CHEER EMPIRE
A for-profit Memphis company built competitive cheerleading. It also pays the people who make its rules.
Modern competitive cheerleading has developed a huge following, and its popularity can be largely traced to one company: Varsity Spirit, based in Memphis. Jeff Webb founded the company in 1974 and helped turn cheerleading into a more athletic endeavor, with a gymnasticsbased style featuring high-flying stunts and competitions at Disney
World that draw thousands of participants.
But Varsity’s imprint on cheerleading extends beyond the clothing, camps and competitions emblazoned with its logo.
Varsity’s reach extends inside the organizations that govern the sport.
“It’s an unfair advantage . ... (Varsity Spirit is) an arm of their business and they use it as such. They should not run it that way. It should be totally independent of any company for profit.”
Lawyer Robert Falanga
Two seemingly independent organizations – USA Cheer and the U.S. All Star Federation – regulate issues concerning cheerleading in the United States today. Varsity created and funded both organizations several years ago.
Today, USA Cheer, the national governing body of cheerleading, has no employees of its own. All six of its staff members, including its executive director, are Varsity employees contracted to work for the regulatory body.
Varsity employees also serve as the president and a top vice president of the Memphis-based U.S. All Star Federation, which oversees a discipline of cheerleading that focuses on competition among private gyms. And Varsityowned companies hold a permanent majority of seats on USASF’S board of directors.
The close ties among Varsity and the governing bodies are under legal attack. At least three separate class-action lawsuits against Varsity allege the company uses its dominant market position and influence over the cheer regulators to crush competing cheerleading businesses.
Varsity says the antitrust claims are baseless and that it supports the governing bodies to protect athletes and expand the sport.
The close ties also raise the prospect that Varsity Spirit’s corporate interests could influence issues like athlete safety, including sexual abuse complaints.
Concerns about legal liability often drive organizational responses to sexual abuse, said Marci Hamilton, CEO of Child USA, a think tank focused on child abuse prevention.
“If they’re concerned about being sued and they’re concerned about not having adequate policies, there’s a real incentive to hide and to fail to report known abuse,” she said. “We see those incentives in the nonprofit world as well, but I think a for-profit organization is going to be even more motivated to make sure they can’t possibly be sued.”
The flip side is also true, Hamilton said: fear of liability might eventually prompt a for-profit company to conclude strict prevention is in its interest.
A recently filed Texas lawsuit involving alleged sexual misconduct by celebrity cheerleader Jerry Harris against teenage boys makes the link to profit motive.
The suit argues that USASF, Varsity and other defendants had an incentive to present Harris to the public as a safe and trustworthy person “so they could retain past minor athletes, recruit new minor athletes and, thus allowing donations and tuition to continue flowing into their coffers for financial gain.”
Nicole Lauchaire, a Varsity Spirit senior vice president, said the company’s profit motive has no bearing on how it handles athlete safety concerns.
Lauchaire said Varsity places athlete safety front and center, so much so that the goal of safety – particularly prevention of serious injuries – is why it created regulatory organizations to oversee cheerleading, beginning in 1987.
“We thought very early on that oversight and rules and regulations were needed,” she said. “And both those organizations are very much focused on the safety of athletes and athlete protection. And we share in that mission. We are basically all made up of cheerleaders and former coaches and it’s our top priority to keep cheerleading safe.”
The class-action lawsuits attack the idea that the cheerleading regulators are independent entities.
“I don’t think they are separate. I think that they’re totally dictated and run by Varsity. That’s the problem,” said Robert Falanga, an Atlanta-based lawyer leading one of the cases.
In 2011, for instance, the USASF issued a letter that said its members must not attend any non-varsity competition that claimed to be a world championship or international championship. Anyone who violated the rule could not attend Varsity’s world or international events.
That decision elevated the world championships that Varsity promoted and hurt rivals trying to host alternative competitions, Falanga said.
“It’s an unfair advantage,” he said. “They use USASF and USA Cheer to their advantage. They are an arm of their business and they use it as such. They should not run it that way. It should be totally independent of any company for profit.”
Varsity Spirit spokeswoman Jackie Kennedy confirmed that Varsity pays salaries for all USA Cheer’s staffers, including Executive Director Lauri Harris, and two staffers at USASF, President Jim Chadwick and Steve Peterson, Vice President of Events/corporate Alliances. She said the organizations then reimburse Varsity for the payments as part of an administrative agreement.
In an emailed statement, Kennedy wrote that Varsity has “tried to help USASF and USA Cheer develop as organizations. We see this as not only the right thing to do and a shared responsibility for the broader cheer community, but as an investment that leads to greater safety, structure, and growth for cheer as a sport.”
Creating a company — and a sport
Webb, himself a former cheerleader, incorporated his own company in 1974 in Dallas before ultimately moving it to Memphis. Webb called his company the Universal Cheerleaders Association and later adopted the name Varsity Spirit.
A series of mergers helped Varsity acquire other cheer businesses and expand into other products, including class rings and yearbooks under the Herff Jones brand name, and a wide range of sporting goods under the BSN Sports name.
Bain Capital Private Equity, the private investment firm, bought Varsity Spirit and associated companies in 2018 in a deal valued at roughly $2.5 billion, CNBC reported.
Today, the decisions that Varsity and its affiliates make about their governing structure and policies impact cheerleaders and parents across the U.S.
Although the headquarters for parent company Varsity Brands Holding Co. is based in a Dallas suburb, the cheer business remains in Memphis. Currently housed in an office park in suburban East Memphis, the company has announced plans to move its headquarters and about 250 employees to the former American Snuff Factory building in the city’s Uptown neighborhood, near the Mississippi River.
Now in his early 70s, Webb has stepped down as CEO and serves as chairman of Varsity Spirit and alsopresident of the International Cheer Union, another entity backed by Varsity.
In 2003, Varsity used a no-interest loan to launch the U.S. All Star Federation, or USASF, to oversee the sport of club cheer.
In 2007, Varsity provided no-interest loan funding to launch another organization, the USA Federation for Sports Cheering, or USA Cheer. It’s meant to be a national governing body for all aspects of the sport and to facilitate its eventual inclusion in the Olympics. Webb was the organization’s first president.
Both organizations formerly listed Varsity’s corporate address in Memphis as their own. USASF moved out a few years ago to another office in Memphis, while USA Cheer used the Varsity address as recently as its 2018 tax return. It is in the process of changing to a Dallas address, said Kennedy, the Varsity spokesperson.
Varsity employees currently hold six out of 15 seats on USA Cheer’s board. Meanwhile, the USASF bylaws give Varsity employees a permanent majority on the organization’s governing board.
The bylaws mandate that the board can have no more than 13 seats, and that seven of those seats must be filled by representatives of the following event producers: The Universal Cheerleaders Association, Cheersport, National Cheerleaders Association, United Spirit Association, American Cheerleaders Association, Universal Dance Association and Jamfest.
Each of those associations is owned by Varsity Spirit.
Antitrust lawsuits threaten future
At least three federal antitrust lawsuits argue Varsity acts as a monopoly that inflates prices for everyone involved in cheerleading.
One suit is led by All-star cheer gyms. Another lawsuit is led by three parents of All-star athletes. Those two lawsuits are currently pending in Memphis.
The third suit, filed in Atlanta, is led by a group of Varsity rivals that includes a cheer clothes maker, a competition producer, a provider of cheer camps and a cheer parent.
The suits all argue that Varsity uses the regulatory bodies to benefit itself, for instance by requiring teams to go to Varsity camps before they can qualify for big championships.
The Atlanta lawsuit asks a court to award triple damages under RICO laws, which prosecutors have used to attack the Mafia and other organized crime groups. That same suit also demands that the court consider the destruction or reorganization of the regulatory bodies that Varsity created.
The suit lists a demand of $350 million and says it should be tripled.
Any payout would be subject to court approval and would likely be smaller. Still, if Varsity is forced to pay out big legal settlements, it could face serious financial trouble.
The COVID-19 pandemic has already hit Varsity hard as public events are canceled and demand for its products drops.
Major bond rating agencies Moody’s and S&P rate Varsity’s debt at “junk” levels, meaning the company is at risk of default. Even so, Moody’s predicted in June that parent company Varsity Brands would have total sales of $1.8 billion in the next 12 months, with most coming from the BSN Sports arm. The cheerleading arm is expected to account for about 16 percent of revenue, or around $288 million.
Varsity rejects the antitrust claims. “We’re aware of the lawsuit and the allegations are completely unfounded,” said Lauchaire, the company senior vice president.
“Varsity complies with all federal state and local regulations, including all antitrust and competition laws. And we intend to vigorously defend ourselves against this meritless action.”