The Wall Street Journal had an in-depth look at Steve & Barry's finances yesterday but it didn’t quite get into what’s next.
And by that I mean, what is a Sears or a Gapor any potential buyer looking at when deciding whether to take over the Steve & Barry’s business in totality and trying to sustain it?
The most troubling aspect of the business is that they don’t own the intellectual property of many of the brands they made their name on and have lost some of the licensing contracts that once generated so much business for them.
Sure, Steve & Barry’s has contracts with Stephon Marbury to make the “Starbury” shoes, but once that contract is over Marbury can do as he pleases. Marbury's company, the Starbury Corporation, owns all the marks associated with the Starbury franchise. Sarah Jessica Parker is registered for her Steve & Barry's line "Bitten" through her management company CAA and the company also doesn't own Venus Williams' line "Eleven."
Now, sources are telling CNBC that the low-cost retail chain has recently seen most of its college team licenses expire.
Steve & Barry's, which filed for bankruptcy organization last week, began more than two decades ago mostly as a college fan gear store. Although the focused shifted in recent years, the 275-store franchise had grown so big that 4004 Inc., which made the college items for the company, was still the top royalty generator for many schools.
Despite the money that was provided, sources with various universities told CNBC that they had grown increasingly concerned with the quality of the licensed items. It was the willingness to leave money on the table that looks to be saving those schools from being lined up among the biggest creditors.
Many schools, whose marks are managed by the Collegiate Licensing Company, an IMG brand, are no longer working with Steve & Barry's. Derek Eiler, CLC's senior vice president and managing director confirmed to CNBC that the CLC's license agreement on behalf of many university clients with 4004 Inc. expired on June 30.
These schools include Michigan, Wisconsin, Colorado, Texas, North Carolina, Notre Dame, Illinois and Northwestern, among others. USC and UCLA, not CLC schools, also no longer have an association with the company.
While the contracts with the celebrities give Steve & Barry’s some substance, the terms of the contracts could make a retailer interested in a buyout a bit queasy. Because of the vertical model, the contracts--in general--provide for the celebrity to make an either eight percent royalty of sold merchandise or a four percent royalty on the number of items produced, whichever is greater. That puts a lot of pressure on those managing inventory because simply ordering a certain number of pieces could generate fees for the celebrity.
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