"Blank Check" Bonanza: SPACs Hit Media and Entertainment Market

Jason-Robins- Harry Sloan-and-Jeff Sagansky-Ben-Kohn
Jenna Wolfenden/Draftkings; Flying Eagle Acquisition Corp(2); Kristi Beck/Playboy Enterprises

DraftKings CEO Jason Robins; former MGM CEO Harry Sloan; former CBS entertainment president Jeff Sagansky; Playboy CEO Ben Kohn

Investors are pouring money into SPACs targeting the media, entertainment and gaming spaces, but are there enough acquisition targets to go around?

Charlie Ergen — the brusque founder of Dish Network and a former professional gambler — is known for his cutthroat approach to business, from playing hardball with TV networks, to counting cards at blackjack (an incident that got him banned from a Lake Tahoe casino).

This month, however, the billionaire revealed plans to place his chips on a new bet: He’s forming a Blank Check company called CONX Corp., seeking to raise $1 billion from investors in an IPO so that he and a fellow Dish executive can find a private company in the technology, media or telecom space to take public.

To say that Blank Check companies, or as they are more commonly known Special Purpose Acquisition Companies (SPACs) are having a moment would be an understatement.

This year alone, SPACs have raised more than $48 billion, according to industry tracker SPAC Insider. That is more cash raised than the previous 5 years combined.

“We are surprised at how fast the market exploded, but we are not surprised that the SPAC has become an asset class of its own, a little like the way private equity developed,” says former MGM CEO Harry Sloan, who alongside former CBS entertainment president Jeff Sagansky has launched 6 SPACs over the past decade.

Sloan and Sagansky’s most recent SPAC, Flying Eagle Acquisition Corp., announced plans to bring the mobile gaming platform Skillz public last month. They also managed what may be the most successful SPAC merger of all time, when they took DraftKings public last year through their Diamond Eagle. The sports betting and gaming company has seen its stock price rise from $10 when it went public to nearly $60 today.

As investor money pours in, an increasing number of SPACs are targeting the media, entertainment, gaming, and sports sectors, including Ergen’s effort, and others from RedBird Capital’s Gerry Cardinale (RedBall Acquisition) and Oaktree Capital (Oaktree Acquisition Corp. II, which counts former Lifetime and Sony international chief Andrea Wong among its board members).

Even DraftKings CEO Jason Robins is getting into the game, partnering with Todd Boehly’s Eldridge Industries and MRC co-CEOs Modi Wiczyk and Asif Satchu on a $500 million SPAC called Horizon Acquisition Corp. II, which is seeking a “market-leading company in the media & entertainment industry that delivers a unique product or service to consumers” (MRC is a co-owner of PMRC, the parent company of The Hollywood Reporter).

But as the SPACs flourish, there is a question as to whether there are enough attractive private companies interested in aligning with one to go public.

Companies looking to raise cash have no shortage of options, from IPOs to private equity, but merging with a SPAC has some advantages, and some drawbacks. So far this year a handful of companies in the space have turned to blank checks for their cash-raising needs, including the streaming service CuriosityStream, and Playboy Enterprises.

“From an operator’s perspective, I wanted to be able to tell the story and gauge investors' interest, but know that if we were going to embark on this process that it was something we could plan for going forward,” says Ben Kohn, CEO of Playboy, which announced plans to merge with SPAC Mountain Crest Acquisition Oct. 1.

“[You can] develop the story with investors for a long time and if it doesn't fly, you don’t announce it, you never market it, no one ever finds out about it,” Sloan says.

Playboy, best known for its namesake magazine founded by Hugh Hefner, plans to use its SPAC cash infusion to pursue acquisitions and make other investments to grow its presence in the consumer market. The certainty of the valuation and timeline allows the company to plan out its growth strategy.

Kohn noted the ill-fated IPO of Endeavor last year, citing it as an example of a move when the market wasn’t right. “You have spent all this time putting your organization through something, and then you have nothing to show for it.”

In other words, the SPAC process gives executives some clarity in an otherwise uncertain process.

“The companies are looking for certainty, the companies are looking to partner with a SPAC sponsor that can get the deal done,” Sloan says.

Of course, there are also hurdles to clear and disadvantages to the SPAC process. Shareholders of the SPAC get to sign off on any merger, and there is typically more dilution of company shares than in other financing options. That may make SPACs unappealing to companies that think they can get a better deal via a more traditional process.

“I own a big piece of the company, the management team owns a big piece of the company, and yes we want to raise money to accelerate our growth because the opportunity is in front of us, but we are also sensitive to how much dilution we can take at the same time,” Kohn says, noting that Mountain Crest offered less dilution than other SPACs in the marketplace.

That competition can cut both ways, as Sloan and Sagansky note that with the flurry of new SPACs, many are dangling more attractive deal terms as a carrot to entice potential merger partners.

So SPAC founders turn to their strengths when seeking potential companies. It could be a financial strength, as some hedge fund-backed SPACs tout, or strength in a particular industry, as is Ergen’s pitch (CONX touts Ergen's "track record of disrupting the TMT industry"). Or it could be experience in the SPAC space itself.

Despite the massive influx of cash, Sloan notes that the thing “underpinning” all successful SPACs in the media, entertainment, sports and gaming space is the combination of content and technology.

“It is all converging, the media is converging with entertainment which is converging which tech, which is converging with ecommerce, converging with worldwide mobile platforms,” Sagansky says.

That convergence is where SPACs can be most useful, helping companies without clear comparables raise cash and go public, without the drama of an IPO.

“SPACs particularly lend themselves not to the traditional media businesses, but for those very fast-growing parts of the media business, which is mobile, gaming,” Sagansky says. “Those are things that are harder to price, they have no comps, we always say we want to bring out deals where there are no comps, where they stand alone and bring out a separate category in and of themselves.”

A version of this story first appeared in the Oct. 7 issue of The Hollywood Reporter magazine. Click here to subscribe.