Increasingly celebrities are testing their mettle as entrepreneurs, venture capital investors, and angel fund investors. Stars are also active in a relatively little-known part of the stock market known as special purpose acquisition stocks or SPAC stocks. Some celebrities are backing SPAC stocks, which may not be a good thing.
This list includes many high-profile athletes and singers backing these investment vehicles, often with Wall Street managers. Many of these SPACs are trying to acquire privately held companies in media, gaming, sports, and other industries.
The list of celebrities includes retired basketball superstar Shaquille O’Neal; the former No. 1 women’s tennis player, Serena Williams; basketball player, Stephen Curry; retired New York Yankees baseball player, Alex Rodriguez; rapper Jay-Z; singer, Ciara; baseball manager, Billy Beane; former football player, Colin Kaepernick; and others.
SPAC stocks have become more popular due to the recent success of several companies going public through SPACs. The list includes Richard Branson’s space flight company, Virgin Galactic Holdings (SPCE), and the online sports betting company DraftKings (DKNG).
Some companies’ success has increased the allure of SPAC stocks, and investors are rushing into SPACs. In 2020 alone, more than 200 SPAC stocks went public, raising $83.4 billion, up from $13.6 billion in 2019. In 2021, nearly $80 billion was raised in the quarter alone.
However, just because celebrities invest in SPAC stocks does not mean that it is a good investment for most investors. Indeed, this new trend has caught the attention of the SEC, who put out warning about celebrity involvement in SPACs.
“Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment….”
How Do SPAC Stocks Work?
What is SPAC stock? SPAC stocks are also known as blank check companies or shell companies. The primary purpose of a SPAC is to raise money to acquire a privately held company and take it public through a reverse merger. The companies have no tangible assets.
The advantage of this route is that it is generally lower cost and takes less time than an IPO. SPACs have two years to complete a merger; otherwise, they must return the cash to investors.
Risks of SPACs
SPACs are riskier than traditional IPOs. Some SPAC stocks are formed with purpose, but many do not have a clearly defined acquisition. Hence, a significant risk is that you do not necessarily know what type of company you will own ahead of time. In addition, SPAC stocks have fewer regulatory and financial disclosure requirements adding to risk compared to IPOs.
Why Do SPACs Want to Work with Celebrities?
There are probably a few reasons why SPAC stocks are working with celebrities. First and foremost, stars bring instant name recognition and publicity. Second, it may open some doors in media, gaming, and sports. Third, in meetings with investors, it may be easier to raise money.
Similarly, competition for SPAC stocks is higher now. Finally, having a celebrity on the team or board may make it easier to close a deal with a start-up wanting to go public.
Why Do Celebrities Want to Work with SPACs?
Celebrities are increasingly becoming investors, and some have been very successful. They have money from their first career and want to put it to work. The success of earlier SPAC acquisitions draws investors with cash. Celebrities also get more publicity.
Some SPAC Stocks with Celebrity Involvement
Alex Rodriguez is the Chairman and CEO of Slam Corp. The hedge fund Antara Capital backs the SPAC. According to the SEC filing, Slam Corp seeks to raise $575 million in its IPO. Slam Corp will merge with a private company in the sports, media, or wellness industry.
The baseball manager made famous in the book and movie MoneyBall; Billy Beane also owns a SPAC. His SPAC, RedBall Acquisition Corp, is trying to acquire a professional sports team after raising $575 million. RedBall recently attempted to take the parent company of the Boston Red Sox public but failed in the attempt.
Reportedly, RedBall was trying to acquire a 20% – 25% stake in Fenway Sports Group at an $8 billion valuation. Fenway Sports Group also owns FC Liverpool, a NASCAR team, and a sports network. RedBall is now seeking another acquisition target in pro soccer or gaming.
Another SPAC with athlete celebrity involvement is Disruptive Acquisition Corp. The SPAC raised $250 million but has no clear target acquisition. In the SEC filing, the company said it “…may pursue an initial target business in any stage of its corporate evolution or any industry or sector; we intend to focus our search on target businesses in the health and wellness, entertainment, and consumer-facing technology sectors.”
Many celebrities are involved with Disruptive, including football player Patrick Mahomes, baseball pitcher Justin Verlander, Naomi Osaka, boxer Canelo Barragan, soccer player Robert Lewandowski, former pro tennis players James Blake and Mardy Fish.
Yet another SPAC with a former athlete on its team is Forest Road Acquisition Corp. Basketball Hall of Famer; Shaquille O’Neal is on the team. This SPAC is acquiring Beachbody, the virtual fitness streaming company, and exercise bicycle company Myx Fitness. Shaq is also a strategic advisor with Forest Road Acquisition Corp II, which recently raised $305 million in an IPO.
Tennis great Serene Williams is on the board of Jaws Spitfire Corp., which Starwood Capital runs. In addition, the SPAC is bringing VELO3D, a 3-D printing company, public. The new company may be valued at nearly $1.6 billion.
Former football player Colin Kaepernick is the co-chair of Mission Advancement Corp, raising $250 million. The SPAC wants to identify and acquire a company to create meaningful financial and societal value.
Another SPAC with athlete involvement is Dune Acquisition Corp, working with basketball player Stephen Curry. In addition, the SPAC raised $150 million to acquire a Software as a Service (SaaS) company.
SPACs are not limited to athletes. For example, singer Ciara sits on the Bright Lights Acquisition Corp Board of Directors. The company is led by Hollywood insiders Peter Guber, head of Mandalay Entertainment, and Michael Mahan, vice-chair of Dick Clark Productions and part-owner of several sports teams and Epic Games (maker of Fortnite).
Bright Lights is seeking to raise $200 million to acquire companies in the consumer products, media, entertainment, and sports industries.
The rapper Jay-Z and his entertainment company ROC Nation are involved with the largest cannabis SPAC, Subversive Capital Acquisition Corp. He joined the Chief Visionary Office to guide brand strategy. The SPAC merged with Caliva and Left Coast Ventures to form a holding company.
Fox Business anchor Larry Kudlow is on the board of directors of Ross Acquisition Corp II. The SPAC is headed by Wilbur Ross, the former Secretary of Commerce.
SPACs are trying hard to get a star on the board. With so many celebrities investing in SPACs, it may be tempting for everyday investors to invest. But SPACs can be risky, and investors can lose money. Most small investors are better off with what they know and safe retirement investments.
In a SPAC, you are betting on a stock that does not have a product or service yet and may not have a successful acquisition. If management makes poor decisions on its acquisition, investors can lose despite having a celebrity on the team.
Photo credit: Sharon Alagna
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