Sports Authority files for bankruptcy protection

Sports Authority, a major sports goods retail chain, faced a setback in its bid to sustain itself in the retail sector without a significant overhaul as it filed for Chapter 11 bankruptcy protection on Wednesday.

Store managers and sales personnel at the affected stores could be eligible for bonuses if they choose to stay with the company through the completion of the process. The retailer, owned by the Los Angeles-based private equity firm Leonard Green & Partners, announced its intention to sell or shutter approximately 140 stores, roughly one-third of its total locations. The company acknowledged losing market share to online retailers, accumulating a hefty $1.1 billion in debt, and falling behind consumer trends, such as the declining popularity of golf.

While bankruptcy protection often provides companies with a chance for a fresh start, the survival of Englewood, Colorado-based Sports Authority remains uncertain. The company stated its intention to pursue either a comprehensive debt-restructuring plan or the sale of some or all of its assets.

"We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry," said Sports Authority CEO Michael E. Foss in a statement. "We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations."

Currently operating 463 stores with approximately 13,000 employees across 40 states and Puerto Rico, the company filed for bankruptcy protection in a federal court in Delaware. Its top 10 unsecured creditors include Nike, owed $47.9 million, and Under Armour, owed $23.2 million.

The private-equity owner of Sports Authority took the retailer private after acquiring it for $1.3 billion in 2006. In the 1990s, the company was under the ownership of Kmart before being spun off.

The company reported a net loss of $156.6 million with total revenue of $2.6 billion in the fiscal year ended Jan. 30.

In retail bankruptcy reorganizations, a sale could occur to competitors, investors aiming to keep the company operational, or to a liquidator planning to sell remaining assets to the highest bidder.

Ken Rosen, an attorney from Lowenstein Sandler who has represented bankrupt retailers but is not involved in this case, emphasized that Sports Authority would likely liquidate a portion of its inventory and sell its most valuable leases to competitors like Dick's Sporting Goods or other retailers.

"The value of their locations will depend on their proximity to other retailers," Rosen said.