Performance Sports Group, or PSG, is the parent company to several of the largest sports equipment manufacturers. At the focal point of PSG stands Bauer, the largest and most renowned hockey equipment manufacturer in the world. Bauer has been known in the hockey community as the premium equipment provider for players ranging from minor hockey to the NHL. However, currently, Bauer is known for being the root cause of the lawsuit against PSG for misleading their shareholders.
Bauer generates a majority of their revenue by selling their equipment to individual retailers in the sports industry. The allegations of the lawsuit revolve around the inflation of Bauer’s sales. Bauer began to flood the market by implementing the business practice of ‘channel stuffing’. The witness in TSN’s article stated that, “[e]ven though the number of amateur hockey players in the U.S. remained flat or decreased, PSG put more [product] into the market than the market could handle. PSG threatened [retailers] with the loss of their discounts if they did not increase the size of their orders each year.” On top of the threats, Bauer also began to falsify their revenue by moving future sales into present financial quarters. Retailers currently give Bauer post-dated cheques as a down payment for their future orders in years to come. Although this income cannot be obtained until the date stated on the cheque, Bauer was adding it to their 2015 fiscal revenue. As seen in PSG’s 2015 Annual Report, they reported a total fiscal 2015 revenue of $675.2 million and an adjusted net income of $61.4 million (51.3% and 64.6% increase respectively, compared to fiscal 2014).
On August 15th 2016, as seen on Yahoo Finance, the PSG stock began to plummet as 14.6 million shares were traded and resulted in a 46.8% drop in stock price. This was a direct result of PSG publicly announcing their annual audited financial statements would not be filed by the deadline and would begin conducting an internal investigation. This is where the lawsuit began. Seeing PSG generate an extremely large increase in revenue and adjusted net income, makes an investor believe the company is expanding in all the right ways and entices an investor to buy their shares. In reality, this increase in revenue and income may not be truthful. PSG shareholders believe, if their allegations are true, they bought shares under false pretence and should be compensated.
Sources:
Rick Westhead, “Owner of Bauer hockey accused of fraud and trying to ‘deceive the market“, TSN, Aug.17th/2016
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