Bain Capital and Varsity Spirit continue to clear their deck of litigation as the private equity giant reportedly considers offloading its profitable but controversial cheerleading company.
Earlier this month, the parties in an antitrust lawsuit, Jones et al v. Bain Capital Private Equity et al, told a federal court they had reached a settlement “agreement in principle,” with the plan of having it formalized by Sunday. The other defendants in the case, which was set to go to trial in July, include: Varsity founder Jeff Webb; the company’s previous owner, Charlesbank Capital Partners; and the U.S. All-Star Federation (USASF), the governing body that was originally founded and seeded by Varsity. As of now, the terms of the settlement, and to what extent it is likely to impact the competitive cheer industry, are not known. Originally filed in December 2020, the class-action suit asked the court for treble damages, the disgorgement of “unjust enrichment” and injunctive relief.
Attorneys for the plaintiffs did not respond to a request for comment.
“Varsity Spirit and other parties are pleased to have reached an agreement in principle to resolve this litigation, which we believe is a positive outcome for everyone involved,” a Varsity spokesperson said in a statement to Sportico. “The settlement is not an admission of any wrongdoing or liability, and we are confident that Varsity Spirit acted appropriately and in the best interest of our sport.”
The disposition of this latest lawsuit could play a key role in whether Bain can offload Varsity at some point, either by taking it public or selling it. In November, Reuters reported that Bain was actively exploring both options for Varsity Brands, with a $6 billion valuation inclusive of company debt. According to Reuters, Bain had been interviewing investment banks to facilitate a deal. A Bain spokesperson declined to comment when reached by Sportico.
Bain originally purchased Varsity Brands—which includes both Varsity Spirit and BSN Sports, a team clothing and equipment maker—in 2018 from Charlesbank, the middle-market private investment firm, for $2.5 billion. That price was a billion dollars more than what Charlesbank paid for Varsity four years earlier.
Since Bain’s acquisition, Varsity Spirit has repeatedly been the subject of controversy and litigation, with plaintiffs accusing it of operating as an illegal cartel and of fostering a culture of sex abuse and cover-up in club cheerleading. For Varsity critics, the swarm of litigation over the last five years offered the first real hope that a company they perceived as being at the root of club cheerleading’s problems would finally face its comeuppance. But so far, none of the lawsuits have reached a jury.
Earlier this year, Varsity finalized its release from lawsuits filed by at least 21 plaintiffs around the country, who claim to have been sexually abused by their cheer coaches, including while some were minors. The terms of those settlements were filed under seal and are not expected to be made public.
The Jones case, meanwhile, was one of three antitrust cases that had been brought in 2020 against the so-called “Varsity defendants.” In March 2023, Varsity reached a $43.5 million settlement with a class of plaintiffs representing all-star cheerleading gyms. As part of resolving Fusion Elite All Stars, et al v. Varsity Brands LLC, et al, Varsity agreed to take several steps meant to remove its influence from the USASF.
U.S. District Judge Sheryl Lipman presided over the antitrust trio in the federal courthouse in Memphis, Tenn., where Varsity is headquartered. For a while, the three cases shared discovery and witnesses. Around the same time the Fusion Elite case was settling, Lipman dismissed a second of the antitrust cases, American Spirit and Cheer Essentials, Inc. et al v. Varsity Brands, LLC et al, on procedural grounds.
Robert Falanga, the attorney who represented the American Spirit plaintiffs, later told Sportico that his clients planned to appeal the judge’s dismissal and continue pursuing antitrust claims against Varsity. Falanga went so far as to notify the court of his clients’ intent to appeal, but they opted not to pursue it further after the defendants sought to tax the plaintiffs with court costs. Falanga passed away in January.
The Jones case represented a putative class of “indirect purchasers” who accused Webb, Charlesbank, Varsity Brands, Bain and the USASF of conspiring to form an illegal monopoly in the competitive cheer market to the financial detriment of cheer athletes and their parents, thereby earning Varsity hundreds of millions of dollars in “supracompetitive illegal profits.” In August 2022, Judge Lipman denied the defendants’ motion to dismiss the indirect purchasers’ claims for injunctive and declaratory relief under the Sherman Act, but dismissed their unjust enrichment claim.
As with the other class-action cases, the defendants had sought to have a number of key pleadings in the Jones case filed under seal, including the plaintiffs’ class certification brief and the defendants’ briefs in support of their motions to dismiss. After the parties negotiated a protocol for reviewing the motions in question, the court unsealed a trove of documents last month.
To be sure, Varsity and Bain are still not entirely out of the litigation woods yet.
Arguably, its most pressing legal dispute now is with its insurance companies over who will ultimately be on the financial hook for the legal fees and settlement payments in the sex-abuse cases. In September, Arch Insurance filed a “reformation action” asking a federal judge to correct what it claimed was a “mistakenly truncated” policy for Varsity that dealt with “abuse and molestation” limitations. Varsity, in turn, sued Arch in Delaware state court.
Last month, three other Varsity insurers—Evanston Insurance Company, Berkshire Hathaway Specialty Insurance and Westchester Fire Insurance—filed a declaratory action asking a court to determine their liability in providing coverage in the sex abuse lawsuits. As with Arch, the other insurers claim that the sex-abuse lawsuits fall outside the coverage of the general liability policies they issued to Varsity.
Varsity also still has one active antitrust case to deal with.
In March, a federal court in Texas denied Varsity’s motion to dismiss a lawsuit brought last year by a rival cheerleading event producer, Open Cheer and Dance LLC. That suit accuses Varsity of conspiring along three sanctioning bodies it helped found—USASF, USA Cheer and the International Cheer Union (ICU)—to preserve Varsity’s “stranglehold” over the cheer events space through a group boycott and other “anticompetitive and tortious tactics.” Webb currently serves as president of the ICU, a role he has held since its inception.
Webb, who officially departed Varsity in late 2020, currently serves as an independent director on the board of LuxUrban Hotels Inc., a company that leases hotels and rooms in New York, Miami Beach, New Orleans and Los Angeles. (Webb did not respond to a request for comment.) Leonard Toboroff, the one-time vice chair of Varsity Brands, also serves as an independent director of LuxUrban.
Two of the key individuals figures The Open Championships are Heidi Weber, owner of American Spirit and Cheer Essentials, and David Owens, owner of Rockstar Championships, which was also a named plaintiff in the American Spirit suit.
Meanwhile, the USASF is currently suing the Open Championship Series, Owens and three other event officials of federal trademark infringement over the name of its annual Allstar World Championship in Orlando. The latest version of that event took place last week.
The USASF owns a federal registration for the mark “The Cheerleading Worlds,” which was originally obtained in 2003 by Varsity Spirit. The governing body has argued that the use of “world” in its Orlando event is “likely to confuse consumers,” and is seeking damages in the tens of millions of dollars. A trial date in that matter is set for June.