By Zach Arnold | September 9, 2010
When Bloomberg News broke the story on Tuesday morning about Tapout, Silver Star, and Hitman Fight Gear selling their companies to Authentic Brands Group LLC, a lot of concern and panic set in initially as far as major players in the Mixed Martial Arts industry were concerned. Was Tapout cashing out while the getting was good? Do they think the MMA industry has peaked? Are they broke? Lots of questions were raised by the Bloomberg article.
It was an article, in terms of research, that had a lot of MMA media writers cringing (including HDNet host Mike Straka). It also caused a stir amongst Tapout management, who addressed rumors of Tapout appearing in Walmart stores in the future.
“NO! NEVER! No. I think there was a lot of confusion. You know, I mean, these guys are trying to put together, they did an interview, I don’t know where that I came from, I saw it and I did an interview with them but they got some facts wrong. They were kind of mixed up. You know, sometimes people… we do interviews with people who don’t understand the MMA space and sometimes we try to explain it to them and they, you know, it gets it’s like you know somewhere it gets lost in translation but no that’s not true. They asked, the question was are you guys going to Walmart and I said no, I said we do have brand segmentation where we have other brands that we’ve developed that maybe in the future, you know, could go to Walmart but it wouldn’t be the Tapout brand, by no means.”
Tuesday night’s semi-conference call, if you want to call it that (listen here to the hour-long discussion on TapoutRadio.com), was part pep-talk, part-reassurance speech to the masses.
In addressing the Walmart rumors, Punkass and Skrape (the names they proudly used on the discussion show), they made it clear that other brands that they owned might appear in a Walmart in the future but not the Tapout brand.
“Well, I mean, we have our mid-tier brand that is at Kohl’s and JC Penney and then, you know, Tapout just continues to be in the same places plus we’re talking to some exciting new places, some very big chains that, you know, understand the sports you know the sports sales and sports companies and we’re looking to get in there also and so it’s just, you know, we’re just going to open some more doors and tighten up the brand A LOT, I mean there’s a lot of things that, you know, you got to understand. We didn’t come from the clothing business. We don’t understand the clothing business. These guys understand the clothing industry, that’s where they come from and we’re, you know I mean, so they’ve educated us a lot. Just today I’ve learned so much about some of the things we were [expletive] up and how we can fix them and, you know, it’s just it’s an exciting time. I think we’re real excited about working with these guys and tightening up the brand and bringing it to where we always wanted to be, a competitor with Nike and Reebok and Under Armour and you know the top brands of the world.”
The sale of Tapout and Silver Star has created a lot of confusion amongst the fighters, agents, promoters, and gym owners across the country as far as what is going to change, if anything, with the way Tapout does business. More importantly, their relationship with the UFC.
“No, I mean, [fighters will] be sponsored in all the UFCs, fighters, none of that is going to change. None of the sponsorship-type stuff, it’s all about trying to continue helping the fighters, the UFC, growing the brand, doing what we do on a day-to-day thing, that’s all going to be the same. The same direction we’re headed is where we’re going, we’re just trying to get a little bit of back wind behind us and get a little push.
“Yeah, I mean, we had this, you know, multi-billion dollar company who’s going to come in and help us get this, you know, straight and we’re going to take all the good of what we do and make it better and we’re going to take all the bad of what we’ve done and get rid of it, you know, so moving forward it’s just going to be good for Tapout and everyone will see that in the near future. I mean, over the next, the things that these guys brought up are just so exciting, the things that they’re talking about and ways to increase our business and how, I mean these guys helped, you know, they have a background in the snowboard industry and they helped grew some big brands and grow some big brands in that space and in action sports space and they’re really excited to, you know, get a hold of this brand which they believe is, you know, can be one of the top, you know, five brands, three brands, in the world if not the top.”
Throughout the conference call, it became pretty clear that Tapout viewed their new alliance with ABG as cleaning up areas where they were losing money and refining the brand so that it could have much larger distribution in the future. Juxtapose this with what was said about the growth of Tapout on the conference call.
“It’s the same, guys, and we’re telling everybody it’s the same. I mean, this should all be (not) seen with the customer, the fans should never know the difference other than to be excited that, you know, something’s changed for the positive that whether it’s a garment is better than it was before, we have new product or product that, you know, that is segmented and better than it ever was, I mean we want to compete with the best and these guys are going to help us do that and that’s what we’re excited about. I mean, there’s never been so much emphasis on quality product than talking to these guys and even though we believe in that [mindset] it’s been hard to do when you don’t have a lot, you know, money to back you in those decisions because we’ve been self-capitalized so having to, you know, answer, ‘well do we have the money to go out and do this?’ We didn’t, you know, now we do. So that’s exciting to us and I just hope that excitement can translate to our fans when they see how excited we are about what we’re doing and the job going forward that we have that we’re going to get back to looking at the product and making sure because a lot of growth was so crazy over the past several years. Over the past five years, we were growing 300-500% every single year and when you’re growing that fast, it’s hard to, you’re running, you know how like when you’re holding onto a rope and a car’s driving real fast and for whatever reason you don’t let go and you feel like you’re about to, you’re going so fast you’re going to you know fall in front of you? I mean, that’s how fast we were running trying to, you know, run with this company because it was just running out of control and these guys have encouraged us to just get back to the basics and work on product and putting out the best product that we can and, you know, they’re not called Authentic Brands Group for nothing, that’s what they’re about.”
Despite repeated statements noting excitement and confidence in the new deal, it was very clear that the goal was to try to repeat the positives as much as possible because people are in the industry who are jaded are probably wondering if Tapout’s in it for the long-term or if this was a short-term play. There’s nothing wrong with cashing out and making a profit, but obviously the sale naturally raised questions about whether or not Tapout was generating enough money to cover their debts and if they had the infrastructure in place to keep hold as a dominant player in their field. Plus, throw in concerns about UFC’s over-saturation of PPVs and the issues UFC is having drawing local fans at live shows and you have a company in Tapout who needs UFC to remain strong in order for their business to remain strong as well.
A lot of the conference call was talking about who ABG is and why they are going to be so great for Tapout. We’ll address those comments in a second. However, there was one passage from the conference call that really stood out and raised a flag.
“Yeah, I mean, these guys are looking at us… I mean, these guys are looking at us to make sure that we keep the brand integrity. I mean, all the artists are still right here in our office. All the marketing still in our office. All the, you know, the clothing is still here in our office. The only thing we’re not doing is selling and shipping and we have somebody who’s standing over us making sure that we have all the resources that we need to do our job and I know people really blew this out of, you know, out of proportion because they don’t, maybe they don’t understand that that’s how businesses grow but that is how businesses grow. I mean, unless you want to continue to be a small business forever, which we, you know, how do you compete with a company like Nike who’s doing, you know, $35 billion dollars a year? You can’t unless you bring in your own company to help you do that and that’s what we’ve done. We brought in our own partner who’s going to help us, you know, understand that part of the business and take it to the next level and it’s exciting for us. Nobody is more excited than us and I think the fans will really see, everybody who loves Tapout or who’s watched Tapout over the years, are going to understand what this is all about over the next year. They’re going to see why you have to have people like this involved in your business to help grow it. I mean, we’ve done this without ANY CAPITAL or without anybody investing in our business for the past 12 years and now we’ve finally have somebody that’s come into our business and to help us take it to the next level and that’s what we’re going to do.”
It’s true that Tapout grew without initial start-up capital, but it doesn’t tell the whole story. As Justin Klein (aka The Fight Lawyer) recently detailed in a report, Tapout reportedly had millions of dollars in loans that they recently paid back. Those loans involved a private equity firm called PEM Group. The SEC filed a complaint against PEM alleging that they broke laws. A court froze the assets of PEM and a sale of PEM’s assets was discussed. Given that Tapout had loans to PEM, Justin raises the question as to whether or not the Tapout sale to ABG had anything to do with PEM’s troubles and what happened to PEM’s equity interest in Tapout.
As you’ll see in the video above, you’ll recognize who Mr. Kreiner is. (You might remember seeing him on a past CNBC show about MMA.) I point out his name because on Tuesday night’s discussion on Tapout radio, a host asked about what Mr. Kreiner’s role in the company would be going forward.
“I will be running Tapout and Marc is, you know, going to, he has other things that he’s going to go off and do other than, you know, I’m sure he has his own ambitions and other things that he wants to do and he’s a business guy but he won’t be with us any more.”
It was by far the shortest part of the conversation. The Tapout founders spent more time trying to reassure their supporters that they aren’t going anywhere despite the deal with ABG.
“Well, I mean, actually nothing should change as far as the consumer knows except for that the brand should just get bigger and better. It gives us a lot more resources and allows us to tap into their resources and so, you know, I mean it’s an exciting time for Tapout and, you know, we’re able to, these guys are based out of New York and we do a lot of business out of New York also so you know it’s just, it’s a lot of good things and we’re just looking forward to the future. I mean, we’re still here, we’re continuing to come to work every day and today was a crazy day of just figuring things out, you know, a lot of them were all in here today, they had their full team in here today and trying to understand our business more and it was just one crazy day and tomorrow’s going to be the same thing so we’re just we’re working towards, you know, kind of a seamless crossover and I’ll continue on with a new title of President…”
With ABG acquiring both Tapout and Silver Star, questions have been raised about what brand would get top billing and if both brands will still be business rivals to each other.
“Yeah, it’ll still run as two separate entities. We’re not… it’s not like we’re moving in together.
“We’re still going to be trying to out-compete them in everything we do. It’s still competitive, just because we’re owned by the same company now, it’s still competitive. We’re still going to go after fighters that we want and try to steal fighters if they have ‘em if we want ‘em so it’s still going to be run totally separate.
“I mean, [ABG's] going to maximize our distribution and that’s where, yeah, you will probably see Silver Star hanging next to Tapout in certain stores where it makes sense but they also see the two different brands for what they are. I mean, they’re two different brands and they, you know, they focus on … they have an overlap of customers but they also have segmented customers. There’s customers that would buy Silver Star that wouldn’t buy Tapout and there’s Tapout’s customers that wouldn’t buy Silver Star and so they understand that and they want to continue, you know, in that same direction and so it’s not like, you know, Luke’s moving into our building next door here but as far as the sale side and some of the things that they do that they can overlap, they will just, you know, to conserve, you know, money and manpower.”
The Luke they’re referring to is Luke Barrett, who founded Silver Star in the early 1990s.
“Well, I mean, we both understood what was going on. I got on the phone with Luke several times and, you know, we both understood this was a great thing for the sport and a great thing for both brands. I’ve known Luke for a long time, so you know, even before he was in the MMA space or I was in, you know, I think maybe right around when we got started here, you know, he’s been around for a long time, we’ve been around for a long time and there’s some mutual respect there, but you know at the end of the day we’re both out there to do business and we go out and we act like competitors. … I think they’re just different brands. I mean, there’s an understanding and we’ve had that discussion … these are two different brands. I mean, obviously, Silver Star’s going to follow us more so because we’re in a lot more doors than they are but there may be areas that they just don’t see the Silver Star brand going in and, you know, Luke and that’s a decision for Luke to make, you know, he’ll decide where he wants his brand and that’s a decision he makes with them. They’ve come to use and we’ve had our discussion where we see our brand and they’re 100% about it and actually we’re already setting up those meetings right now with some very big companies and also the ones that we’re already with trying to, you know, make those relationships better and increase the footprint that we have in those stores that we’re already doing business with.”
The big question Punkass and Skrape tried to answer, as best as they could, was why they chose ABG over everyone else in order to make a business deal with.
“I mean, literally for the past… since being in the retail space, which is about the past five years or so, you know prior to that we were just an internet business, but for the past five years I can’t even count how many companies have been here. Jamie’s (Jamie Salter) came to us like 17 times trying to buy us. I mean, you know I talked with everybody and everybody came in here with a song and a dance and these guys… I just, I don’t think I’ve… the team that they assembled, I don’t think of anybody that we’ve talked anybody was even close to being as passionate as much as these guys were about this business. Not even half as close and these guys said all the right things. They talked about all the right team and they were 100% when they brought that team in here today and it’s just a bunch of good guys who know what they’re talking about. Very, very smart business guys who I’m taking a lesson from, you know, and they’re 100% committed to taking this brand to, you know, the next level.
“And to answer a question that something that I’ve been hearing a lot over the last couple of days, people kept talking about Tapout selling out, why did you sell the company, why this, why that, but it’s all for right reasons and, you know, like Punkass said, we’re not clothing guys. We don’t know the industry like these guys do. They know the industry so they’re going to take us to spots and to levels we’ve never knew about so…
“And we didn’t sell out. We’re going not going to anywhere. We’re still here and, you know, we can’t specifically talk about the business, but we didn’t sell out. We just brought in strategic partners that will help us take this brand to the next level.
“It’s all for the fighters. Like, we’re doing this to help better the brand, which in turn is helping fighters. That’s our main goal at the end of the day, which is help the fighters, help grow the sport, and help grow the brand. So that’s still, it’s still our motive, that’s all we want to do.
“And every single one of these companies have done the same. You can’t name any large company that is out in the market space right now that hasn’t done the same thing in one way or another. You know, sometimes economically it’s done in different ways at the end of the day, you all get the same result. You get these big partners involved in your business to help you grow it because I know the guys that started Nike [and] the guys that started Quiksilver, they were just regular guys. They didn’t know how to do what is being done today. Somebody came in and showed them how to do it and help them do it and that’s, uh, that’s exactly what we did.”
A legitimate concern by Tapout supporters is whether or not ABG understands the MMA business inside-and-out and if they understand the ‘lifestyle’ component to it that you see in gyms and at the UFC Expo events.
“No, they came in real educated, actually and even though, I mean, they probably couldn’t, you know, hold a candle to most MMA fans out there, but I mean they knew names, who had the belts, who was good, who wasn’t, you know, who was in, who was out, you know, how long the UFC had been in business, who ran you know running the sport, who was running the UFC, I mean they had all the answers for us when they first came in and that was just the first meeting and then even nowadays they sound like us, you know, I mean they’re pretty educated, they’ve been on their own dime going to a lot of the shows and they came to the Boston event. They came to our show in Las Vegas, the Magic clothing and apparel show and it’s just you know I mean they want to be educated in the sport, they love the sport when they got into the space, they said they’ve been looking at the sport for a long time and so you know I mean again like I said when they first came in they sold us, they were 1000 times more energetic and more excited about our brand. I mean, you would have thought they were us coming in and that’s how excited they were.”
One thing was clear in the Bloomberg News report — ABG sees big potential in “the MMA space” (I hate corporate lingo like that) on an international level. Can the Tapout brand expand internationally and generate the kinds of revenues internationally that will overtake what Tapout makes domestically?
“The resources that and I’m just saying the thing over again, the same [expletive], different way, you know I mean the resources that these guys… this is what I need, I mean, this is what we and Skrape to do these things and we’ve always wanted to have these types of relationships and they’ve always been, you know, 10 steps away and now they’re right at our fingertips and we’re just excited about where this brand’s going. It’s like I can’t even say that enough, I mean this is just an exciting, exciting day for us. This is not… one of the best days in Tapout’s history. And I mean, you know, the growth of the brand obviously and the start of the brand and Ultimate Fighter and all those, you know, those pegs that we have in MMA history obviously a part of Tapout’s history but for Tapout’s history it’s probably one of the best days in Tapout’s history. Partnering up with ABG is going to be exciting and Tapout is going to be a household name and deliver the best products and to the stores and places that we couldn’t reach before and around the world where we couldn’t reach before.”
The goal for Tapout is to branch out into more than what they are currently producing and to essentially have everything they possibly can be branded with the Tapout logo.
“Yeah, absolutely, I mean we’re already going in that direction. We have huge lines that we developed for, you know, as far as the compression and sports-driven product and track suits and the public just, it’s been… you know, they were developed over, you know, this year, earlier this year and the public just hasn’t seen a lot of it. Some of it is on our web site but it’s still, you know, working on getting it out there and, you know, again why these partners are going to be so great getting it out there and that’s where they really see the business. I mean, they want, what you see Nike and Reebok and Under Armour doing is exactly what you’re going to see Tapout doing. … That’s how brands evolved, like Nike started out making tennis shoes, you know, for runners and stuff. Well, and then and they made shorts, t-shirts, sweatpants, track suits, compression shorts, that’s just evolution. You evolve and try to help the athlete where it is. That’s like what we’ve done. We started out with just a t-shirt and then with this, you know, and it’s evolved to fighting shorts and all that stuff so it’s going that direction.”
A part of Tapout’s expansion is into the gym industry, which is something that UFC is also expanding into. There’s already the Tapout gym in Las Vegas and UFC has their gym in Concord, California. Recently, Shawn Tompkins was at the grand opening of the new Tapout gym in Boston. This is a big deal for the company.
“It’s insane. I guess we have 60 people applying for gyms right now. We just opened our gym in Boston which was insane. It’s sick. … I’m going off the top of my head right now, but we probably have 10 gyms that we’re working on and 60 gyms that are just applications in the queue waiting to get approved so that’s definitely an exciting part of our business. We have a great commercial, I think it’s coming up on The Ultimate Fighter show, that the kickoff fight before the show The Ultimate Fight Night and it’s like a cool two-minute commercial that talks about the gyms and it’ll explain some more so if you get a chance if you’re watching that Ultimate Fight Night before The Ultimate Fighter, look for that commercial — it’s pretty cool.”
Tapout’s image isn’t about being corporate… or at least that didn’t seem to be the initial intentions. However, after hearing “taking it to the next level” about 20 times on the semi-conference call, it was as if we were listening to a boardroom meeting.
Will some of Tapout’s biggest fans yell “you sold out!” loudly?
“I mean, do we have to go out and put suits on? No. They don’t want to change who we are or how we do business, other than to make it better. You know, we learned a little while ago we had to, you know, grow up and we’ve been doing, you know, when we started out this business work off handshakes and verbal deals but, you know, as you start to do big-dollar deals you start to learn real quick that people don’t always carry out their commitments and, you know, you say, hey you’re going to wear this shirt out and you come out and you watch the television and they come out in somebody else’s shirt, you know that happens a few times and you realize you have to start putting this on paper and so we grew up a little while ago and figured that out and so a lot of that won’t change. We’ve been doing that for years and I don’t plan on putting on a suit any time soon. I have one suit in my name and I don’t wear it as much as possible so none of that’s going to change and nor do these guys want to change that about us. I mean, I really, I mean, these guys in the future I’m sure some of them, you know, you’ll be able to meet and they’re just great guys. They’re the type of guys that this brand needs to get involved to help take it to the next level.”
The two living founders said that the late Charles “Mask” Lewis would have approved of the direction the company is going in.
“This is something that we’ve talked about, I wouldn’t say since day once, but we’ve talked about, we always talked about a Nike, we always talked about Nike’s going to come in and buy us for x amount of dollars and we’re going to blow it up and still retain shares and keep doing what we’re doing as who we are, so this is something that we’ve talked about years. I could probably say at least 10 years, 12 years, 10, 11 years or so we’ve talked about it. This day started because that’s what we wanted, you want a big company to come in and blow you up even bigger and then you can just go out and keep doing what you’re doing with just that bigger of a blanket to drape over people so, yeah, this is something he would absolutely love and be 100% behind. We wouldn’t do it if it didn’t feel right in our hearts, which meant we know Charles wouldn’t have approved of it but we absolutely think and know that he would have, so yeah this is a no-brainer that we would love it.
“Oh yeah, he would have been all about this. I could hear him right now just saying, ‘These are THE GUYS, these are the guys that are going to help take it to the next level so we can touch more lives.’ That’s what he always wanted to do, that’s all we talked about. It’s all we talked about was growing the brand so we could touch more people, so we sell a billion shirts. He used to say a million shirts but since I think we passed that up a while ago, now it’s sell a billion shirts.”
Back to Marc Kreiner, who was ‘the suit’ behind the three founders when the business was growing. In that linked press release from Tapout a few years ago about their tie-up with CAA, Mr. Kreiner noted that there was interest in perhaps doing an IPO (initial public offering). Is that now on the table with Tapout partnering up with ABG?
“Brother, the sky’s the limit, man. Sky’s the limit. There is no handcuffs on us any more and it’s the truth, I can’t say it any better than that. Sky’s the limit. We can’t put limitations on our dreams. Right now, all those dreams, all those thoughts that we’ve ever had, those days of sitting in Carl’s Jr. with Charles and talking about where this brand was going to go are all going to come true now and it’s exciting.”
They closed out the ’serious’ part of their semi-conference call on Tuesday night with this message to their fans.
“Just the fact that we’re not going to anywhere and I thank all the fans for being concerned and that, you know, we want to let them know that we’re here for the long haul, that they couldn’t rip me out of this [expletive] place if they tried and we wouldn’t have done the deal if that would have been part of the agreement. I mean, we’re here to stay, we aren’t going nowhere. We love this brand more than anything. We eat, drink, and sleep this [expletive] and you couldn’t peel us out of here so I just want everybody to know that this is a good thing and that we’ll be around for a long time to come.”