A company with ties to the Pro Football Hall of Fame in Canton, Ohio, benefited from not only one apparent investment bubble, but from two. Now the air is leaking fast.
Hall of Fame Resort & Entertainment went public in July through what is known as a reverse merger with a "blank check," or special purpose acquisition company (SPAC), allowing the company to quickly raise $75 million in capital. Investing in SPACs has been a hot trend on Wall Street over the past year, opening the door to hundreds of companies going public.
The resort and media company also hopped on another recent bandwagon: It announced in March that it was getting into non-fungible tokens, or NFTs — unique digital assets that have spawned a boom in so-called . CEO Michael Crawford said NFTs would allow the company to "unlock additional value" and that it was going to focus on the growing digital collectibles market.
Shares of Hall of Fame Resort — which lost $71 million last year — more than tripled in March, sending its market value soaring to nearly $800 million in a matter of weeks. In the past few weeks, however, investor enthusiasm for SPACs has waned and prices for NFTs have fallen. The result: Hall of Fame Resort shares have slid, reducing its value by roughly $350 million and its exposing problems at the company. The stock remains up 230% this year.
Hall of Fame Resort doesn't own the Pro Football Hall of Fame or its NFT collection, which are both owned by a separate nonprofit. What Hall of Fame Resort does own is some of the land surrounding the football hall of fame's campus, on which the company has built a stadium and practice fields. It also leases some land from public schools in Canton.
Also, there is no resort — at least not yet. The company owns a single hotel, a DoubleTree by Hilton, in downtown Canton about three miles from the football museum. The hotel, which is managed by another company, opened in November and lost $250,000 last year. Nothing on the hotel's website indicates that it is connected to the Pro Football Hall of Fame.
The company does have plans to build a football-themed resort, as well as an indoor waterpark. Crawford, its chief executive, is a former Disney theme park executive. But in order to do all that, the money-losing company, which already has $100 million in debt, will likely have to borrow hundreds of millions more.
A spokesperson for the company declined to comment for this article.
Waning interest in SPACs
Ivana Naumovska, a professor of entrepreneurship at INSEAD business school who has written about investment bubbles, said that weak companies seeking to go public via a SPAC is one reason investors are losing interest.
"The SPACs boom has all the ingredients of [past bubbles]: proliferation of a controversial financial innovation, some poor-quality players, low average investor returns, regulatory concern and increasing bad publicity," Naumovska told CBS MoneyWatch in an email. "The bubble will burst, and some investors will lose money."
Often called blank-check companies, SPACs sell shares to investors before the enterprise owns a business. Instead, SPAC sponsors commit to using the money raised from selling shares to acquire a private company. This type of reverse-merger investment, which has existed for decades and which was once viewed as risky, suddenly had investors diving in last year.
Some of the companies that have gone public through SPAC deals have large and growing businesses. Popular fantasy sports-betting website DraftKings, which had $600 million in sales last year, went public through a SPAC last year. Lender SoFi is also working on going public using a SPAC merger, as is shared office space company WeWork.
But the SPAC investment tide appears to be receding. In the first three months of the year, about 300 SPACs raised nearly $100 billion — more than in all of 2020, when nearly 250 SPACs raised $83 billion. But deals have slowed this month, with just 10 new companies going public in April. The Securities and Exchange Commission said it's looking into the accounting of some of these deals.
SPAC shares have been falling as well. They're down an average of 27% since mid-February, according to an exchange traded fund, Defiance Next Gen, that tracks the prices of the blank-check companies.
One of investment legend's Warren Buffett's most famous sayings is that "when the tide goes out, you can seen who is swimming naked." Using that analogy, a number of companies that have been acquired in these deals are looking pretty bare, as follows.
Shares of electric car company Fisker, which went public in October 2020 through a SPAC reverse merger with Spartan Energy Acquisition, nearly doubled in February to a high of $28.50. CEO Henrik Fisker, who previously designed cars for BMW and Aston Martin, has been trying to build an electric car company, like Tesla, since at least 2005. His last attempt, Fisker Automotive, ended in bankruptcy in 2013.
Fisker shares have since fallen more than 50% to just over $14. The company doesn't have any electric cars yet. Its first vehicle, an SUV, is scheduled to be ready in late 2022, while the company is expected to lose over $250 million this year. Goldman Sachs recently downgraded Fisker shares to a "sell" rating.
Fusion Fuel Green
Fusion Fuel Green is another pre-product company that went public through a SPAC merger. The company, which believes it can produce hydrogen fuel without generating carbon emissions, started building its first hydrogen production plant earlier this year.
Fusion Fuel shares, which rose to $25 last year, have slumped to $13. Analysts at S&P recently estimated that the cost to produce hydrogen fuel would have to drop by 50% for hydrogen to become a viable alternative to conventional fuels.
In February, SPAC Holicity announced that it would merge with rocket-manufacturer Astra, a California-based startup with plans to become the "FedEx of space." With a vision of sending tens of thousands of low-earth satellites into space by the end of the decade, the company's stated mission is to "launch a new generation of space services that will improve life on earth."
Ahead of its reverse merger Astra, however, shares of the blank-check company have fallen with the rest of the SPAC market. Holicity's stock, which reached $20 in February, now trade for $10.38.
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