Item 1. Business.
Sport Supply Group, Inc. (the "Company" or "SSG") believes it is
the largest direct mail marketer of sports related equipment and
leisure products to the institutional market in the United States.
The Company principally serves the institutional market, which is
comprised primarily of schools, colleges, universities, government
agencies, military facilities, athletic clubs, youth sports leagues
and recreational organizations. SSG offers a broad line of
institutional-grade equipment and provides after-sale customer
service through the use of sales personnel strategically located in
certain large metropolitan areas (the "Metro Marketing Group"). See
Item 1. -- "Business - Sales and Marketing." The Company believes
that prompt delivery of a broad range of institutional-grade products
at competitive prices differentiates it from the retail sporting
goods stores that primarily serve the consumer market. The Company
also serves the local sporting goods team dealer market principally
with its MacGregor brand products. The Company markets approximately
8,000 sports related equipment products to over 100,000
institutional, retail, mass merchant and team dealer customers and
maintains over 200,000 names in mailing lists.
In May 1996, the Company made the strategic decision to dispose
of its golf operations to focus on its core institutional business.
On May 20, 1996 as part of this plan of disposal, the Company sold
virtually all of the assets of its Gold Eagle Professional Golf
Products Division, which sold golf accessory products to the retail
market. In addition to the sale of Gold Eagle, the Company adopted a
plan to dispose of the remaining operations of its retail golf
segment and classified these operations as discontinued. On March
28, 1997, the Company disposed of substantially all of the remaining
assets of the discontinued operation to Nitro Leisure Products, Inc.,
a Delaware corporation. The discussion in this Report on Form 10-K
regarding the Company's business, unless otherwise noted, relates
only to the Company's continuing operations (i.e., core institutional
business). Consequently, the Company will no longer report segment
information about this operation. For a discussion regarding the
Company's discontinued operations, see Note 10 to the consolidated
financial statements included in Item 8. -- "Financial Statements and
The Company's net revenues have increased from $47 million in
1991 to $79.1 million for the eleven month period ended September 26,
1997. The Company attributes its high level of growth to the
successful development of an effective mail order marketing program
and competitive pricing that have led to greater market penetration
and to the development of, and increase in, the Company's
On December 10, 1996, pursuant to a Securities Purchase
Agreement dated November 27, 1996 between Emerson Radio Corp.
("Emerson") and the Company (the "Purchase Agreement"), Emerson
acquired directly from the Company (i) 1,600,000 shares of newly-
issued Common Stock (the "Emerson Shares") for an aggregate cash
consideration of $11,500,000, or approximately $7.19 per share, and
(ii) 5-year warrants (the "Emerson Warrants") to acquire an
additional 1,000,000 shares of Common Stock at an exercise price of
$7.50 per share, subject to standard anti-dilution adjustments, for
an aggregate cash consideration of $500,000. In addition, Emerson
agreed to arrange for foreign trade credit financing of $2 million
for the benefit of the Company to supplement the Company's existing
credit facilities. If all of the Emerson Warrants are exercised,
Emerson will own approximately 36% of the issued and outstanding
shares of Common Stock. See Item 12 -- Security Ownership of Certain
Beneficial Owners and Management" and Item 13 -- "Certain
Relationships and Related Transactions."
The Company is a Delaware corporation incorporated in 1982 and
in 1988 became the successor of an operating division of Aurora
Electronics, Inc. (f/k/a BSN Corp. and referred to herein as
"Aurora"). Prior to the completion of the initial public offering of
3,500,000 shares of the Company's common stock in April, 1991, the
Company was a wholly-owned subsidiary of Aurora. The Company has one
wholly-owned subsidiary, Sport Supply Group International Holdings,
Inc., a shell corporation that formerly held the operations of the
Gold Eagle Canada Division that was sold in May 1996.
The Company's executive offices are located at 1901 Diplomat
Drive, Farmers Branch, Texas 75234 and its telephone number is (972)
The Company believes it manufactures and distributes one of the
broadest lines of sports related equipment and leisure products for
the institutional market. SSG offers approximately 8,000 sporting
goods and sports related products, over 3,000 of which it
manufactures. The product lines offered by SSG include archery,
baseball and softball, basketball, camping, football, tennis and
other racquet sports, gymnastics, indoor recreation, physical
education, soccer, field hockey, lacrosse, track and field,
volleyball, weight lifting, and exercise equipment.
The Company believes brand recognition is important in the
institutional and team dealer markets. Most of SSG's products are
marketed under trade names or trademarks owned or licensed by the
Company. SSG believes its trade names and trademarks are well
recognized among institutional purchasers of sports related
equipment. SSG intends to continue to expand its product and brand
name offerings by actively pursuing product, trademark and trade name
licensing arrangements and acquisitions. The Company's trademarks,
service marks, and trade names include the following:
. Official Factory Direct Equipment Supplier of Little League
Baseball (See discussion below).
. Voit[R] -- institutional sports related equipment and products,
including inflated balls and baseball and softball products
(licensed from Voit Corporation - see discussion below).
. MacGregor[R] -- certain equipment and accessories relating to
baseball, softball, basketball, soccer, football, volleyball,
and general exercise (e.g., dumbbells, curling bars, etc.)
(licensed from MacMark Corporation - see discussion below).
. Alumagoal[R] -- track and field equipment, including starting
blocks, hurdles, pole vault and high jump standards and
. AMF -- gymnastics equipment (licensed from AMF Bowling, Inc. -
see discussion below).
. BSN[R] -- sport balls and mail order catalogs.
. Champion -- barbells, dumbbells and weight lifting benches.
. Curvemaster[R] -- baseball and softball pitching machines.
. Fibersport -- pole vaulting equipment.
. Gamecraft -- field and floor hockey equipment, soccer equipment,
scorebooks, coaching equipment, and table tennis equipment.
. GSC Sports -- gymnastics equipment.
. Hammett & Sons -- indoor table-top games.
. Maxpro[R] -- products include, among others, football practice
dummies, baseball, and other protective helmets and pads (other
than football protective equipment), baseball chest protectors
and baseball mitts and gloves (licensed from Proacq Corp., a
subsidiary of Riddell Sports Inc.).
. New England Camp and Supply -- camping and outdoor recreational
equipment and accessories.
. North American Recreation[R] -- billiard, table tennis and other
. Passon's Sports -- mail order catalogs.
. Pillo Polo[R] -- recreational polo and hockey games.
. Port-A-Pit[R] -- high jump and pole vault landing pits.
. Pro Base[R] -- baseball bases.
. Pro Down -- football down markers.
. Pro Net -- nets, net assemblies and frames and practice cages.
. Rol-Dri[R] and Tidi-Court -- golf course and tennis court
. Safe-Squat -- specialty weight lifting squat machines.
. Toppleball[R] -- recreational ball games.
. U.S. Games, Inc.[R] -- goals, nets, playing equipment for
physical exercise games and mail order catalogs.
The Voit license permits the Company to use the Voit[R]
trademark in connection with the manufacture, advertisement, and sale
to institutional customers and sporting goods dealers of specified
institutional sports related equipment and products, including
inflated balls for all sports and baseball and softball products.
The Company is required to pay annual royalties under the license
equal to the greater of a certain percentage of revenues from the
sale of Voit products or a minimum royalty as set forth in the
License Agreement. The initial term of the Voit license expired on
December 31, 1989, and was subject to three renewal options for
consecutive terms of five years each. SSG has exercised two renewal
periods, and currently is permitted to use the Voit trademark through
December 31, 1999.
In February, 1992, the Company acquired two separate licenses to
use several trade names, styles, and trademarks (including, but not
limited to, MacGregor[R]). Each license permits the Company to
manufacture, promote, sell, and distribute to institutional sporting
goods customers (subject to certain exceptions) in the United States,
Canada, and Mexico, specified institutional sports related equipment
and products relating to baseball, softball, basketball, soccer,
football, volleyball, and general exercise. Each license is royalty-
free and exclusive with respect to certain customers and non-
exclusive with respect to others. Each license is perpetual provided
the Company generates a predetermined minimum amount of revenues each
year from the sale of products bearing the MacGregor trademark,
maintains certain quality standards for such products and services,
and does not commit any default under the license agreements that
remains uncured for a period of 30 days after the Company receives
notice of such default. The Company has converted a substantial
portion of its products to the MacGregor[R] brand, which is believed
to be one of the most widely recognized trade names in the industry.
These products are being sold to customers using the Company's
existing marketing channels. See Item 1. -- "Business - Sales and
On August 19, 1993, the Company entered into an exclusive
license agreement with AMF Bowling, Inc. to use the AMF name in
connection with the promotion and sale of certain gymnastics
equipment in the United States and Canada. The Company is required
to pay an annual royalty under the license equal to the greater of:
(i) a certain percentage of net revenues from the sale of AMF
products; or (ii) a minimum royalty as set forth in the license
agreement. The minimum royalty increases by a predetermined
percentage each year the license agreement is in effect. The initial
term of the agreement expired on December 31, 1995, and was subject
to three renewal options for consecutive terms of one year each
through December 31, 1998. SSG exercised its first two renewal
options, and currently is permitted to use the AMF name through
December 31, 1997. The Company may also renew the license agreement
after December 31, 1997, subject to certain provisions contained in
the license agreement.
On December 15, 1995, the Company entered into a three year
agreement with Little League Baseball, Incorporated that, among other
things, names the Company as the "Official Factory Direct Equipment
Supplier of Little League Baseball." On August 15, 1997, the Company
and Little League Baseball extended the expiration of this agreement
to December 31, 2001. The Company is required to pay an annual fee
to keep the agreement in effect each year.
In addition to the foregoing, the Company has acquired (or had
issued) a number of patents relating to products sold by the Company.
The following is a list of some of the patents owned by the Company:
(i) 2 separate patents relating to a Power Squat/Weight Lifting
Apparatus (expire May 20, 2003 and June 23, 2004, respectively); (ii)
Baseball Hitting Practice Device (expires May 9, 2006); (iii) 2
separate patents relating to Football Digital Display Markers (expire
June 27, 2006 and November 28, 2006, respectively); (iv) Tennis Net
and Method of Making (expires October 1, 2008); (v) Rotator Cuff
Exercise Machine (expires January 29, 2008); (vi) Portable Balance
Beam (expires July 28, 2009); and (vii) Holder for Beverage
Containers (expires August 16, 2011).
Sales and Marketing
The Company markets its products through four primary marketing
divisions: 1) Sport Supply Group; 2) The Athletic Connection;
3) Youth Sports; and 4) U.S. Games.
The Sport Supply Group marketing division markets SSG's products
to institutional customers through catalogs, outbound telemarketing,
and bid related sales efforts. SSG publishes two primary catalogs
designed for institutional customers: BSN[R] Sports, and New England
Camp and Recreation. Master catalogs containing a broad variety of
the Company's products are sent to all customers and potential
customers on the Company's mailing lists. Seasonal or specialty
supplements are prepared and mailed periodically to certain accounts
that pertain to particular sports, such as weight training, baseball
or track and field. SSG services its existing accounts and solicits
new customers with a total of over 2.2 million pieces of mail each
year, including approximately 2.0 million catalogs.
The Company's mailing lists, developed over 20 years, are
carefully maintained, screened, and cross-checked. SSG frequently
buys and rents lists that it attempts to screen, improve, and cross
reference before incorporating them into the Company's master list.
The master list is subdivided into various combinations designed to
place catalogs in the hands of individual purchase decision makers.
The master list is also subdivided by relevant product types,
seasons, and customer profiles.
While SSG maintains a strong institutional customer base in
rural and small metropolitan areas, the institutional markets in
large metropolitan areas have historically been dominated by local
sporting goods dealers and retailers. Over the last several years,
there has been a growing trend of large metropolitan area school
districts, city recreation departments, and other institutions
submitting proposed purchases through competitive bids. In response
to this trend, SSG intensified its bid related sales efforts by
having its Metro Marketing Group target large metropolitan area
school districts and institutions in an effort to include SSG's
products among those specified on bid invitations.
The U.S. Games marketing division was established to market
certain of the Company's products to elementary schools and the
The Athletic Connection marketing division was established in
1992 to market certain of the Company's products, principally
MacGregor brand products, to sporting goods team dealers who also
market these products to institutional customers. Products are
marketed through annual catalogs and commissioned sales
representatives to team dealers as opposed to institutional customers
targeted by the Sport Supply Group marketing division.
The Youth Sports marketing division concentrates on selling team
sports products to independent youth leagues. The Youth Sports
division utilizes outbound telemarketing, outside salesmen and a
master catalog in conjunction with a supplier contract with Little
League Baseball, Inc. to reach this marketplace. In addition to
equipment and uniforms, the Youth Sports division also provides
trophies and fund raising products. On May 15, 1996, SSG entered
into a five-year Advertising and Distribution Agreement with Hershey
Chocolate U.S.A. Pursuant to this Agreement, SSG advertises and
distributes promotional materials featuring Hershey fund raising
programs and products to youth sports leagues and teams and also
sells Hershey Chocolate products to its customers. The Youth Sports
division has entered into Promotional Agreements with Pizza Hut,
Lever Brothers, Lionel Trains, and Warner-Lambert (Bubbilicious) in
an effort to leverage SSG's direct marketing and distribution
network. These relationships help offset marketing costs and create
valuable brand-name recognition.
The Company's revenues are not dependent upon any one or a few
major customers. Instead, the Company enjoys a very large and
diverse customer base. The Company's customers include all levels of
public and private schools, colleges, universities and military
academies, municipal and governmental agencies, military facilities,
churches, clubs, camps, hospitals, youth sports leagues, non-profit
organizations and team dealer suppliers. SSG believes its customer
base in the United States is the largest in the institutional direct
mail market. The Company's institutional customers typically receive
annual appropriations for sports related equipment, which
appropriations are generally spent in the period preceding the season
in which the sport or athletic activity occurs. While institutions
are subject to budget constraints, once allocations have been made,
aggregate levels of expenditures are typically not reduced.
Approximately 7%, 8%, and 10% of the Company's sales in fiscal
1997 (which consisted of the eleven months ending September 26,
1997), 1996, and 1995 (which consisted of the 10 months ending
October 31, 1995), respectively, were to the United States
Government, a majority of which sales were to military installations.
SSG has a contract with the General Services Administration (the "GSA
Contract") that grants the Company an "approved" status when
attempting to make sales to military installations or other
governmental agencies. The existing GSA Contract expires in December
2001. Under the GSA Contract, the Company agrees to sell
approximately 700 products to United States Government agencies and
departments at catalog prices or at prices consistent with any
discount provided to other customers of the Company. Products sold
to the United States Government under the GSA Contract are always
sold at the Company's lowest offered price. The Company also has a
contract with the General Services Administration for the sale of
approximately 40 camp related products with terms similar to the GSA
Contract. This contract expires in August 2002.
SSG also sells products not covered by the GSA Contract to
United States Government customers, although the appropriation
process for purchases of these products differs. These sales are made
through a U.S. Government non-appropriated fund contract. This
contract is administered by the United States Air Force and is
scheduled to expire on September 30, 1999. See Note 6 to the
consolidated financial statements included in Item 8. -- "Financial
Statements and Supplementary Data."
Seasonal Factors and Backlog
Historically, SSG's revenues have peaked in the second and third
calendar quarters of each year due primarily to the budgeting
procedures of many of its customers and the seasonal demand for
product offered by the Company. Less revenues are generated in the
first and fourth calendar quarters because of the reduced demand
arising from decreased sports activities, adverse weather conditions
inhibiting customer demand, holiday seasons and school recesses. See
Note 12 to the consolidated financial statements included in Item 8.
-- "Financial Statements and Supplementary Data."
SSG had a backlog for continuing operations of approximately
$2,526,000 at September 26, 1997, compared to approximately
$2,174,000 at November 1, 1996.
Manufacturing and Suppliers
The Company manufactures many of the products it distributes at
its four manufacturing facilities. See Item 2. -- "Properties." Game
tables, gym mats, netting, and tennis and baseball equipment are
manufactured in the Company's two Anniston, Alabama plants.
Gymnastics equipment is manufactured at SSG's facility in Cerritos,
California. Items of steel and aluminum construction, such as soccer
field equipment and weight room equipment, are principally
manufactured at SSG's facilities in Farmers Branch, Texas.
Certain products manufactured by the Company are custom-made
(such as tumbling mats ordered in color or size specifications),
while others are standardized. The principal raw materials used by
the Company in manufacturing are, for the most part, readily
available from several different sources. Such raw materials include
foam, vinyl, nylon thread, steel and aluminum tubing, wood, slate,
and cloth. Except as noted above, items not manufactured by SSG are
purchased from various suppliers primarily located in the United
States, the Republic of China (Taiwan), South Korea, Australia, the
Philippines, Thailand, the People's Republic of China, Pakistan, and
Germany. SSG has no significant purchase contracts with any major
supplier of finished products, and most products purchased from
suppliers are readily available from other sources. The Company
purchases most of its finished product in U.S. dollars and is
therefore not subject to exchange rate differences.
SSG competes in the institutional market principally with local
sporting goods dealers and retail sporting goods stores, which
collectively dominate the institutional market. Dealers and retail
stores occasionally fill institutional orders with Company products.
The Company has identified approximately 15 other direct mail
companies in the institutional market. SSG believes that most of
these competitors are substantially smaller than SSG in terms of
geographic coverage, products offered, and revenues.
The Company competes in the institutional market principally on
the basis of price, product availability and customer service. SSG
believes it has an advantage in the institutional market over
traditional sporting goods retailers and team dealers because its
selling prices do not include comparable price markups attributable
to wholesalers, manufacturers, and/or distributors. In addition, the
Company's ability to control the availability of goods it
manufactures enables it to respond more rapidly to customer demand.
SSG believes its direct mail competitors operate primarily as
wholesalers and distributors, with little or no manufacturing
While large sporting goods companies such as Wilson Sporting
Goods Co., Spalding Sporting Goods, a division of Evenflo, Inc.,
Rawlings Sporting Goods, and Russell Athletic Company dominate the
marketing of sports related equipment in the United States, SSG does
not compete directly with such companies. Rather, certain of these
companies supply products to SSG as well as retail sporting goods
stores and team dealers, the Company's primary competitors in the
Many of the Company's products are subject to 15 U.S.C. SS 2051-
2084 (1992 and Supp. 1996), among other laws, which empowers the
Consumer Product Safety Commission (the "CPSC") to protect consumers
from hazardous sporting goods and other articles. The CPSC has the
authority to exclude from the market certain articles which are found
to be hazardous, and can require a manufacturer to refund the
purchase price of products that present a substantial product hazard.
CPSC determinations are subject to court review. Similar laws exist
in some states and cities in the United States.
Product Liability and Insurance
Because of the nature of the Company's products, SSG is
periodically subject to product liability claims resulting from
personal injuries. The Company from time to time may become involved
in various lawsuits incidental to the Company's business, some of
which will relate to claims of injuries allegedly resulting in
substantial permanent paralysis. Significantly increased product
liability claims continue to be asserted successfully against
manufacturers and distributors throughout the United States resulting
in general uncertainty as to the nature and extent of manufacturers'
and distributors' liability for personal injuries. See Item 3 --
There can be no assurance that the Company's general product
liability insurance will be sufficient to cover any successful
product liability claims made against the Company. Any claims
substantially in excess of the Company's insurance coverage, or any
substantial claim not covered by insurance, could have a material
adverse effect on the Company's results of operations and financial
On September 26, 1997, SSG had approximately 395 full-time
employees in its core institutional business, 146 of whom were
involved in the Company's manufacturing operations. SSG also hires
part-time and temporary employees primarily during the summer months.
None of the Company's employees are represented by a union, and the
Company believes its relations with employees is good.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Present Position Officer
Geoffrey P. 57 Chairman of the Board and 1996
Jurick Chief Executive Officer
Peter S. 49 President and Chief 1991
Blumenfeld Operating Officer
John P. Walker 34 Executive Vice President 1996
and Chief Financial Officer
Terrence M. 35 General Counsel and 1995
All officers are elected for a term of one year or until their
successors are duly elected.