Firearms distributor that bet on Hillary Clinton winning presidency is now bankrupt
A gamble that Hillary Clinton would get elected president led a gun distributor to stock up on firearms, expecting a surge in sales.
The miscalculation, however, landed United Sports Companies Inc. in bankruptcy court in Delaware seeking Chapter 11 protection from its creditors as the South Carolina-based company moves to liquidate, according to court documents obtained by The News Journal.
"Importantly, absent a bankruptcy filing, the Debtor would not have the working capital necessary to implement the contemplated wind-down plan," Bradley P. Johnson, the company's chief executive officer, said in court filings.
In the lead-up to the 2016 presidential election, United Sports anticipated an uptick in firearms sales that historically follows the election of a Democratic president.
But when Trump was elected, the uptick did not materialize and gun sales did not take off.
The company averaged $544.1 million in sales for 2017 and 2018 — well below the $885.3 million it averaged from 2012 through 2016.
Because of that, company profits fell from an average of $55.8 million from 2012 through 2016 to $4 million in 2018.
Other issues were cited in the company's fall:
- Hurricanes that resulted in decreased demand for firearms and other sporting goods.
- The 2017 merger by sporting giants Cabela’s and Bass Pro Shops.
- Dick’s Sporting Goods removing some firearms from its shelves.
- Bankruptcy filings by sports and outdoor retailers Gander Mountain and AcuSport.
"Those losses adversely impacted the terms and conditions on which such vendors and manufacturers were willing to extend credit to the Debtors," United said in court documents. "With respect to the Gander Mountain and AcuSport bankruptcies, the dumping of excess product into the marketplace pushed prices — and margins — even lower."
The company was one of the largest distributors of firearms in the United States, with reported annual revenue of in excess of $770 million, according to Prospect Capital Corporation, a lender of the gun seller.
Prospect, in court filings, said United's demise wasn't because of the presidential election gamble, industry disruption or natural disasters. It blames mismanagement by Wellspring Capital Partners, one of United's investor groups.
In a court filing, Prospect said Wellspring Capital, "cashed out" in excess of $183 million.
"After lining their pockets with over $183 million, fiduciaries appointed by Wellspring Capital to be directors and officers of the Debtors grossly mismanaged the business and depleted all reserves necessary to weather the storms and the headwinds the business would face," Prospect said. "In a short time, the business went from being the largest firearms distributor in the United States to being liquidated."
As a result of years of mismanagement and the failure of the estates' fiduciaries to preserve value, Prospect's lawyers said, the second lien lenders will likely only recover a small fraction of their $249.7 million secured loan claim.
"Years of mismanagement ultimately placed the [company] in the position where they are in now: in liquidation with a bloated budget and a professed need for [debtor in possession] financing that includes a $500,000 interim origination fee," the Prospect's filing claimed.
United, with roots dating to the Great Depression, was founded in 1933 as Ellett Brothers Inc. It also sells camping and other outdoor equipment. Its parent company is SportCo Holdings Inc., whose other subsidiaries include Jerry's Sports Inc. and Outdoor Sports Headquarters.
Contact Esteban Parra at (302) 324-2299, eparra@delawareonline.com or Twitter @eparra3.