Alpha Entertainment LLC (XFL) – After Sale to Group Fronted by The Rock, Court Confirms Debtors Wind-Down Plan

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December 11, 2020 – The Court hearing the Alpha Entertainment case confirmed the Debtor’s Second Amended Chapter 11 Plan [Docket No. 592], clearing the way for the Debtors to emerge under new owners Alpha Opco (see details below).

On December 10th, the Debtors had filed their Second Amended Chapter 11 Plan and a related blackline showing immaterial changes to the version filed on November 4, 2020 [Docket Nos. 583 and 584, respectively].

On April 13, 2020, Alpha Entertainment LLC (XFL) and one affiliated Debtor (“XFL” or "the Debtors") filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10940. At filing, the Debtors, owners of a start-up professional football league, noted estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. In a subsequently filed Schedule A/B, the lead Debtors noted $28.8mn of assets and $31.4mn of liabilities [Docket No. 194].

Plan Overview 

The Disclosure Statement [Docket No. 435] notes, “The following is an overview of certain material terms of the Plan:

  • All Allowed Administrative Claims, Allowed Professional Fee Claims, Allowed Priority Tax Claims, Allowed Secured Claims and Allowed Priority Non-Tax Claims will be paid or otherwise satisfied in full as required by the Bankruptcy Code and provided for in the Plan, unless otherwise agreed to by the Holders of such Claims and the Post-Effective Date Debtor.
  • Holders of Allowed General Unsecured Claims will receive their Pro Rata share of the General Unsecured Claim Distribution, unless less favorable treatment is otherwise agreed to by the Post-Effective Date Debtor and the Holders of such Claims.
  • Holders of Subordinated Claims will not be entitled to any distribution or recovery on account of such Claims.
  • As of the Effective Date, all Interests of any kind will be cancelled, and the Holders thereof will not receive or retain any property, interest in property or consideration under the Plan on account of such Interests.
  • The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of each of the compromises and settlements provided for in the Plan, and the Bankruptcy Court’s findings shall constitute its determination that such compromises and settlements are in the best interests of the Debtor, its Estate, Holders of Claims and other parties in interest, and are fair, equitable and reasonable.

In addition, the Plan cancels all Interests in the Debtor, and provides for the dissolution and wind-up of the affairs of the Debtor."

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):

  • Class 1 (“Allowed Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $2.65mn and expected recovery is 100%.
  • Class 2 (“Allowed Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $700k and expected recovery is 100%.
  • Class 3 (“Allowed General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $38.0mn – $57.0mn and expected recovery is 8% – 12%. Holder shall receive (i) its Pro Rata share of the General Unsecured Claim Distribution, or (ii) such other less favorable treatment as to which such Holder and the Post Effective Date Debtor shall have agreed upon in writing.
  • Class 4 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
  • Class 5 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.

Voting Result

On December 8, 2020, the claims agent notified the Court of the Plan voting result [Docket No. 562], which was as follows:

  • Class 3 (“General Unsecured Claims”): 138 claim holders, representing $17,460,202.73 (or 97.21%) in amount and 89.03% in number, accepted the Plan. 17 claim holders, representing $501,161.93 (or 2.79%) in amount and 10.97% in number, rejected the Plan.

Asset Sale

On August 7, 2020, further to an August 7th sale hearing, the Court approved the $24.2mn sale of substantially all of the Debtors’ assets to Alpha Opco, LLC (“Alpha Opco” or “Buyer”) [Docket No. 358]; with consideration comprised of (i) $15.2mn of cash and (ii) "cure amount satisfaction of up to $9,200,000 for contracts assumed and assigned to" the Buyer. The sale closed on August 21st.

According to documents filed by the Debtors, acquisition vehicle (and sole qualified bidder) Alpha Opco is a joint venture between “The Garcia Companies” and “Redbird Capital Partners Management LLC.”

The Garcia Companies and Redbird Capital Partners Management LLC. An unexecuted version of the APA governing the terms of the sale is attached to the order as Exhibit 1. That APA refers to the Buyer as Alpha Acquico, LLC

The exact ownership of Alpha Opco (aka Alpha Acquico) is uncertain, but in addition to the parties named above also clearly includes entrepreneur Dwayne "The Rock" Johnson who "continues to grow his groundbreaking success while managing his ever-expanding and diverse entertainment portfolio."

In a press release announcing their successful bid, Alpha Opco stated: "Dany Garcia, Dwayne Johnson and RedBird Capital Partners have been selected as the winning bidder for substantially all of the assets of Alpha Entertainment LLC, the parent company of the XFL. The XFL assets will be sold to Garcia, Johnson and RedBird for approximately $15 million, in accordance with the terms and conditions of the asset purchase agreement. The transaction is subject to bankruptcy court approval at a hearing this Friday, August 7 and, assuming that closing conditions are satisfied, is expected to close on or shortly after August 21."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Pollack Declaration”), Jeffrey N. Pollack, the Debtor’s President and Chief Operating Officer, detailed the events leading to XFL’s Chapter 11 filing. The Pollack Declaration states: “Unfortunately, the Debtor was not immune from the disruption of the global COVID-19 pandemic that has shuttered much of the United States and forced every major American sports league to suspend, if not cancel, their seasons. On March 12, 2020, the Debtor canceled the remainder of its regular season, and on March 20, 2020, the Debtor made the difficult, but necessary, decision to cancel the remainder of the XFL’s inaugural season after just five weeks.  

It is estimated that cancellation of the final five weeks of league’s regular season “negated approximately $27 million in fan spending on gameday-related items” such as ticket sales and food, beverage, and merchandise purchases, to say nothing of the revenue from playoff games or the lost opportunities for sponsorship revenue and brand development.6  With the league shuttered and no games being played (or revenue being generated), the COVID-19 pandemic left the Debtor facing near-term liquidity issues.  With the duration of the pandemic uncertain and the Debtor’s operating expenses continuing unabated, the Debtor was left with few viable alternatives outside of chapter 11.”

Key Documents:

Exhibits attached to the Disclosure Statement [Docket No. 497]:

  • Exhibit A: Chapter 11 Plan
  • Exhibit B: Liquidation Analysis

The following documents were attached to the Plan supplements, as amended [Docket No. 585]:

  • Exhibit A: Plan Administrator Agreement
  • Exhibit B: Plan Administrator Agreement – Blackline
  • Exhibit C: Amended Operating Agreement

Liquidation Analysis (see Exhibit B of Disclosure Statement [Docket No. 497] for notes)

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