a cramdown motion if you have not received approval. A court will then need to reschedule the confirmation hearing. If the creditor does not respond to this motion for cram down, it is ruled as accepting the plan. But if the creditor does respond to the motion, you will need to negotiate with the creditor to try to get it to accept plan treatment. If an agreement cannot be made between you and the creditor, then a judge will decide at a hearing.

Making Payments 

After your reorganization plan is approved, you have to start making payments to creditors in accordance with that confirmed plan. You will need to abide with the new contract you have with each of your creditors. If you default on payments, a creditor may sue you on that basis. Because of the agreed to plan, you will have little recourse.

Payments can continue for many years depending on your proposed plan. And debts such as mortgages or car notes typically get re-amortized over an extended period. This means a lender recalculates the monthly payments during the repayment term.

Discharging of Debts

A discharge of debts is the main reason you enter Chapter 11 bankruptcy, and it happens after you have made all required payments to your unsecured creditor class. After paying everything off you will ask the court for a discharge of the remainder of your unsecured debts. This motion prevents any of these creditors from collecting on any of the debts in the plan. This is the end of your Chapter 11 bankruptcy.

Working with a Bankruptcy Attorney

Bankruptcy law can be hard to understand. As you can see, there are a number of restrictions when it comes to filing multiple and subsequent bankruptcies. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. A bankruptcy attorney might also be able to prescribe options that keep you out of having to declare bankruptcy in the first place. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible. 

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