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Friday, Oct 7, 2022

Former Media Exec Harry Sloan Now Stars in the Hottest Sector in Finance

Harry Sloan has had an impressive, if eclectic, career.

The lifelong Angeleno worked as a media executive, lawyer and investor before arriving almost by accident at the bleeding edge of the latest finance movement.

Sloan is the former chief executive of Metro-Goldwyn-Mayer Studios Inc. and founder of SBS Broadcasting — once the second-largest broadcaster in Europe. He’s also a founding shareholder of Lionsgate Films and the former chairman of New World Entertainment.

More recently, Sloan is the founder of six Century City-based special purpose acquisition companies. 

SPACs, as such entities are better known, are companies that have no operations of their own. They are created to raise funds through initial public offerings. Managers then use the funded vehicles to acquire a target business looking to go public in a reverse merger.

This year has set the record for both the number of SPACs and the dollars they generated. Although the investment vehicles have been around for decades, this year’s roughly $72 billion raised across more than 200 SPAC public offerings is more than five times the second-largest year on record, according to SPACInsider. 

Some of Sloan’s deals have been among the highest-profile SPAC mergers. Sports betting company DraftKings Inc.’s $3.3 billion merger with Sloan's Diamond Eagle Acquisition Corp. SPAC, completed in April, made headlines for both its size and the company’s strong performance in the wake of the merger. Another of his SPACs, Flying Eagle Acquisition Corp., is moving toward a merger with mobile gaming platform Skillz Inc. in a deal that values that company at $3.5 billion.

Sloan sat down with the Business Journal over a Zoom call from his Bel Air home office to discuss his career, his deals and thoughts on the SPAC space.

You’re a native Angeleno, right?

Yeah, I was born in Torrance. I went to public elementary and secondary schools in the South Bay, went to UCLA for college, then went to Loyola Law School. I’ve been out of the country a few stints, but I’ve been in SoCal 90% of my life.

I understand that your first full-time job was at an entertainment law firm you founded. 
Why did you go straight to founding your own firm and why the focus on entertainment? 

The main reason I became an entertainment lawyer was that I had worked in the Screen Actors Guild when I was in law school. I really started out as a talent lawyer. I started my own firm partially because at that time if you went to law school at night the big law firms didn’t want to hire you. So, I didn’t have a lot of options.

And that was when you met Jeff Sagansky?

I was his lawyer for a few minutes. I didn’t do a good job, and he fired me. We became friends, though. We’ve stayed good friends for 40 years now.

When did you first get into entertainment investing?

In the early ’80s, lawyers didn’t really make money. You’d really just break even. You’d make your money on the side investing. In L.A., that was in real estate. 

By the time I got around to doing it, real estate wasn’t really an option anymore. So, I started investing in production companies. It became a side business.

You’ve led several large entertainment businesses. How did that start?

I bought a small B-movie entertainment business named New World (in 1983). We renamed it New World Entertainment. I led that for a few years and it did very well. We sold it to (Ronald) Perelman in ’89.

And that kicked off your stint abroad, right? Why did you decide to leave the Southern California market?

By the ’90s, most of the opportunities in entertainment were international. So that’s when I started SBS. That became Europe’s second-biggest broadcaster. We sold that in 2005 to a couple of private equity shops, KKR and Permira (for $2.6 billion).

What did you do next?

I was thinking about retirement, but I guess I was too young. I joined MGM in 2005. Within six months I went from being chairman to being CEO.

When did you first hear about SPACs?

I’d never heard the word until Jeff (Sagansky) called me up when I was at MGM. He said you can raise money just based on your good looks and your track record. I thought that sounded pretty interesting.

And that’s when you decided you wanted to transition from entertainment into finance?

I didn’t see us as financial guys. Originally, I thought we’d raise money and find a company to manage. The one time I went to work for someone else was at MGM. It wasn’t the best experience, which made me determine that I wanted to go back to work for myself.

And you thought a SPAC was the best way to do that?

You can control a company in a couple of ways. You can buy a company, but the size of the company I would want to run would have been too expensive. You can dust off your resume at nearly 60 (years old). Or you can buy a company through a SPAC.

What changed that made you decide to keep raising SPACs instead of taking over management at a company?

In 10 years, we’ve never actually managed a company because the fit either hasn’t been right or they’d had great entrepreneurs as leaders.
The first SPAC we raised bought an airline Wi-Fi company. The second (merged with a) satellite television (company) in India. We weren’t going to run either of those.

The third and fourth SPACs were not entertainment. 

Then, by the time you got to the fifth and sixth, those were DraftKings and Skillz, and they had great leadership already.

Of the six SPACs you’ve raised to date, is there any one that is your favorite or that you’re most proud of?

DraftKings. No question. I believe it’s the most successful SPAC in the history of SPACs. The performance of the company has been phenomenal. Its value has more than doubled (since we took it public).

Were there any specific factors that you think played a role in that company’s success?

Under Covid, with sports initially shut down, you would have thought you couldn’t continue forward with sports betting. But now, with the fans not able to attend games in person, instead it shined a light on stay-at-home stock. Sports betting, like streaming and video games, was seen as a stay-at-home stock. So, it got a Covid boost.

Plus, it has great tailwinds. The more states that adopt sports betting, the stronger (the offering) gets. Louisiana, South Dakota and Maryland all passed legislation on sports betting (in November).

Are there any specific features of how you approached the deal that you think helped it succeed?

We had spent four years getting to know Jason (Robins, DraftKings’ chief executive). I don’t think it’s any coincidence that the deal we spent the most time on has been the most successful.

One thing a lot of SPAC guys are doing — the day they announce a deal, they raise another one. How much time can you spend getting to know companies doing that? You will never see us do that. We announced Skillz, and it’s been three to four months. 

Not only do we want to spend more time getting to know these companies, but we want to continue to be involved even after we get the deal done. Big involvement beforehand is valuable and so is big involvement after.

What do you see as making a company a good fit for a SPAC deal?

There is a lot of talk right now about SPACs as an alternative to a regular IPO (initial public offering). I don’t think that’s the best way to use a SPAC. I think it’s best used to take a company public that’s unique — a company that has no comps (comparable companies). If there are five other comps for a company it should do a regular IPO.

If you have a company that is unique, like DraftKings — it’s the only pure-play sports betting company — that it’s unique is a good thing. But it makes it hard to raise money from public investors. The biggest advantage for a SPAC is that you can spend a lot of time in price discovery with investors.

Most estimates put this as the biggest year in history for SPAC deals. Do you think the SPAC market is getting overheated at all?

This SPAC panacea is not real. Ninety percent of (SPACs being raised) now are first time SPACs. Many won’t find a target. Even if they do, because there is so much competition, returns will be lower.

Those that don’t find a target won’t raise another SPAC. Those that get low returns won’t raise another SPAC. I think the number of SPACs will be cut down dramatically. I think you will see the high-water mark of SPACs in 2020.

Do you see yourself continuing to do these SPAC deals for another 10 years? 

I don’t know how much longer it will continue to be interesting to me, but as long as we continue to bring money to investors and give people like Jason (Robins) and Andrew (Paradise, chief executive of Skillz) opportunities to build their businesses, I think it’s worth doing. I don’t see any reason to stop.


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