PPA and MLP Merger - The Expectations Are Now Even Higher

Diving Right In…

Please forward this along to any other pickleball addicts you meet and we’ll be eternally grateful!

Yet again, in lieu of our normal publication, we’ll jump into some thoughts on the latest news regarding the renegotiated merger between MLP and the PPA.

PPA and MLP Merge:
It makes sense but we now have even higher expectations

What’s the latest?

The PPA and MLP have merged, reportedly through the creation of a new holding company in which both organizations will hold 50/50 ownership.

According to one of the PPA’s largest backers, Tom Dundon, “The holding company unifying the PPA Tour and MLP will create a streamlined sport for fans and add more meaningful opportunities for player competition, broadcasting rights, and sponsorship throughout the professional pickleball calendar,”.

However, let’s keep in mind that this comes only weeks after both went on an all-out spending war for the scarce resource of professional pickleball and star talent. It seemed unanimous that MLP had won that battle for talent in a definitive way, securing 80% of mid-to-high-level pros. 100+ players voted with their feet, bank accounts, and future careers to align with an organization that, by all accounts, was superior in player treatment.

That strategic move of securing player talent proved to be necessary for regaining leverage in the relationship with PPA, but ultimately insufficient to fully break away as a wholly independent professional league.

What were the terms of the original deal?

As new reporting has come out, the November “merger” between the two organizations seems to have been anything but that. The original non-binding deal was conceived after PPA motioned to start VIBE, a team-based league directly competitive with MLP. That announcement was kickstarted with trendy sweatshirts and talent agreements with rising stars JW Johnson and Dylan Frazier. And let’s keep in mind the tremendous appetite we’ve seen from the business, celebrity, and athletic community to get a slice of professional pickleball - making it quite possible that the PPA could have quickly fielded a roster of competing teams after Mark Cuban stepped in as the first team owner.

While we don’t think it’s super straightforward for how to run a team-based league, it was nevertheless a highly strategic move by the PPA, as MLP was immediately on the defense from a competitor expanding directly into their lane.

So…a pretty one-sided deal was struck. From what’s been reported:

• PPA (Tom Dundon) would get ~20% equity in MLP

• Dundon and PPA would control 4 MLP teams and be able to purchase those at relatively modest valuations

• Dundon would receive significant proceeds from the sale of future teams

• The PPA committed to not launching a competitive team-based format (effectively taking Vibe off the table)

• MLP would be restricted exclusively to team-based events as part of a shared schedule

What are the terms of the new deal?

The PPA and MLP now hold 50% interest in a new holding co, the Unified Professional Pickleball Organization (tbd on a final name). There will be a new CEO to oversee this company that presumably comes from a sports business and league-building background. Key points of the new deal:

• The board has 5 seats:

  1. Steve Kuhn - MLP Founder

  2. Brian Levine - former MLP CEO

  3. Al Tylis - D.C. Pickleball Team owner

  4. Jason Stein - SC Holdings managing partner

  5. Tom Dundon - PPA owner and Dundon Capital Partners

• Tom’s 1 board seat seems like the relative power leans towards MLP

• The combined entity will be funded by a $50M investment, led by SC Holdings and Al Tylis, with further participation from Tom Dundon and other MLP owners

• Steve Kuhn will reportedly oversee DUPR and Minor League Pickleball as separate entities

• Pickleball Central and Pickleball Brackets will remain with Dundon Capital Partners

• The two organizations (MLP and PPA) will co-exist as independently run entities until there is either a decision by a new CEO to consolidate under a shared name, or until the success of one org in the meantime makes it clear where the two entities should double down

Why didn’t the original deal go through after 9 months?

As we’ve said in the past, time kills all deals, as it presents more opportunities for small cracks and differences to become material fractures. Under the terms of the original deal, MLP appeared as the “sideshow” of the PPA Tour. Even some of Steve’s own commentary on The Kitchen’s interview noted the widening gaps during the merger process around topics that felt like deal breakers to them, namely 1) # of days players were allocated to play w/MLP, and 2) the importance for MLP and PPA content to eventually reach parity. Further, it seems to us that there were some MLP owners and leadership who wanted to make a bet on themselves, as opposed to being tethered to the PPA in more material ways. Stalling discussions and seemingly low genuine collaboration from the PPA seemed to help accelerate these sentiments and erode trust in Connor Pardoe (CEO of the PPA Tour). A cynical (or strategic) view by some could argue that Connor held nearly all the leverage in the original deal, so there was little incentive to give MLP its wish list and help them grow into a legitimate sibling league that could one day pose competitive.

As a result of the recent battle for talent initiated by MLP leadership, they were able to effectively shift the balance of negotiating leverage in their favor and command a materially better deal than the original proposal. PPA was scrambling to sign talent and spending arguably inflated amounts on players in order to field a marginally competitive slate to go up against the blue-chip talent of Ben Johns, Collin Johns, and Anna Leigh Waters among others. So, while MLP’s talent acquisition spree moved them into a leadership position of a new holistic tour (team and individual events), it wasn’t a final death blow. Tom Dundon is not one to immediately count out, given his deep access to capital to keep PPA solvent, as well as his operational experience in the pro sports world with the Carolina Hurricanes. And importantly, the massive talent acquisition push saddled MLP with significant commitments to players which became a material working capital question. Hold that thought for a second.

So if MLP was in a leading position, why not just go it alone?

While we have been open supporters of the merits of going it alone (see last week’s piece), and there are some MLP owners & stakeholders that would support that route, there appear to have been some key hurdles that emerged and ultimately made the 50/50 merger an attractive mid-to long-term solution. Highlighting some of the biggest ones:

• The arms race for talent seems to have gotten a little out of hand, inflating prices for each other and forcing both sides to make massive commitments. MLP apparently committed to $20M+ in player contracts, compared to an original talent acquisition budget of $12M. PPA’s response to fleeing talent caused even higher contract inflation in an attempt to shore up talent losses, with many mid-level and “rising” names pulling in contracts bigger than other established pros that signed MLP. PPA’s 2024 commitments are speculated to be in the ~$16M range.

• MLP’s sources of funds were seemingly precariously secured while their uses continued to mount. The main sources from large check investors signing new term sheets, plans to sell four (formerly PPA Vibe) franchises to the tune of $10-12M each, and willingness from existing team owners to double down on their investments were viable and great options to give MLP the clearance to make a run at it independently. Unfortunately, though, commitments or a plan to source funds can feel quite different to more conservative MLP owners than having the $20-50M cash in an account to meet all the newly saddled obligations as they chart their own path.

• These practical considerations around economic viability and the ability to effectively source future investments created tension, which was amplified by the relatively limited internal communication and consensus among team owners going into the talent acquisition spree. There were team owners who were strategically kept in the dark until after major steps were made, in order to move quickly in the landgrab for talent. Couple this with potential litigation that could present further financial constraints and uncertainty, and it starts to make coming back to the merger table more viable if a new path presents itself.

• That new path came in the form of a lucrative $50M equity investment from Jason Stein, Al Tylis, and Tom Dundon. All three move higher up in the cap table and stand to benefit considerably from the future success of the combined holding co.

It was ultimately determined that the talent pool and brand of MLP needed to be coupled with business machinery, where PPA has a slight headstart. And given its leverage with the recent talent capture, MLP could do so on fair and attractive terms, creating a net positive win for them.

The PPA brings considerable operational experience when it comes to events and digital production. While they clearly haven’t prioritized the amateur experience, they know how to get people out in numbers and they are more cost-efficient in putting on events compared to MLP.

What makes sense:

• Talent consolidation:

  • Aggregating all of the top talent from one sport is clearly beneficial to your ability to gain sponsorships, streaming/broadcasting rights, and viewers.

  • Fragmented talent pools make it more confusing for fans to understand where to allocate their attention, and arguably from a viewership perspective, MLP & PPA’s biggest ‘competitors’ aren’t necessarily each other, but the opportunity cost of a viewer’s screen-time which could be spent on a myriad of other content (TV, movies, other sports, social media, etc.).

• Commercial synergies:

  • Over-used word, but the consolidation of talent (and presumably viewers) helps make it an easier sell to brands trying to allocate dollars to the sport. Similar opportunity for having one org with all the talent for streaming / broadcasting deals.

  • Further, having two non-competing pro league formats presents an opportunity to double its sponsorship reach, as they can find unique sets of backers for both the PPA and MLP that fit their play formats & target demos more closely, without creating conflicts of interest if they have another set of sponsors for the other pro league.

  • If events are simultaneously put on (e.g. MLP event leading into a PPA Tour event), then the two organizations can generate some amount of economies of scale by sharing facility agreements / negotiations.

• Net benefit to franchise values:

  • With the merger, it all but guarantees that Vibe will be put to pasture. This inherently constrains the supply of pro teams, and reduces the risk that another competing team-based league with serious backing and access to talent can be quickly spun up in the near-term. Net positive to MLP team valuations.

What feels off:

• MLP player compensation:

  • We’ll wait to see how vocal some players are in the coming days, weeks, months, but it’s pretty well-known that there were players who ended up signing with MLP for lower contract values than what PPA offered out of loyalty to and trust in the MLP ownership. TBD if it creates any weird relationships among players and/or team owners / MLP leadership so long as the contracts aren’t near parity. On one hand, we see the frustration if you passed up on money in favor of being a part of building a new way forward for the sport. On the other hand, you could argue that players & their agents were simply making decisions to maximize their utility function, and a subset of players weighted dollars more heavily into this function than other intangibles, so the market (and PPA) found a clearing price to properly incentivize some players to go PPA.

  • PPA’s race to dam the flow of talent to MLP inflated some contract values and may create a need to renegotiate terms in the coming year.

• Culture clash:

  • A little mentioned, but serious consideration in M&A is how the cultures of two organizations will mesh once integrated. In some cases the cultural chasm is too wide for the buyer to force changes at the Target co., so they leave the Target co.’s leadership to continue forward (e.g. Microsoft’s CEO Satya Nadella keeping LinkedIn’s cultural DNA intact by leaving its CEO Jeff Weiner in place). However, that’s often an exception to the rule, and most orgs are subsumed over time during the merger. In this instance though, both entities will be run independently in the near term, and it doesn’t appear that too much has changed in the cultures to bring the two organizations closer together in the past month. Moving forward, it’s a big question mark how the history between the two orgs will affect their ability to cooperate to find mutual wins for each other.

• Steve shifts his focus:

  • Steve Kuhn is a visionary in the sport of pickleball. It will remain to be seen how having him shift more of his focus to DUPR and Minor League will impact the direction of the pro sport.

• Two names and brands:

  • We’ve heard many perspectives now about the benefits of having the PPA and MLP come back together. A commonly cited benefit is the simplification for viewers to not have to figure out the differences between two competing leagues. We are skeptical at best, as there will still be two leagues, playing two different formats, and now slightly less incentive to forcefully market how their format & programming is superior to the others. At least with some talent dispersion, it required viewers to ask “why” one set of players existed in one format and not the other, which would hopefully lead to greater viewer exploration and education. But now just because they’re not fighting, we aren’t so quick to assume that it vastly simplifies things for consumers turning on the TV.

• Risk of both leagues (particularly the fragmented 24 MLP owners) falling into complacency & malaise:

  • This is our biggest concern that we’re 1) hoping is misplaced, 2) hoping we can be convinced otherwise, 3) hoping we can help with.

  • To reiterate our perspective on this from last time: “The prospect of this peaceful merger for almost the past year may have created complacency among some team owners/investors that everything would work itself out, move along under Steve’s vision, and keep growing in value as more investors fight to get a slice of a scarce asset class. This move and the collapse of the merger provided a necessary shot in the arm to the entire organization and owners who now need to lean in, professionalize their teams, and figure out the right way to monetize their fanbase to pay for players and potentially new facilities in their home markets. We believe there’s a talented group of investors in these teams who have been sitting on the sidelines and now have the proper incentives to get involved since it has become apparent what was true all along, that this is and will become an increasingly competitive market vying for a finite supply of viewers and talent.”

  • We hope that this incentive remains and will be thinking of ideas on our own to help teams through this process, as we feel strongly that greater professionalization and rigor from MLP teams is key to the long-term viability and success of a pro circuit.

Final Thoughts

If nothing else, the pace of change is a positive signal for the energy that many have for the sport at the professional level and is emblematic of the intense passion we feel for the sport every time we meet a newly minted player on the local courts. It’s a turbulent ride, but remain optimistic that this level of intensity will lead to greater innovation and growth.

We will be at MLP Atlanta next week if you would like to talk, debate, or play (or all 3 at the same time). Drop us a line.

You can reply to this email, or set up a time to talk here.

- Ryan & Braxton