Antitrust and the Fall of a Cheerleading Giant
The reputation and market power of cheerleading monopolist Varsity Brands is falling apart under a deluge of sexual abuse scandals. The result is both ugly and empowering.
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A Glittery John D. Rockefeller
For the past two years, I’ve been following the saga of cheerleading monopolist Varsity Brands, which is owned by the powerful private equity firm Bain Capital. In 2020, it had what looked like an unassailable highly profitable position, so dominant in its area that CNBC reported that it “stands out as one of the few retail businesses of scale that may also have an Amazon defense,” and private equity firms were looking for ‘Varsity-like’ investment opportunities.
Today, the situation is very different, and my guess is Bain Capital execs wish they had never heard of cheerleading. Varsity is buried under antitrust litigation, new competition from rivals, and most damning of all, a brutal series of allegations of sexual assault by a Varsity-aligned coach. These aren’t isolated occurrences. As Daniel Libit reported in an excellent article in Sportico, and as plaintiffs have charged in their antitrust lawsuit, the sexual abuse stems in part from Varsity’s market power.
In other words, the kingpin of cheerleading has lost its power, and the sport of cheerleading is gradually being cleaned up.
Here’s how it happened. There had always been grumbling about Varsity in the cheer world, but like a lot of affinity communities, the debates had been polarized and understood as a small number of disaffected parents and participants in the industry making noise out of jealousy or frustration. Jeff Webb, the founder of Varsity, was iconic, and challenging Webb was something only fringe-types sought to do. I had no idea about any of that, I’m a business writer interested in antitrust, about as far from the cheer world as you can imagine. But in January of 2020, a colleague watched the Netflix story Cheer. In Cheer, there was a mention of Varsity, followed by a brief discussion of the fear it imposes over everyone involved in the sport. My colleague said, “that’s probably a monopoly.” And told me about it.
I did, and found out that, indeed the firm is run as if it is John D. Rockefeller with glitter in the CEO suite. First, it’s important to note there are two separate sports. There’s ‘sideline cheer,’ which is seasonal and associated with cheering for school sports teams. There are competitions, but sideline is more about school spirit. Then there’s All-Star cheer which is year-round, not affiliated with a school, and is highly competitive. It requires intense athleticism, and is quite dangerous. Varsity controlled both sideline and All-Star, but has more power in the All-Star world.
I traced Varsity’s market power to three basic maneuvers. The first was buying up most of the cheerleading competitions in the country, so that entering a competition meant dealing with Varsity. The second was secretly creating and running the nonprofits that govern the sport, such as the U.S. All Star Federation, which gave Varsity the power to write rules for and organize competitions, scheduling, camps, and ancillary services like insurance. And the third was cutting deals with gyms to block rivals. Gyms are where teams of cheerleaders train, and gym coaches tend to have control over what uniforms athletes must buy. The company gave gyms who bought their uniforms from Varsity preferential treatment and special rebates.
One key result of Varsity’s scheme is inflated prices to the end consumer, which is why Bain bought the corporation in the first place. If there was cash to grab, Varsity tried to grab it. For instance, Varsity makes it very hard for parents to watch videos of cheerleading competition except through the firm’s specific expensive streaming service. There was the practice of 'Stay-to-Play,’ where Varsity would force athletes to stay in a specific hotel if they wanted to enter a competition, with Varsity likely getting rebates from that hotel in the process. The net result is that today it can cost up to $10-20k a year to be an All-Star cheerleader.
“If something as naturally decentralized as cheerleading can be monopolized so easily, it really demolishes so many Chicago School premises.” - Harvard Law professor Einer Elhauge
After I wrote up Varsity’s monopoly power, I got a deluge of feedback. Experts were astonished that cheerleading could be monopolized, as were reporters and enforcers involved in ideological debates over the reach of antitrust law. As Harvard Law professor Einer Elhauge put it, “If something as naturally decentralized as cheerleading can be monopolized so easily, it really demolishes so many Chicago School premises.” From the cheer world, parents, coaches, ex-coaches, equipment producers, former cheerleaders, all came out of the woodwork and said, essentially, you have no idea how bad it is.
What was striking about what I heard from them was two things. First was the fear. A lot of people asked me not to use their name, for fear of retribution. I thought that was weird, I mean it’s not the CIA we’re talking about. But still, lots of people were really afraid, as cheerleading was their community, and in some cases, their livelihood. Webb, and his senior team, was socially, economically, and politically powerful in that world. And very scary. The second was the undercurrent of gossip about huge sexual harassment and assault problems, perhaps Larry Nasser type scandals. There were files floating around, but I couldn’t verify them and I knew others who knew how to do that kind of reporting were looking into the problem. So I held off.
Shortly after this first article, antitrust lawyers filed a host of cases against Varsity, which have since been consolidated into one case in Tennessee. Some of these lawyers did so after watching Cheer and recognizing, as I did, that there’s a monopoly at work. Others read my piece, and thought it made a good case. These suits led to a second article in March, titled ‘The Coming Collapse of a Cheerleading Monopolist.’ I included a lot more detail about what people had told me, as well as the new cases.
The antitrust actions went forward, and last year, a judge ruled in an initial motion that Varsity is in a pretty weak legal position. It turns out, what CNBC praised the firm for establishing - a moat against competition - might be illegal. Meanwhile, rivals that Varsity had bullied into acuquiecense saw the antitrust suits and the chatter in the industry. They started new competitions, and challenged Varsity’s control over cheerleading contests. These new events were super-charged during the pandemic, and while Varsity is still the leader, the firm now has less leverage over gyms and event producers.
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But there was more. Victims began speaking out, including the kids who had experienced sexual assault by coaches and famous cheerleaders. Seven months after my first article, Marisa Kwiatkowski and Tricia L. Nadolny at USA Today detailed a massive scandal of rampant sexual abuse in the industry.
There’s a high-profile aspect of this scandal; Netflix’s Cheer celebrity Jerry Harris was arrested for producing child pornography involving young cheerleaders, with complaints about him seemingly ignored by the main cheer governing body. But the scandal is more far-reaching than just Harris. What Kwiatkowski and Nadolny found was that over a 100 convicted sex offenders who had raped or assaulted children or otherwise engaged in sexual misconduct were allowed to work in the cheerleading world, and the two governing nonprofits of the sport - USA Cheer and the U.S. All Star Federation (USASF) - did not put these sex offenders on their list of people banned from the sport.
These cases and the reporting changed how the cheer community discussed its internal affairs. The key was to have disinterested people actually looking at the business model and legal framework of the industry. In January of 2020, I was a total outsider. I didn’t know anything about cheerleading, and didn’t care about who won whatever competition. To me the cheer world looked like any other consolidated industry, a relatively small group of people under the thumb of a firm exploiting its market power.
When I showed that the problem with Varsity was that it used various schemes that were similar to many other monopolists, it changed how people in the cheer world understand their situation. The antitrust framework gave credibility to the faction that had been complaining about Varsity Brands as more than just some jealous gripers. Suddenly, parents who didn’t think much about cheer except that their daughter was on a team with her best friends started asking, ‘hey why is this so expensive?’ as the lawsuits added further legitimacy. All of a sudden, people in the cheer world could speak in a language that carried power, not cheerleading gossip, but anti-monopoly terminology. Varsity was no longer just an organizer of cheer competitions and a provider of apparel, it was a powerful wrongdoer.
This series of events is something I never expected, that reporting on an antitrust case could help foster the courage to come forward with other, adjacent bad acts. But what is important to remember is that the Sherman Antitrust Act isn’t just a civil statute, but a criminal one. In 1890, Congress made monopolization a crime. This Varsity story shows why that is. The ability to monopolize doesn’t just create the ability to extract extra cash, it fosters dominance, and a lack of accountability. When children are involved, that means bad actors can engage in sexual abuse without being stopped.
And now, Libit reported, Varsity is swept up directly, named, along with Bain Capital, in two lawsuits over sexual abuse. Here’s why. Last month, a cheerleading gym owner named Scott Foster committed suicide “while reportedly under criminal investigation for having sex with minors in multiple states.” And as it turns out, Foster’s gym franchise, “Rockstar Cheer and Dance,” was spending millions of his gym members’ dollars on Varsity competitions and clothing, and in return getting top-tier rebates as part of Varsity’s “Family Plan” rebate program. Foster had even sold a cheer competition company, World Spirit Federation, to Varsity in 2006, when the firm was rolling up the cheer competition market.
The suits allege “Varsity and its affiliated companies of routinely turning a blind eye to credible allegations of sexual misconduct by Foster and other coaches against underage athletes,” which one would expect if Foster’s gym franchise was helping Varsity maintain and exploit its monopoly. Basically, Varsity was a kingpin of the sport, and Foster was one of the firm’s trusted agents. As such, he got both money and protection, and in return provided to Varsity cash from cheer parents.
The suit, though not an antitrust suit, is directly relevant on what is happening in the antitrust cases currently being heard in Tennessee. As Libit notes,
One of the pending antitrust lawsuits, Fusion Elite All Stars v. Varsity Brands, has argued that Varsity’s “exclusionary scheme” enfeebled cheerleading’s efforts to “prevent sexual abuse in the industry, thereby providing a lower quality cheerleading experience to gym owners, parents, and children.”
The judge has yet to rule on whether the sexual abuse claim can be part of the suit, but if she lets this claim go forward, it’s a big deal. It means Varsity will be subject to discovery by plaintiffs, and will have to turn over paperwork involving extremely sensitive stuff it wants to keep hidden. Bain will want to settle quickly, for fear of even more dirty laundry coming out.
In 1890, Congress made monopolization a crime. This Varsity story shows why that is: the ability to monopolize doesn’t just create the ability to extract extra cash, it fosters dominance, and a lack of accountability.
There are two interesting legal points at work. One is whether sexual assault is a part of the firm’s monopolization of the industry, and thus a criminal violation of the Sherman Act. The language of modern ‘consumer welfare’ oriented antitrust, which requires quality and pricing changes to prove harm, doesn’t really work here. The problem with Varsity enabling the sexual abuse of children isn’t, as the plaintiffs argued, that it “provides a lower quality cheerleading experience.” It’s that protecting a monopolistic rebating scheme by hiding sexual abuse is grossly immoral.
The second point is that the suit also names private equity giant Bain Capital as well as Charlesbank Capital Partners, the private equity firm that owned Varsity before selling it to Bain. So there are ramifications that could go pretty far in terms of whether private equity owners are responsible for what their subsidiaries do. Both antitrust agencies have indicated a deep skepticism of private equity, so this is consistent with modern thinking.
Regardless, one thing the sexual assault cases in cheerleading show is that we need a broader view of antitrust law that brings back monopolization as a criminal matter. Fortunately, the new Assistant Attorney General of Antitrust, Jonathan Kanter, has indicated he wants to do just that, putting handcuffs on the table for monopolization violations, which we haven’t seen since the 1970s. Many antitrust establishment thinkers do not like this approach. For example, law professor Daniel Crane opposes it.
Bringing back criminal monopolization claims is about reintroducing morality to antitrust law. Such thinking is anathema to the technocratic approach that forces lawyers to use constipated language like 'a lower quality of cheerleading experience’ when discussing the perils of sexual assault. I’m excited to see the debate over criminal monopolization claims resurrected in the antitrust world, and I think this case is an important contribution to it.
Ultimately, what I’ve learned from this case is that our antitrust laws were written to prevent domination, secrecy, and fear. They are as much about exposing bad acts publicly as they are about courts. When we don’t enforce our laws, or when we enforce them as narrow statutes involving economic efficiency, we get the kinds of harm you’d see in any secretive unaccountable organization, whether USA Gymnastics, the Catholic Church, or an organized crime family. But once we start enforcing them, a community can rise up, stop children from being sexual assaulted, and foster moral order.
What I’m Reading
Why Everyone’s Mad at Ticketmaster Right Now, Time Magazine
FTC Antitrust Challenge to Meta Is a Needed Corrective, Bloomberg Law
Peter Thiel rebuffs Mitch McConnell over Senate rescue in Arizona, Washington Post
CFPB Report Details Family Finances and Debt in Rural Appalachia, Consumer Financial Protection Bureau
I found this tweet from Pennsylvania gubernatorial Josh Shapiro candidate interesting. You don’t usually see this stuff on the campaign trail.
In a little noticed but important big tech case, Republican Ohio Attorney General David Yost is suing Google. He’s not doing it via antitrust. Instead, he’s using common carrier law, asserting that the firm has public obligations under Ohio law to carry all comers on equal terms. His claim is that it’s illegal for Google to downgrade links to rivals like Yelp, below its own reviews of restaurants, or place its own travel search results higher than those of Expedia. It’s the ‘self-preferencing’ idea that Congress is wrestling with right now, only done through common law at a state level.
This lawsuit comes directly out of Clarence Thomas’s anti-Google arguments in 2021. In a series of opinions and statements, Thomas, responding to Donald Trump’s removal from key internet speech platforms, began creating the legal infrastructure for conservatives to place public obligations onto big tech platforms. Yost took that argument and ran with it.
Recently, Yost won an important procedural motion to treat the determination that Google is a common carrier and the remedy for that status separately. Had they been handled together, as Google sought, it would have been a messy and difficult process, and the judge might have simply thrown up his hands. Now, Google’s legal position as a common carrier, and the remedy for that position, will be separate questions. One of my favorite Wall Street analysts, Paul Gallant, made an excellent point on the politics of this case.
While this sounds like a long shot, recall Justice Thomas in 2Q 2021 signaled lower courts that major digital platforms may well fit the legal definition of common carriers and thus can be forbidden from unreasonable discrimination. If the Ohio AG wins, we'd expect other states to pursue similar regimes, particularly if Congress fails to pass the "no self-preferencing" antitrust bill by the end of Sept. before the midterm recess.
I’m not optimistic about Congress for the next few years, though I think we’ll get some useful things, and over time we’ll get more. But with Amazon gradually dropping its own product lines, and state AGs beginning to attack self-preferencing, big tech is getting pushed back.
One thing that was enjoyable about researching my book Goliath was looking into the archives and seeing just how different Americans understood economic power prior to the 1980s. It was like an entirely different country. Mergers, for instance, were just not very common or important, and people were fairly surprised when they happened. The very first modern hostile takeover attempt was in 1974, and it utterly shocked Wall Street. Such things among gentlemen, and Wall Street was a gentlemanly place, simply were not done.
Even into the late part of that decade, unfriendly mergers were understood as immoral. For instance, a reader sent me a personal letter from famed children’s author Alvin Schwartz, written in the late 1970s. Schwartz was immensely popular; his Scary Stories to Tell in the Dark books sold more than 7 million copies and were/are very popular with children.
In that letter, Schwartz was remarking on the sale of his publisher, J.D. Lippincott, to Harpers. At the time, publishers were mostly family-owned and privately held, and the era of junk bond-fueled takeover barons had barely started. Schwartz was simply shocked, but also noted the dangers of increasing concentration in the industry that were already apparent.
“What fascinates me, however, is how an organization with a large sum of money can purchase another company even though the officers sand founders are opposed to the sale and the company is functioning well. Harper’s offer was known in finance as an “unfriendly” offer, one which must be considered no matter how distasteful. There was an article on acquisitions by this route in the Times. The author called it socially undesirable. Certainly, in publishing, the concentration of decision-making in a shrinking number of hands is not healthy for the industry or the country or authors. Time, inc currently is attempting to acquire Book of the Month Club. it already owns Little, Brown, Doubleday, Literary Guild, and now owns Dell. RCA owns Random House, Knopf, and Patheon and Ballantine Books. And so on.”
Up until the 1970s, businesses were understood as social institutions designed to profit by adding something of value to the world. That was a function of laws that prohibited most mergers. But because of Reagan’s administrative rewrite of merger law, that changed, and merger waves have characterized the American economy ever since. The culture in turn moved to accept predation as just the way things work.
Hopefully, as the FTC and DOJ push back on mergers, that attitude will change. And one day, we won’t argue about merger law, we’ll simply wonder, totally mystified, how anyone could have ever let so many destructive mergers happen.
And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.
P.S. For those of you who are young, on the left side of the political aisle, and are interested in working in Congress, this is a group run by some people I know.
Are you a progressive thinker, communicator, or organizer interested in working in Congress or the executive branch? The Progressive Talent Pipeline is now accepting applications for its 2022 round of endorsements. The program identifies, trains, and recommends candidates for staff roles in order to bring new perspectives and energy into government and advance progressive priorities. Find out more about the Progressive Talent Pipeline and apply here.
While this group is left-wing, I’m happy to include announcements of similar conservative or nonpartisan groups, as long as they oppose corporate monopolies.