First Team Sports, Inc. History

Address:

1201 Lund Boulevard
Anoka, Minnesota 55303
U.S.A.

Telephone: (612) 576-3500
Fax: (612) 576-8000

Website: www.ultrawheels.com

Public Company
Incorporated: 1986
Employees: 81
Sales: $76.44 million (1997)
Stock Exchanges: NASDAQ
SICs: 3949 Sporting & Athletic Goods, Not Elsewhere Classified

Company Perspectives:

The mission of First Team Sports is to develop and market sporting goods products under specific brands through selected channels of distribution. First Team Sports continually develops its various products to meet the objectives of innovative design, exceptional price value, and high quality.

Company History:

First Team Sports, Inc. is the world's second leading maker of in-line roller skates. In-line skates feature wheels mounted in a straight line, so that they function similar to the blade on an ice skate. The company's anchor product is a line of skates called UltraWheels. First Team Sports also markets skates under the brand name Skate Attack, and it provides in-line skates for sale under private labels. In addition to in-line skates, the company also produces ice skates, street hockey equipment, and other skate-related accessories. First Team Sports skates and other gear are sold at big sporting good chain stores, small independent sporting goods specialty stores, and through mass merchandise stores. In Europe, Japan, Australia, and Singapore, the company's products are marketed through independent sporting goods distributors.

Founded in 1986

First Team Sports was founded in 1986 by John Egart and David Soderquist. A year earlier, both men were toiling as Minneapolis-area sales representatives for foreign companies in the sporting goods business--Egart for German athletic shoe giant Adidas, Soderquist for Amer Sport, a Finnish hockey skate manufacturer. In the course of their travels among sporting goods stores, the pair began to notice the appearance of a new type of roller skate. The new skates were of the in-line variety and were being made by a young Minneapolis company called Rollerblade, Inc. Rollerblade was actually reintroducing a type of skate that had been popular briefly in the 1860s.

Jumped into In-Line Fray in 1986

From the buyers at sporting goods stores, Soderquist and Egart learned that demand was so strong for in-line skates that Rollerblade was having trouble keeping up with orders. Seizing the opportunity, the two men raised $380,000 in start-up money from friends, relatives, and new mortgages on their homes. They found a manufacturer in Taiwan to put the skates together and quickly began making sales calls to people they knew from Adidas and Amer Sport days, offering the new skates, dubbed UltraWheels, at prices about 15 percent lower than those of comparable models made by Rollerblade.

The going was rough at First Team Sports for the first couple of years. By 1987 the company was selling about $65,000 worth of skates a month, but losing $20,000 in the process. Founders Egart and Soderquist, who were not yet paying themselves anything for running the company, began to see the specter of bankruptcy looming over them. Just when things were beginning to look grim, the company found a savior in financier Wesley Hayne of the Minneapolis firm Hayne, Miller & Swearingen, Inc. Hayne agreed to help First Team Sports raise $2.6 million by selling 70 percent of the company to the public.

The bailout did not turn out to be entirely altruistic, however. Within two weeks of the much-needed cash infusion, Hayne and Carey Schumacher, another area businessman, started pressuring Egart and Soderquist to merge the company with a floundering fishing tackle and gun distribution firm. Egart and Soderquist saw this as the first stage of an assault on their control of First Team Sports and, therefore, resisted the merger. Rumors soon began to circulate that Egart and Soderquist were standing in the way of a move that would have benefited company stockholders.

Founders Beat Back 1988 Proxy Challenge

The suspicions of Egart and Soderquist soon proved to be accurate. In January of 1988 former allies Hayne and Schumacher launched a proxy fight to bring about the proposed merger, a move that if successful would have most likely shoved Egart and Soderquist out of the picture. After five months of battle, Soderquist and Egart emerged victorious from the proxy war, enabling them to retain control of the company they had brought to life.

Although they managed to hang onto their company, one small problem remained--namely, how to get it to start making money. Part of the difficulty lay in the fact that the name Rollerblades had become virtually synonymous with "in-line skates." Just getting the public to call the product by a name that was not associated with the competition was a challenge in itself. In early 1990 the company addressed the visibility problem by signing an endorsement contract with hockey superstar Wayne Gretzky, arguably the highest profile figure in the skating universe. The signing of Gretzky was a coup of major proportions. The company brought it about by making Gretzky an intriguing offer. Instead of paying his usual half million dollars per endorsement--out of the question for an upstart like First Team Sports--Egart and Soderquist persuaded Gretzky to take $100,000 a year in cash, plus options to buy 100,000 shares of stock at its current cheap rate. Gretzky would also get a percentage of the revenue from a signature line of skates.

Gretzky's involvement was fruitful. Company revenue for 1990 reached $3.5 million, more than double the previous year's total. More important, First Team Sports turned a profit of 12 cents a share, compared with a loss of 11 cents in 1989.

By 1991 UltraWheels were being distributed in the United States, Japan, Sweden, Mexico, and Germany. Sales continued to grow as in-line skates evolved from a specialty item for fitness buffs and hockey players trying to stay in shape through the summer, into a popular recreation item for the general public. Although Rollerblade remained well ahead of First Team Sports, the market for in-line skates was expanding quickly enough to keep both companies growing for the time being.

Continued Growth in Early 1990s

Following up on the success of Gretzky's endorsement, First Team Sports sought out additional skating celebrities to peddle its wares. By 1992 hockey star Brett Hull and figure skating champion Katerina Witt were also in the fold, with deals similar to the one the company had signed with Gretzky. Even with competition heating up to include dozens more in-line skate companies, First Team Sports continued to thrive in the number two spot behind industry leader Rollerblade. For fiscal 1993, the company recorded sales of $38 million, a 41 percent jump over the previous year, though still only about a third of Rollerblade's figure. Profits for the year reached $3 million. Those totals landed First Team Sports at number 15 on Business Week's 1993 Hot Growth list.

Just when things seemed to be skating right along, however, First Team Sports encountered a couple of speed bumps. First, Rollerblade initiated an aggressive patent infringement campaign against First Team Sports and several other in-line skate companies. At about the same time, the company began experiencing the same kinds of growing pains that Rollerblade had gone through in the mid-1980s, opening the door for the creation of First Team Sports. The most obvious pain came in 1993, when a shift in manufacturing location from Taiwan to Minnesota--a change designed to speed delivery to U.S. customers&mdashøok longer than expected, leading to a huge backlog in skate orders. As a result, store owners were hesitant to place new orders while still waiting for old ones to be filled. Meanwhile, flooding of historic proportions soaked much of the Midwest, leaving few people in the region in much of a mood to skate that season. Sales and earnings both tumbled during the fiscal year that ended in February of 1994.

First Team Sports was able to bounce back strongly in 1995, which turned out to be a banner year. By this time, the company controlled about 15 percent of the in-line skate market with both its high-end UltraWheels line and another line called Skate Attack, aimed at the lower-priced market. In-line skating continued to grow as a hobby through the year, with the number of skate owners reaching 15 million. Across the United States, test youth roller-hockey leagues were springing up and plans for a professional league were in the works. First Team Sports also broke through with a new braking system for its skates in 1995. The DBS braking system utilized the kind of disk brake concept found on cars, a major improvement over the friction pad brakes found on most in-line skates. For fiscal 1995, the company earned $6.1 million on revenue of $86 million. Several national business journals, including Forbes, Fortune, and Inc., cited First Team Sports for its achievements that year, and Egart and Soderquist received Entrepreneur of the Year Awards for Manufacturing. Future growth seemed secure as in-line skating started to catch on across Europe.

In 1996 First Team Sports recorded sales of $97.7 million, along with record earnings of $7.8 million. That year, the company introduced a new line of skates featuring a technology called Intec, which improved the durability and strength of the UltraWheels skates on which it was applied. First Team Sports also launched a program aimed at deepening its penetration into specialty sporting goods stores. Toward that end, the company developed a catalog of merchandise available only to independent stores and small chains of less than eight outlets.

A Tough Year in 1997

First Team Sports continued to broaden its presence in the public eye in 1997. The company launched an advertising campaign that included two 30-second television commercials, as well as advertising spots in movie theaters and on videos. Sponsorship of national and regional sporting events was also part of the mix, as was product placement of UltraWheels on the television shows "Mad About You," "Baywatch," and "Clueless," and in a handful of feature films that included Ransom and Jerry McGuire. Hockey stars Gretzky and Hull continued to sponsor First Team Sports products both in advertisements and through personal appearances on behalf of the company.

In spite of the company's aggressive marketing efforts, First Team Sports saw its sales decline significantly in 1997, to $76.4 million. The drop was caused by a number of factors, including bad spring weather and increased competition, both of which affected the entire industry. Nevertheless, the company was able to gain market share with its flagship UltraWheels line. It also took steps to capture a healthy portion of sales to the growing market for "extreme" products, that is, skates specifically designed for rugged use by exceptionally aggressive skaters. The company introduced a new line called "Sabotage" specifically to meet the needs of those customers.

In addition to skates and accessories for aggressive skaters, First Team Sports also made overtures toward two other growing classes of skate consumers: fitness buffs and women. For the fitness market, 1997 brought the introduction of the Softec line of high-performance fitness skates, blending the best characteristics of the company's UltraWheels with the look and feel of a fitness shoe. For women, the company launched a line of protective gear designed to fit the contours of a woman's body. The line, called WSD, included ergonomically designed wrist guards, elbow pads, and knee pads. The company also offered six models of UltraWheels designed specifically for women.

In September of 1997 First Team Sports moved to make itself a force on ice as well as on wheels with the acquisition of the 89-year-old Hespeler Hockey Inc., a maker of professional-caliber ice skates for hockey. Just a couple of weeks after its purchase of Hespeler, the company announced that Gretzky had been made an executive officer and given a spot on the Hespeler board of directors in return for his expanded investment in First Team Sports.

The slump of fiscal 1997 did not stop the company from planning for expansion in other ways as well. Entering 1998, the company opened a European subsidiary based in Austria and launched several new skate lines. Its new Biofit series was described in company literature as "the industry's first line of biomechanically designed skates." Two more new lines, LiteMax and FlexTec, were introduced for recreational skaters. The company also redesigned its Sabotage line of aggressive skates.

Regardless of the obstacles that make it tough for any company to prosper in a competitive market, the fact remains that First Team Sports is a leading supplier of equipment for a sport that the Sporting Goods Manufacturers Association estimates to be one of the three fastest growing worldwide. If the company's attempts to win over customers by targeting its goods to specific markets proves successful, its prospects for continued growth appear solid.

Principal Subsidiaries: Hespeler Hockey Inc.; First Team Sports GmbH (Austria).

First Team Sports, Inc. History

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