The Coming Collapse of a Cheerleading Monopolist

Antitrust lawyers filed a class action lawsuit against private equity-owned Varsity Brands, the organizing force behind competitive cheerleading.

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Today I’m writing about big news in the cheerleading world. Yesterday, plaintiff lawyers filed a class-action antitrust case against the Bain Capital-owned corporation that controls that sport, Varsity Brands. As unlikely as you may find cheerleading to be as a useful model for how the American economy functions, it actually works quite well as a case study. It’s got private equity, monopoly, small business, and American culture, all wrapped up into one nice package.

Photo from Netflix’s Cheer

A Glittery Fall from Grace

Back in January, I wrote up an analysis of how cheerleading works in America. I didn’t look at the cultural or athletic side, but the business of the sport, and in particular, the corporation known as Varsity Brands, which I noticed because of a brief mention on the excellent Netflix series Cheer. That series is a dramatic telling of the season of one particular cheer team, mostly a story of the social dynamics of the team and the passion of those involved. In the final episode, cheer participants talk quickly and fearfully about the control Varsity exercises on everyone involved in the sport, before moving on to the gripping final contest. So I looked into Varsity, and realized that the corporation is a monopoly, with a lot in common with Standard Oil.

I never knew much about cheerleading, but I’ve come to deeply respect the people who do the sport. Cheer is an important part of American culture, with millions of young participants at schools, and hundreds of thousands in non-school All-Star style athletic competitions featuring gymnastic feats. While the origin of cheerleading is in squads on the sideline of games encouraging fans to root for football teams, today there’s a separate sport called competitive cheer, which is simply a particularly glittery form of group gymnastics.

Competitive cheerleaders learn discipline and control of their bodies, they endure immense amounts of pain and pressure, and they work both individually as gymnasts and together as teammates. It has a powerful cultural draw, with thousands of young girls practicing arm motions and cartwheels, wearing cheer leggings and t-shirts, and aspiring to become Instagram star “cheerlebrities.” The sport is dangerous, causing more than half the catastrophic injuries for female athletes in America, including skull fractures.

Competitive cheerleading is also expensive, costing between $3-6k annually per athlete. The charges at issue include not only fees for competitions, but purchases of equipment, like uniforms, warm-up outfits, team jerseys, hair bows and headbands, backpacks, pom poms, and shoes. When working on this story, I heard constantly about the cost, and how it is driving poor kids out of cheer.

To some extent, the cost is high because it’s expensive to buy clothes, training and travel. But market power wildly inflates the price for entering contests and buying the clothing necessary for the sport. Yesterday, three class action law firms (Berger Montague, Cuneo Gilbert & LaDuca, and Justice Catalyst Law) filed an antitrust case against Varsity Brands, alleging that Varsity and the United States All Star Federation monopolized cheerleading competitions and cheerleading apparel, driving up the price of the sport and controlling the independent gyms who train cheerleaders.

The most interesting aspect of this case are not the legal arrangements, but the fear that I found in interviewing people in the cheer world. Virtually every interview I did was under the condition that the person remain anonymous for fear of retribution. Often people would email me saying that I had no idea the depths of the scandals in the sport. This isn’t a game of high stakes national security technology, it’s cheerleading. And yet there’s a pervasive culture of fear and suspicion, which is the same fear you find in virtually every profession in America these days because everyone understands that retribution is both possible and often likely.

The lawsuit, which you can read here, tracks the analysis in January. I learned a lot more about the sport in the lawsuit, which confirmed rumors that I kept hearing. The key to the monopoly is, as I put it four months ago, “Varsity’s chokepoint control of major cheerleading competitions.” Cheerleaders are above all competitors, and they compete with one another at competitions.

While Varsity always put on events, there used to be a lot of USASF competitions that were independently produced. But today, Varsity controls virtually every single tournament, including the fees, who gets invited, and through its manipulation of the governing body for cheer, how they are organized. How did Varsity acquire such control? Mergers. Using an array of tactics, but mostly buying rivals starting in the early 2000s, and then accelerating into the 2010s. It bought Jam Brands in 2015, Spirit Celebrations in 2016/2017, and Epic Brands in 2018. Varsity came to control or eliminate virtually all cheerleading competitions, or roughly 90% of the market.

Varsity also used its control of the rules of the sport to extend its control, by running as a shadow proxy the sport’s governing body, USASF. Varsity helped found the federation, and always had disproportionate power, but it didn’t have complete control until recently. Seven different tournament brands were the governing body of USASF (UCA, CheerSport, NCA, USA, American Cheerleaders Association, Universal Dance Association, and JAMFest). After its merger spree, Varsity now owns all of them.

Control over USASF gave Varsity the ability to exclude competitors who might want to put on rival tournaments. The prize for cheerleading teams in competitions is a ‘bid’ to the top cheer championships, which are Summit, U.S. Finals, and Worlds, held every year in Disneyworld. The USASF hands out which competitors get to offer bids to winners, which means it can make sure no one but Varsity can create a credible competition. If you can’t offer bids, it’s really a B-list competition, and the top teams won’t go. The nonprofit Varsity-controlled governing body constantly tighten its chokehold on the sport. The federation has even copyrighted its rules, and uses that copyright to stop anyone from putting on a rival non-USASF event with similar competitive dynamics.

After achieving a dominant marketshare in competitions, Varsity raised prices for those who enter those competitions. After Varsity bought Spirit Celebrations, for instance, registration fees went way up, and participation in tournaments dropped. Higher prices are a classic sign of a clumsy monopolist, someone who simply does not believe anyone will enforce the law.

Varsity then executed a secondary scheme to make money where it really counts, which is to say, clothing. It used its control of competitions to force cheerleaders to buy overpriced uniforms and equipment. It did this through a classic set of anti-competitive tactics, such as preventing rival apparel makers from selling at Varsity events, which is the main place where people buy cheer products. But mostly Varsity does it by controling gyms, which is where purchasing decisions are made. Gyms are independent businesses who train teams, and every member of a team must buy the same uniform and equipment. The stakes can be high for gym owners; millions of dollars are on the line for the top gyms, often based on how they perform in competitions. Varsity control over gyms is extreme. The USASF forces gyms to report their entire cheerleading schedule, and through a third party relationship with a liability insurance provider, it effectively raises prices on those who compete at non-league events.

Varsity forces gyms who sought to enter its competitions to buy Varsity apparel by giving them kickbacks based on volume purchases (as John D. Rockefeller did to railroads), and penalizes them with higher prices should they not buy enough Varsity product. Rebates came in the form of ‘Varsity Fashion Dollars’ useful only to buy Varsity product. The lawyers also allege Varsity rigged the rules at cheerleading competitions, giving “extra points awarded at All-Star Competitions” to gyms using Varsity apparel. These tactics made it difficult to switch to a different vendor, and Varsity has about 80% of the market in apparel.

The most unpopular extractive arrangement for many of its contests is “Stay to Play,” where non-local teams must book a high-priced Varsity-approved hotel to play in the competition. Staying with a friend or a cheaper place gets a team kicked out of the tournament, and the gym owner fined. These tactics inflated prices in the primary market for cheer competitions, and in the secondary market of apparel and equipment. They also just make cheerleading less fun, or as one person told me, they “kill the spirit of cheer.”

Varsity’s power is not a secret but is widely known in the industry. One cheer gym owner laid out to the Federal Trade Commission in 2015 why Varsity was trying to buy its main rival Jam Brands, and had to be stopped. He discussed Varsity’s control of competitions and apparel:

“Cheerleading uniform prices have gone through the roof due to Varsity forcing their company on to unsuspecting gym owners…. Competition costs are so high that many athletes have to quit the sport due to the cost. (Competitions and Uniforms are the largest fees any athlete pays in respect to being on a team.)”

That was five years ago, and it’s only gotten worse. Back in January, I called the corporation’s scheme akin to “John D. Rockefeller with glitter.” I love this case for a number of reasons. I got much more reaction from the piece I wrote in January than normal, because the sport involves childhood, friendship, parenting, culture, and inequality. These aren’t just teams of people competing, these are kids, often best-friends, forming lifelong habits and participating in American culture.

Working class participants told me about their struggles to afford the cost of the sport, parents proudly bragged to me about their kids, gym owners spoke to me in fear, and former cheer officials explained the culture of abuse. But all of these people truly loved the sport, the competition and sportsmanship meant so much to them, and their children. It touches far more people than you might think. A lawyer at the American Bar Association Antitrust Section’s podcast Our Curious Amalgam invited me on to discuss cheer because her daughters were involved, and the technician hooking up my audio at the podcast talked about how his daughter was injured in the sport.

But I also like the example because it speaks to the stakes of antitrust law, which is not a technocratic chore as it is often presented by its orthodox intellectual gatekeepers, but is at its best a meaningful check on the ability to abuse others using market power. Monopolization can often be complex, with economists explaining why some chemical input has economies of scale or why network effects in a database tool require a certain coercive contract to be efficient. Usually the pro-monopoly arguments are laughably wrong to those in the industry, but if you aren’t in the industry it’s often hard to understand just how the abuse is happening.

But this is cheerleading.

There are no advanced technologies in cheer, no economies of scale and no fancy business jargon to demystify. Cheerleading is just team of (mostly) girls doing gymnastics together, trained at a common gym, with the equipment, training and travel paid by parents. Cheer as a business is thus a result purely of the business practices we have chosen to allow in our country. The fact that this sport can be monopolized, and that it was monopolized under the Obama administration that had pledged to strengthen anti-monopoly enforcement, shows how warped and weak our antitrust framework has become. The lawyers for this case, Berger Montague, are also leading a parallel antitrust class action against the Ultimate Fighting Championship for suppressing the wages of the fighters after a merger. That’s another obvious example of monopolization in the American economy, the use of market power to control athletes and a whole cultural sector.

I suspect the Varsity case is really easy to prove, but that doesn’t mean it will be easy to win. The most likely point of vulnerability will be on certifying that there are in fact victims of the scheme, because of procedural roadblocks corporatist judges have thrown up over the last few decades. But we’ll see.

This case is a wonderful illustration of the sad state of American business. Varsity Brands is owned by Bain Capital, a private-equity firm, which bought it because it was one of the few consumer branding businesses with fortified market power sufficient to withstand Amazon. I subsequently heard from an investor that private equity firms were looking for Varsity-like business models. At any rate, the pandemic has radically shifted all sports, including cheer. As the coronavirus picked up steam, I heard from frustrated cheer participants about how Varsity wouldn’t cancel its major competitions, or would try to retain revenue unfairly. Cheer was one of the last sports to acknowledge reality, and is now attempting to move to virtual cheerleading.

If this suit succeeds, Varsity will be liable for significant damages, and that plus the loss of revenue from the pandemic make it unlikely the corporation can continue to exist in its current form. There’s really nothing particularly difficult about a remedy. Just get rid of the coercive contractual arrangements, award damages, separate out the competitions into independent productions, and it’s all solved. After the pandemic, cheerleading will come back, but hopefully under a different and healthier business arrangement, not just one where the fees are reasonable, but one where people involved don’t have to operate in fear just to be a part of their culture. In other words, while this is not a sentence I ever expected to write, strong anti-monopoly enforcement can help keep the spirit of cheer alive.

Thanks for reading. If you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to learn more about the anti-monopoly roots of American society, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller