Hall of Fame Resort and Entertainment (HOFV) Update: Something Stinks In Stark County
Last summer, we exposed the boondoggle that is Hall of Fame Resort and Entertainment (HOFV), a company trying to build the “Disney world of football” in Canton, Ohio. When we wrote our initial report HOFV was soaring after a plan to sell NFTs to the public by teaming up with the promoters of the Fyre Festival. We thought the NFT offering was a farce unlikely to succeed, its guidance underpinned by nothing close to reality, the project plagued by delays and failed promises, and we thought a promised construction loan was unlikely to materialize. One year later, the NFT offering was a failure, the construction loan failed to materialize, and HOFV’s stock has plunged nearly 90%. We covered our short and moved on.
But more recently, HOFV’s stock has risen 100% after a couple of financing agreements were announced and a blitz of publicity around the 2022 Hall of Fame Game. We were inspired to revisit the story, and didn’t like what we found. We think the main financing cannot actually be used to build new projects. The company remains almost out of capital, their naming sponsor and Phase II general contractor is trying to get out of the deal. When HOFV reported earnings last night the new story was a partnership with a betting company tied to Jake Paul. Embarrassing. We have re-shorted HOFV stock and expect this company to eventually file bankruptcy, crushed by mounting debt and increasing losses.
Something Stinks In Stark County
When we published our first article on HOFV, the company was touting that a $200 million construction loan was right around the corner. The capital infusion would help pay for the $300 million Phase II expansion of the Village project. Phase II would include opening two hotels, the retail promenade, Center for Performance, Constellation Center for Excellence, and the infamous indoor NFL themed waterpark. Phase II of the project was essential for success, as the $250 million of Phase I investments resulted in meager revenue through the end of 2021.
HOFV said that Phase II would cost $300 million and be “complete and operational” in 2023 when it went public in July 2020. It also claimed that it would generate $45 million in revenue in 2021 and $80 million in 2022. But to get the Village there, HOFV’s success hinged on this $200 million construction loan.
HOFV claimed that the loan was right around the corner in early 2021 saying:
“We will provide an update when the terms of the construction loan are finalized. We are still targeting a signed construction loan by the end of the second quarter [of 2021].”
Over a year later there is still no construction loan, and HOFV has seen its capital deplete rapidly. It has taken on more debt and seen its naming sponsor sue the company to get out of the contract. Sponsorship revenue accounted for $6 million of HOFV’s $10.7 million revenue in 2021, well short of the $45 million that HOFV guided to in late 2020. The sponsorship revenue is now at risk, and the sponsor whose name is currently on the project wants out of the deal.
As the year went on the loan was swept aside. By August HOFV was saying:
“We spoke about this at the last call, construction loan and timing of a construction loan. Let me start off by saying that construction loan itself, that actual facility is a part of the overall construction financing that we have continued to put in place. We have several term sheets and in fact, signed two of them this week for different types of construction financing, not the traditional construction loan in essence, but we are wanting to be very pragmatic about the timing of the facility that we put in place.”
The construction loan wouldn’t materialize. In its place – over a year later – HOFV announced a $34 million PACE loan. This is just a drop in the bucket compared to what is needed, and we are wondering if HOFV can even access this capital for development like its press release suggested. HOFV’s language was different in the 8-K.
What Can HOFV Use Its Recent $34.7 Million PACE Loan For?
While there was no $200 million construction loan, two recent financings have helped the stock go up. Unfortunately, it is too little too late, and we think HOFV is misrepresenting what the money could be used for.
On July 6, HOFV put out a press release announcing it had secured a $33.4 million PACE loan. The release read:
“Hall of Fame Resort & Entertainment Company (“HOFV” or the “Company”) (NASDAQ: HOFV, HOFVW), the only resort, entertainment and media company centered around the power of professional football, today announced it secured approximately $33.4 million in Property Assessed Clean Energy (“PACE”) financing from Stonehill Strategic Capital, LLC. The financing was approved by the Canton City Council in coordination with the Canton Regional Energy Special Improvement District.”
HOFV touted this capital as well as a $5 million loan from Stark Community Foundation as helping them continue to build Phase II of the project. In the press release HOFV said the capital would be used to continue construction of the project.
“The PACE financing, coupled with the previously secured $5 million in financing from Stark Community Foundation, Inc., provides HOFV with additional capital for the continued construction of Phase II of the Hall of Fame Village and generates revenue for its business by opening several one-of-a-kind, sports-themed assets at the campus.
Side note: those one-of-a-kind assets are a 20 gondola Ferris wheel handed down from Cleveland and a football themed zipline.
Just what is a PACE loan though? A website for the Ohio PACE loan program touts the program to commercial property owners succinctly: “Commercial Property Owners: Lower Energy Costs With No Out-of-Pocket Expenses.” A map on the website shows that the average PACE loan in Ohio is about $1 million. But a PACE loan is “made just for investments in energy efficiency to commercial properties.” So, could this capital be used for building out Phase II assets? We don’t think so.
We think the $34 million can only be used for energy improvements to the Tom Benson Stadium. Which we think explains the curious discrepancy between HOFV’s language in the press release when compared to the 8-K they filed announcing the financing. The language also reads as if the energy improvements have already been made.
“Under the EPC Agreement, the Investor provided $33,387,844 (the “Project Advance”) property assessed clean energy (“PACE”) financing to finance the costs of the special energy improvement projects at the Stadium described in the Canton Regional Energy Special Improvement District Project Plan that have been completed (as supplemented, the “Plan”). Of the Project Advance, $29,565,729 was disbursed to Lessee, $3,221,927 was retained by Investor as capitalized interest, and $600,187 was used to pay closing costs.
We read that language as suggesting the energy improvements have already occurred and that HOFV is unable to use this capital for Phase II building.
Almost 60% of HOFV’s Revenue Could Disappear: Johnson Controls Wants Out Of Naming Agreement
Despite key parts of the project being fully open since 2017, HOFV generates most of its revenue from sponsorship agreements, not the actual operation of the Village.
In our initial article we highlighted that revenue from the Johnson Controls deal was 75% of sponsorship revenue (sponsorship revenue was 85% of HOFV’s total revenue in 2019 and 2020, it was 60% of revenue in 2021.)
The initial sponsorship agreement was for $135 million over 18 years in 2016, but it was negotiated down to $99 million over 18 years the day HOFV went public. The deal also made Johnson Controls the general contractor for Phase II of the project, which could cost HOFV up to $217 million. After the deal was finalized, Johnson Controls got a board seat.
In early May HOFV announced that Johnson Controls was terminating the contract, using a clause that allowed Johnson Controls to get out of the deal if the company had not “secured sufficient debt and equity financing to complete Phase II.”
From the Canton Repository:
Johnson Controls wants to end its relationship with the Hall of Fame Village. The international corporation also claims that the Hall of Fame Resort & Entertainment Co., which is developing the Canton complex, has defaulted on a "technology as a service agreement" and on a naming rights agreement. According to Johnson Controls, HOF Village Newco — a Hall of Fame Resort subsidiary — is behind on payments established in the technology agreement. Johnson Controls is seeking $4.75 million from Hall of Fame Resort.
Soon after, the company would announce the board member representing Johnson Controls was stepping down. Johnson Controls is demanding a $4.75 million payment. If HOFV needs to make such a payment, it would take up nearly half the cash currently on the balance sheet. When HOFV reported earnings after the close yesterday sponsorship revenue
Largest Shareholders Filed To Get Out Of HOFV Stock
Just two days ago HOFV filed an S-3, once this registration of stock is effective several key HOFV shareholders will be able to get out of the stock.
Analysis of HOFV’s SEC Filings Indicates Potential Speeding Violations When Discussing Travel Times
Another interesting thing. While the company states that their two hotels (one in downtown Canton and one on the Village campus). HOFV in SEC filings states that the one in downtown Canton is “about five minutes from campus.” Yet Google Maps data shows that the drive is usually nine minutes throughout the day. It’s possible when this analysis was done a HOFV employee was speeding. This results in an overstatement of travel time by nearly 100%.
Real progress has been made though, and despite the delays some construction projects have been completed. According to the Sports Business Journal:
“This week, the Village will promote and sell what is finished: a large multi-purpose indoor facility that will host several Enshrinement events, an eight-field sports complex, the Play Action Plaza green space and an office building that’s about 60% leased. This week, the Village will aggressively program the partially-done landscape with food trucks, a zip line, games and an outdoor bar.”
Maybe the opening of Don Shula’s restaurant and a Build-A-Bear workshop will change that, maybe not. They are breaking ground on the indoor NFL-themed waterpark and on-campus hotel “very near term.” Then again, this is the same company that had previously claimed the Don Shula restaurant would be open in late 2021. We think all of this this will be too little too late for the stock. We think the most recent loan is unusable for development purposes, and the company remains almost out of money. We see the company out of capital and likely bankrupt within the year.
We think the run-up that has been caused by these financings will soon revert under the weight of massive losses and expenses. After the close yesterday, HOFV filed an S-3 registering $53 million of stock to be sold by some of HOFV’s largest shareholders and key lenders. The company will see no proceeds once the statement becomes effective. We re-shorted shares of HOFV after the run-up, its latest earnings announcement doesn’t change anything. Sponsorship revenue is falling, the company lowered guidance due to the fact that the Johnson Controls deal is up in the air. HOFV has only $10.7 million in cash left and is guiding to a loss of $20 million (of Adjusted EBITDA - real losses will likely be higher).