SportCo Holdings Files Bankruptcy

[farscott]

This is a harbinger of things to come. Vendors are unsecured creditors and many manufacturers are owed millions that they likely may never see. In this market, that loss of revenue may be fatal. For buyers, this will result in fewer mechanisms for firearms, accessories, and ammo to get to the market. I know my local FFL used Ellett Brothers as a source of inventory. At least, he has no financial exposure, but hard-to-get items, like the Ruger Wrangler, will be harder for him to get. SportCo which is the parent company is reorganizing and plans to liquidate Jerry's and Ellett Brothers as part of the reorganization. Plus, there is a civil lawsuit arguing the owners of SportCo engaged in fraud.

https://www.thetacticalwire.com/features/ce9ea599-1dbb-470e-ae2d-8b3784a1c6b0?fbclid=IwAR3vEJIIQch-F4BkoSgqYQ9ZbZQGOZ_sia2Ts5l9NOgnpk9kWCsObc6xIO4


Yesterday, the “other shoe dropped” in the matter of SportCo Holdings, the company that owns, among others, Ellett Brothers and United Sporting Co. After months of rumors concerning their overall fiscal health, the company filed for Chapter 11 bankruptcy, saying it planned to liquidate it’s holdings.


The top ten major unsecured creditors in the SportCo filing are (from #1 to #10) : Vista Outdoors ($3,299,326.61), Sturm Ruger ($3,196.842.10), Magpul Industries ($2,078,353.17), Savage Arms Rifles ($1,927,392.50), Bushnell Corp. ($1,879,795.66), Navico Company ($1,743,684.04), Henry RAC Holding Corp. ($1,467,618.00), Smith & Wesson Corp. ($1,386, 714.26), Garmin USA, Inc. ($1,150,579.41), and Fiocchi of America ($1,096, 632.70).


According to the filing, that listing of individuals, managers and entities were collectively loaned a total of $188,864,420.94, ostensible to build Ellett Brothers LLC and the various affiliated subsidiaries. Instead, the suit alleges is the funds never used for their intended purpose. Instead the borrowers used them - along with proceeds of additional loans from other lenders- to enrich..themselves. In fact, the lawsuit claims that $183,169,466.94 of more than $188-million went to Wellspring IV- the controlling and largest shareholder of the borrowers. If that’s the case, this would unquestionably be the largest fraud case -ever- in the firearms industry.


The story went on to report that H&K was losing a financial battle due to lagging sales, In fact, the report said, 2018’s losses were so significant that financial issues were only cushioned by “two bridging loans from an unnamed major shareholder.”

So severe was the situation that KPMG inserted a warning in their 2018 audit. The passage reads: “the lack of liquidity endangers the continued existence of Heckler & Koch. To ensure continued existence, significantly more revenue would have to be generated in the current year than the previous year.” Indications are that the necessary revenue generation hasn’t happened yet. Last month, H & K’s German workers approved a wage waiver, agreed to increase weekly working hours from 37 to 37.5 hours with no overtime, and cancelled a planned one-time payment of 400 Euros per worker. Earlier this year, H&K was forced to pay a multi-million fine over illegal arms exports to Mexico. H&K, meanwhile, remains in the competition for the new assault rifle for the Bundeswehr - which currently carries the company’s G36. But an issue outside rifle performance stipulated in the Ministry of Defense specs - is causing concern that H&K may be disqualified.

The issue? The overall fiscal health of companies being considered. H&K has asked for a change in the fiscal requirements, but the German report quotes politicians as saying any lessening of the fiscal requirements would be a very “political decision” -and not likely.

More information on the lawsuit: https://www.thestate.com/news/business/article231381818.html

[spinmove_]

Just once I’d like to wake up to read a headline extolling positive news for the firearms industry and RKBA in general. Seems like all I hear about these days is one nut punch after another for us.


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[ragnar_d]

Not to be flippant, because this sucks a lot for the entire industry, but . . .

Problems began a few years after Ellett Brothers was acquired by Wellspring Capital Management, a Delaware corporation, and placed under the control of Wellspring Capital Partners IV in 2008, according to the lawsuit.Wellspring formed SportCo and United Sporting to be parents to Ellett Brothers and its subsidiaries.
I think I found the source of the problem . . . another “capital management” company sucking the lifeblood/cash/equity out of a company and then moving on to the next victim.


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[ralph]

That's sad about HK, they can make some really good stuff. Trouble with them as I see it, is they're generally overpriced, knocking the prices of the P series of pistols helped, they need to do the same with the rest..I mean, there's no reason a USP should cost around $800, $600 is more like it.. and how about sending the DA/SA guns out with decent DA trigger pulls? I have a HK45ct, and it has about 11lb DA trigger, and, to make matters worse, the hammer spring for a HK45c, fits it, and it only.. If HK wants to stay alive, how about listening to what your civilan customers want, instead of making what they think they want.. Hopefully, they'll figure out that they can't depend on military contracts to stay alive..

[Sigfan26]

That's sad about HK, they can make some really good stuff. Trouble with them as I see it, is they're generally overpriced, knocking the prices of the P series of pistols helped, they need to do the same with the rest..I mean, there's no reason a USP should cost around $800, $600 is more like it.. and how about sending the DA/SA guns out with decent DA trigger pulls? I have a HK45ct, and it has about 11lb DA trigger, and, to make matters worse, the hammer spring for a HK45c, fits it, and it only.. If HK wants to stay alive, how about listening to what your civilan customers want, instead of making what they think they want.. Hopefully, they'll figure out that they can't depend on military contracts to stay alive..

If they duplicated each MP5 “Pistol” Zenith makes and undercut them on price, it would definitely help their money problems. And a civilian MP7.


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[BillSWPA]

Multiple lessons here:

1) People who don't understand the industry or the products should not be running the company.

2) Manufacturers need a much better way to ensure that they get paid by their customer.

I wonder how much of a raise or bonus will be requested and approved by the court "because we need to keep these people from going elsewhere in these difficult times" after the manufacturers and employees have all been screwed?

[Old Man Winter]

With scenarios like this, I'm surprised credit terms are still a thing. You'll lose business without extending terms to a distributor but at the same time how much business does it take to cover 7-figure losses? NET Never terms probably have some finance department people looking for jobs at those creditor companies.

[Suvorov]

Just once I’d like to wake up to read a headline extolling positive news for the firearms industry and RKBA in general. Seems like all I hear about these days is one nut punch after another for us.


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Doesn't support the narrative.......

[fatdog]

When someone unfamiliar with what they are asks me to explain what a PE is, I simply tell them they are just like bankers except 1/4 as bright and 4x more ruthless...

A friend from another distributor told me that the Ellet guys had a reputation for "living large" with lots of perks like executive retreats to the Carribean, etc. stuff like that. But the main problem was probably them taking on the inventory for a Hillary presidency and suddenly meeting the President Trump demand, a hole they were not at all well positioned to dig out of.

Obama was the greatest gun & ammo salesman of all time and Hillary might have been just as good.

[Mitch]

So is now the time to panic buy some HKs?


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[ralph]

If they duplicated each MP5 “Pistol” Zenith makes and undercut them on price, it would definitely help their money problems. And a civilian MP7.


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That would be a start..and before anyone says it, forget about bringing back the P7 series..The reason HK quit making them was because they were too labor intensive to continue making, and that was in the 80's..HK could free up some money by discontinuing pistols that are slow sellers, like the HK45, MK23, Most people buy these shoot them for a bit, and figure out that they're too damn big to do anything with except go to the range, basically a range toy..and in the case of the MK23, an expensive one at that.My understanding is that the military has several thousand of these things in storage..the SF guys that they were bought for, don't want them as they're too big. A lot of these guys would carry a HK45ct instead, smaller, lighter, with elephants foot mags, same capacity, has a pic rail so you could mount lights, laser, able to take a suppressor, and very accurate. And how about changing the molds for the USP frame to a pic rail? Good Lord, that's been the standard for about 20 years now, putting a pic rail on a USP could breath new life into a already excellant pistol.

[OlongJohnson]

That would be a start..and before anyone says it, forget about bringing back the P7 series..The reason HK quit making them was because they were too labor intensive to continue making, and that was in the 80's..HK could free up some money by discontinuing pistols that are slow sellers, like the HK45, MK23, Most people buy these shoot them for a bit, and figure out that they're too damn big to do anything with except go to the range, basically a range toy..and in the case of the MK23, an expensive one at that.My understanding is that the military has several thousand of these things in storage..the SF guys that they were bought for, don't want them as they're too big. A lot of these guys would carry a HK45ct instead, smaller, lighter, with elephants foot mags, same capacity, has a pic rail so you could mount lights, laser, able to take a suppressor, and very accurate. And how about changing the molds for the USP frame to a pic rail? Good Lord, that's been the standard for about 20 years now, putting a pic rail on a USP could breath new life into a already excellant pistol.

Yeah, Pic rails on OG USPs would get me to buy more. I muchly prefer the OG USP handle to the "Spiderman" ovals on the new stuff.

I have pretty dang big hands, and the Mk23 is just silly when I pick one up. Not that many people in the NBA are shopping them. The Mk23 does zero things that aren't matched in all practical respects by the USP 45 Tactical, which is sized for normal big northern Europeans.

On the .45 compacts, the double-stack mags with a single stack of bullets that makes them eight-shooters without the "elephant foot" is pretty hard to swallow.

[ragnar_d]

When someone unfamiliar with what they are asks me to explain what a PE is, I simply tell them they are just like bankers except 1/4 as bright and 4x more ruthless...
That mirrors my experience with those types.


A friend from another distributor told me that the Ellet guys had a reputation for "living large" with lots of perks like executive retreats to the Carribean, etc. stuff like that. But the main problem was probably them taking on the inventory for a Hillary presidency and suddenly meeting the President Trump demand, a hole they were not at all well positioned to dig out of.
Both of those points were pretty common in the industry during the Obama days and in the days leading up to the 2016 election. To the former point, some of the executives’ behavior made me think of a line from Clone High, “If I learned anything from watching the first half of Too Legit to Quit, it’s that the money never runs out.” TO the latter point, a lot of manufacturers couldn’t put inventory in the warehouse fast enough hedging their bets against a Wednesday morning rush of orders that would rival the Sandy Hook rush but the orders never came.



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[0ddl0t]

Ruger's stock is tanking today in large part due to this bankruptcy being reflected in the just released quarterly report. But in the long term Ruger looks like a good buy at this price (<$47).

*disclosure* I just bought ruger stock and it is now a substantial portion of my portfolio...

[LittleLebowski]

Just once I’d like to wake up to read a headline extolling positive news for the firearms industry and RKBA in general. Seems like all I hear about these days is one nut punch after another for us.



#MeToo