WSJ : Texas Schools Pension to Buy Stake in Sports Investor Velocity Capital

Texas Schools Pension to Buy Stake in Sports Investor Velocity Capital
The $56 billion Texas Permanent School Fund backs the three-year-old private-equity firm started by veteran sports investors David Abrams and Arne Rees

The Texas Permanent School Fund is making a long-term bet that private equity can thrive in the booming sports market.

The $56 billion pension system, which manages money on behalf of the state’s schoolteachers and other beneficiaries, plans to take a stake in Velocity Capital Management, a firm founded in 2021 that invests in sports, media and entertainment companies.

The Texas Permanent fund has made an anchor commitment to Velocity Capital’s debut fund, which hasn’t yet closed, and has secured an agreement to negotiate a minority stake in the New York firm, the pension system said. It also will earmark more capital for co-investments, credit and real estate deals within Velocity’s areas of expertise. The pension’s anchor fund commitment totaled $200 million, according to Velocity.

Robert Borden, the chief executive and chief investment officer of Texas Permanent, says sports and entertainment is a promising and still relatively untapped sector, and he believes the partnership with Velocity Capital will allow the pension system to deploy long-term capital in a growing market.

“What I see is a space ripe for institutionalization,” said Borden. “It’s very fragmented, but with the advent of streaming content and certain leagues opening up the possibility of commercial ownership, there is a tremendous amount of opportunity.”

It is relatively unusual for U.S. pension managers to seed young private-equity firms or buy stakes in them, although the broader market for investment in alternative-asset managers is growing quickly. There were 89 investments in alternative asset managers this year through Aug. 1, totaling $21.3 billion and surpassing the sum for all of last year, according to data firm PitchBook.

Borden, who took the top position at Texas Permanent late last year, has a long record of taking direct stakes in companies, going back to his time managing capital for the South Carolina Investment Commission. He believes that pension funds can take advantage of the investment expertise of the firms they work with via partnerships that allow for more co-investment and direct deals. In May, Texas Permanent announced a partnership with quantitative equity manager Intech.

But Borden sees a particularly bright opportunity in sports and entertainment. Sports investment has surged in recent years due to professionalization of college athletics, the legalization of gambling and the proliferation of streaming services, among other factors. In August, the National Football League, the country’s most lucrative sports league, approved a new policy to allow investors such as private equity to own stakes in teams.

Globally, private-equity firms have invested $11.8 billion in sports deals this year through Oct. 18, compared with $9 billion all of last year, PitchBook said.

Velocity Capital was formed by longtime sports investors David Abrams and Arne Rees. Abrams previously was a partner with Apollo Global Management and also a CIO of Harris Blitzer Sports & Entertainment. Rees previously served as U.S. CEO of Sportradar Group and as an executive at sports-broadcasting network ESPN, among other roles.

Abrams says Velocity Capital’s objective is broader than most private-equity investors in the sports sector. The firm doesn’t invest in teams, but wants to find companies where they can work with operators and expand over years, and eventually to create “a multistrategy platform where we are domain experts in the ecosystem,” Abrams said.

Velocity has five portfolio companies, including Parella Motorsports Holdings, which hosts racing events, and Elevate, a marketing consulting firm for sports and entertainment companies. It also backs Camp, a location-based entertainment company.

WSJ : Activist Urges Cheesecake Factory to Consider Breakup

Activist Urges Cheesecake Factory to Consider Breakup
Houston-based investor is asking the restaurant operator to spin out three brands

An activist investor has built a position in Cheesecake Factory CAKE -1.32%decrease; red down pointing triangle and is urging the restaurant operator to spin off three of its smaller brands into a separate public company, according to people familiar with the matter.

The details
Houston-based JCP Investment Management, which focuses on the restaurant industry, has a roughly 2% stake in Cheesecake Factory, the people said. A regulatory filing in August had revealed the firm’s initial stake in the company.

Calabasas, Calif.-based Cheesecake Factory has a market value of about $2.2 billion, with its stock price up more than 20% so far this year. The S&P 500 has risen about the same amount over that time.

Cheesecake Factory owns and operates more than 300 locations across the U.S. and Canada, including its namesake restaurants and others such as North Italia, according to its website. To many of its customers, Cheesecake Factory is known for its extensive menu, with options ranging from Tex-Mex egg rolls to fettuccine Alfredo and more than a dozen flavors of cheesecake.

The context
JCP has privately argued to Cheesecake Factory executives that three of its restaurant brands in particular would be better off as a separate company focused on faster growth: North Italia, an Italian casual-dining concept; Flower Child, a health-focused fast-casual chain; and Culinary Dropout, a gastropub known for its pretzel bites and fried chicken.

JCP has told Cheesecake Factory that it would be willing to inject capital into the spun-off entity to help with its growth, the people said. By breaking up the company, JCP argues that the separate management teams could better focus on hitting their respective financial targets.

JCP has also recommended that Cheesecake Factory implement a strategic review for several other smaller concepts the activist thinks have struggled and could be of interest to buyers, the people added.

A spokesperson for Cheesecake Factory said the company is aware of JCP’s investment. “We regularly engage with shareholders and consider their perspectives,” the spokesperson said.

​​After going public 1993, Cheesecake Factory continued growing same-store sales for years and achieved richer valuations than many of its casual-dining peers. Its growth stalled in 2017, when same-store sales fell, and the company told investors it would do more to improve operations.

During the Covid-19 pandemic, Cheesecake Factory went all-in on takeout and delivery, which helped lift the business and the stock price in 2021. More recently, though, its financial performance has trailed industry peers including Texas Roadhouse and Olive Garden parent Darden Restaurants.

Restaurant chains and operators this year are on track to declare the most bankruptcies in decades outside of 2020, when the global pandemic upended the industry. Smaller chains with fewer than 50 locations are seen as particularly vulnerable.

JCP was founded in 2009 by James Pappas, who had previously worked in investment banking. Pappas last year joined the board of directors of United Natural Foods, a wholesale distributor that has been trying to revive its performance. He also served on smoothie-and-juice chain Jamba’s board before the business was bought in 2018.

WSJ : Nike Extends NBA, WNBA Outfitting Partnership

Nike Extends NBA, WNBA Outfitting Partnership
Sportswear company signed a 12-year extension with the leagues

Nike NKE -1.74%decrease; red down pointing triangle extended its exclusive apparel partnership with both the National Basketball Association and the Women’s National Basketball Association.

The sportswear company on Monday said it signed a 12-season extension of its global outfitting, merchandising, marketing and content partnership deal, making it the sole on-court uniform and apparel provider for the NBA, WNBA and NBA G League.

The partnership was reached in 2015 and went into effect at the beginning of the 2017-18 NBA season. It was originally set to run for eight years.

For Nike, the renewal comes at a critical time as its new Chief Executive Elliott Hill aims to return the company to growth after it reported its worst quarterly drop in revenue since the initial shock of the pandemic in 2020.

The company’s last chief executive, John Donahoe, retired this month after nearly five years in the role, during which time a series of missteps, such as cutting ties with longtime retail partners, caused the sneaker giant to lose ground to competitors.

In its quarter ended Aug. 31, Nike’s revenue fell 10% to $11.59 billion, dragged down by fewer footwear sales in North America. In a turnaround effort, the company earlier this month named Tom Peddie as head of its struggling North America operations. Sales in the current quarter are expected to be down between 8% and 10%, despite higher promotions and pricing actions.

Hill said the company’s partnership extension displays its commitment to growing the game of basketball. He added the company will work to create new pathways and opportunities for players and fans moving forward.

In collaboration with the associations, Nike will introduce programs and resources to make youth basketball accessible and scalable, create basketball programming and resources to increase access for girls of all levels, and launch player, coach and program development opportunities.

WSJ : New Car Registrations Fall in Europe On Weakened Demand

New Car Registrations Fall in Europe On Weakened Demand
September saw a 6.1% on-year drop in the bloc’s registrations, reflecting sales

Stellantis and Hyundai Group posted steep drops in September new car registrations in the European Union, contributing to an overall decline as weakened demand continued in key markets.

Consumers in the core markets of Germany, France, Italy and Spain drove a 6.1% on-year drop in the bloc’s monthly registrations, which reflect sales, the European Automobile Manufacturers’ Association said Tuesday. EU registrations came to around 809,163 for the month.

Stellantis, the multinational company behind European brands like Peugeot, Citroen and Fiat, posted a 27% drop-off in registrations compared with last year. The Jeep and Ram maker was hampered in the third quarter by excess inventory in the U.S., while delays to new model launches also hurt shipments.

Registrations for Volkswagen, Europe’s largest carmaker, rose 0.3%, ACEA said. German luxury brand BMW rose 7.6%, whereas Mercedes-Benz fell 7%. France’s Renault saw new-car registrations fall 1.5%.

Battery-electric vehicle and hybrid-electric cars registrations rose 9.8% and 12.5%, respectively, the industry group said. Sales of conventional gas-burning cars and plug-in hybrids both declined.

FT : Ministers outline plans to redraw airspace over London airports

Ministers outline plans to redraw airspace over London airports
Redesigning flight paths could lead to greener flights but also new noise pollution

UK ministers have taken a big step towards redesigning the flight paths aircraft use to take off from and land at London airports, in a change that could lead to greener flights but also new noise pollution in parts of the capital.

The Department for Transport and the Civil Aviation Authority on Tuesday announced a consultation on the formation of a new “airspace design service” to redraw “the way planes fly in, out and over the UK”.

The review by ministers and the regulator will start with the heavily congested airspace over London and the south of England, with ministers vowing to modernise the “highways of the sky” that have barely changed since the 1950s.

Modernising the capital’s airspace offers the prospect of quicker and more direct flights that emit less carbon, but could mean new communities are affected by noise pollution.

The UK’s airspace infrastructure was first designed in the 1950s and 1960s, and based on a fixed network of “way points” that mirror the positions of obsolete ground navigation beacons.

Although the airspace infrastructure has since been refined to account for the rise in air travel, many big routes from major airports have barely changed in decades. Governments have pledged to modernise the UK’s airspace for more than a decade, but progress has been slow.

“UK airspace is one of the nation’s biggest invisible assets, but it’s been stuck in the past — a 1950’s pilot would find that little has changed,” said aviation minister Mike Kane, as he promised to make air travel “a better experience for all”.

More than 2.6mn aircraft fly through the UK each year, and a wholesale redesign would allow planes to climb and descend more efficiently and rely less on circling airports in holding patterns.

It would build on work by National Air Traffic Services, the UK’s air traffic control provider, which has in recent years redrawn airspace thousands of feet above south-west England, Wales and Scotland.

Martin Rolfe, Nats chief executive, said: “Any initiative that can help speed up the modernisation programme for UK airspace is very welcome, especially in London and the South East. It is some of the busiest and most complex airspace in the world.”

But some industry figures said trying to redraw London’s highly complex airspace was likely to be contentious because changes to flight paths could trigger new noise pollution.

Still, airlines have called for the changes in response to growing air traffic control problems, which have led to significant delays and cancellations for carriers including British Airways.

It is also part of the aerospace industry’s road map to lowering its carbon emissions to reach net zero by 2050.

Tim Alderslade, chief executive of AirlinesUK, which speaks for carriers, said reform of Britain’s airspace would “not only reduce delays and improve resilience for passengers and cargo operators in what is an increasingly congested system” but also help the sector “achieve net zero emissions”.

FT : Mubadala Capital sees chance to buy up large private equity stakes

Mubadala Capital sees chance to buy up large private equity stakes
Emirati unit has raised $3.1bn for its latest fund hoping to appeal to groups looking to raise cash

An arm of Abu Dhabi’s sovereign wealth fund is preparing a push into private equity markets, spotting what it believes is an opportunity to take over large holdings as buyout groups race to sell assets and return cash to investors.

Mubadala Capital, the asset management subsidiary of the $302bn sovereign wealth fund, has raised $3.1bn for its latest private equity fund, surpassing a $2bn target.

It is positioning the fund as a solution to private equity groups seeking to exit large bets, or PE-backed companies managing heavy debt burdens that need fresh capital.

Mubadala’s private equity fund generally is seeking to invest between $150mn to $350mn in equity per investment, but will push that investment to as much as $500mn for “great ideas”. It now manages $24bn, three-quarters of which comes from external investors.

“We’re seeing a lot of limited partners are short on liquidity,” said Oscar Fahlgren, chief investment officer of Mubadala Capital, in an interview with the Financial Times. “There’s a focus on realisations by a lot of funds, and that’s driving interesting opportunities for those of us who are well capitalised.”

This year Mubadala Capital has increased its investment pace, striking large deals to buy credit manager Fortress Investment Group, high end baby stroller brand Bugaboo, and Spanish IT consultancy Babel.

Hani Barhoush, chief executive of Mubadala Capital, said a two-year lull in private equity deal making had created a window for the fund to use its financial prowess to build majority investments in large PE-backed companies.

Though Mubadala Capital’s private equity fund is small relative to funds raised by industry giants like Blackstone and KKR, it uses equity financing from its sovereign wealth parent to fund large-scale takeovers.

Earlier this year, Mubadala Capital acquired a majority stake in Fortress from Japanese conglomerate SoftBank at a valuation of about $3bn.

The complex deal is part of Mubadala’s bet that private fund managers will see their growth fuelled as private investment opportunities become increasingly available to individual investors, said Barhoush and Fahlgren.

In the takeover of Fortress, Mubadala Capital agreed to an about $2bn equity commitment that was more than its private equity fund had in assets at the time. It was able to complete the deal with additional capital from its corporate parent.

Once the deal was agreed and went through regulatory approvals, Mubadala Capital then syndicated the equity commitment to other investors.

“One of the luxuries we have, given the size of our balance sheet and the size of our parent company, is we can write much larger checks,” said Barhoush.

>>> US After Hours Summary: SAP +4% up nicely on beat-and-raise in Q3; MEDP -10.

After Hours Summary: SAP +4% up nicely on beat-and-raise in Q3; MEDP -10.7% slides on disappointing quarterly results

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: FLXS +11.4%, ZION +5.2%, SAP +4%, HSTM +3.3%, ARE +2%, WTFC +1.6%, RLI +1.2%, CATY +0.9%, ELS +0.7%, WRB +0.4%, BOKF +0.3%

Companies trading higher in after hours in reaction to news: IRTC +17.2% (FDA grants clearance for 510(k) submission related to design changes made to the Zio AT device), CAKE +5.3% (activist urging to consider breakup, according to WSJ), IIIN +3.6% (acquires Engineered Wire Products for $70 mln), RVMD +2.5% (first patient dosed in Phase 3 study), NRIX +2% (presentations announced to summarize new data), EDIT +1.3% (collaboration with Genevant Sciences), ESEA +1.1% (new 3-year time charter contracts), CRC +0.7% (Kern County approves of conditional use permit for CTV I carbon capture), REXR +0.6% (appoints new CFO and COO), NKE +0.5% (12-year partnership extension with NBA, WNBA, and G-League), BLND +0.2% (successful implementation of its Close solution), RYAM +0.1% (power restored to Georgia site), MTAL +0.1% (drill results)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BOOM -21.2% (guidance, strategic review, and chairman shakeup), MEDP -10.7%, SSD -4.6%, HXL -2.9%, NUE -2.9%, IPAR -1.9%, SIGI -1%, KREF -0.6%

Companies trading lower in after hours in reaction to news: NNE -9.7% (stock offering), ASPN -5% (files mixed shelf; files 4.25 mln stock offering), BOW -2.4% (stock offering), OMC -0.8% (files mixed shelf)

>>> US Close Dow -0.80% S&P -0.18% Nasdaq +0.27% Russell -1.60%

Closing Stock Market Summary
The stock market faced some selling pressure today after six straight weeks of gains for the S&P 500 (-0.2%). The index closed at a record high on Friday, along with the Dow Jones Industrial Average (-0.8%), so today's downside bias was related in part to normal consolidation activity.

Selling in the stock market was also a function of rising market rates. The 10-yr yield settled 11 basis points higher at 4.18% and the 2-yr yield settled seven basis points higher at 4.02%.

The Nasdaq Composite outperformed other major indices, climbing 0.3% compared to Friday's close thanks to gains in some mega cap names. NVIDIA (NVDA 143.71, +5.71, +4.1%), Microsoft (MSFT 418.78, +0.62, +0.2%), and Apple (AAPL 236.48, +1.48, +0.6%) were among the influential winners from the space.

Many other stocks participated in today's retreat. 23 of the 30 Dow components fell and ten of the 11 S&P 500 sectors declined. The information technology sector (+0.9%) was alone in positive territory, boosted by its heavily-weighted components, while the rate-sensitive real estate sector (-2.1%) logged the largest decline by a decent margin.

The health care sector (-1.2%) was the next worst performer, clipped by a sizable decline in shares of Cigna (CI 320.23, -15.77, -4.7%) following a Bloomberg report that it was in talks to takeover Humana (HUM 260.57, -6.57, -2.5%).

The negative action in equities also reflected a wait-and-see mentality in front of a busy week of earnings. Tesla (TSLA 218.85, -1.85, -0.8%), Boeing (BA 159.82, +4.82, +3.1%), and UPS (UPS 131.33, -4.60, -3.4%) are some of the headliners on the earnings calendar.
  • Nasdaq Composite: +23.5% YTD
  • S&P 500: +22.7% YTD
  • Dow Jones Industrial Average: +13.9% YTD
  • S&P Midcap 400: +13.6% YTD
  • Russell 2000: +10.5% YTD

Reviewing today's economic data:
  • September Leading Indicators -0.5% (consensus -0.3%); Prior was revised to -0.3% from -0.2%
There's no US economic data of note on Tuesday.

>>> NIKE announces 12-year partnership extension with NBA, WNBA, and NBA G Leagu

NIKE announces 12-year partnership extension with NBA, WNBA, and NBA G League
  • NIKE (NKE), the National Basketball Association (NBA) and the Women's National Basketball Association (WNBA) today announced a 12-year extension of their global outfitting, merchandising, marketing and content partnership that solidifies NIKE, Inc. as the leader in global basketball and as the exclusive on-court uniform and apparel provider for the NBA, WNBA and NBA G League.
  • NIKE, Inc. will extend its rights over 12 additional seasons to design and manufacture NBA, WNBA and G League uniforms, on-court apparel, and fan apparel, furthering its commitment to grow and improve the sport of basketball for the next generation.
  • The global extension is highlighted by new content initiatives, a comprehensive commitment to grassroots basketball, as well as the continued development of a joint membership program that delivers benefits to fans of the brands through distinctive products, content and experiences. As the biggest champion of the women's game, NIKE, Inc. is also deepening its investment in the WNBA.
  • NIKE, Inc. and the National Basketball Players Association (NBPA) also extended its group license agreement making NIKE, Inc. an official partner of the NBPA.
  • The renewal follows the eight-year global outfitting, merchandising, marketing and content partnership struck in 2015, which made NIKE, Inc. the official on-court outfitter beginning with the 2017-18 NBA season.

>>> SAP SE beats by €0.02, slightly tops revenue ests; raises FY24 cloud and sof

SAP SE beats by €0.02, slightly tops revenue ests; raises FY24 cloud and software revenue outlook in cc
  • Reports Q3 (Sep) earnings of €1.23 per share, excluding non-recurring items, €0.02 better than the FactSet Consensus of €1.21; revenues rose 9.4% year/year to €8.47 bln vs the €8.45 bln FactSet Consensus.
    • Cloud and software revenue of €7.43 bln, up 11% yr/yr.
  • FY24 outlook:
    • Co expects cloud and software revs of €29.5-29.8 bln in constant currency, raising the midpoint by €400 mln.
    • Co continues to expect cloud revs of €17.0-17.3 bln in constant currency.