Monopoly Money?

Ever since the boating arm of the Johnny Morris empire purchased Legend last week, I’ve been besieged by emails and phone messages inquiring whether his position in the bass boat industry violates any sort of antitrust laws. I have repeatedly had to answer that I really don’t know because in three years of law school and nearly 22 years of practice I’ve never studied antitrust law nor dealt with a matter in which it was a factor.

Even the most experienced attorney cannot expect to have a mastery of all subject matters – food and drug regulation, the licensing of hydroelectric dams, war crimes and the tax code are among the thousands of endlessly confusing rabbit holes that can dominate a lawyer’s 60 year professional lifespan. Nevertheless, having to tell people this repeatedly sounds like a cop out.

With that in mind, I consulted with a good college friend, who is indeed an antitrust expert and a partner at the New York City office of a major law firm. He confirmed the one thing that I know for sure -- that there’s rarely if ever an easy answer to a nuanced legal question.

I’m sure that my friend's hourly rate is in the upper three digits, but he was willing to give me 60 minutes of it gratis on Monday morning. At least I assume that it was pro bono – I’ve yet to receive a bill. During that time I walked him through the bass boat industry landscape and he walked me through some of the basics of antitrust law. Even after that lesson, there’s no clear answer. I wish I could say that there’s a definitive line or a particular percentage where boat company ownership goes from fair to an unacceptable monopoly, but it just isn’t that simple.

None of what follows is meant to be legal advice – from me or from my antitrust lawyer source – so if you have specific concerns consult your own attorney, but the bottom line is that if an action were to be brought against Uncle Johnny/BPS/White River under one of several potentially applicable statutes, there are certain threshold issues that would need to be considered and addressed.

The first, and perhaps the hardest one, is determining the relevant market. My unsubstantiated understanding is that White River now owns the brands that sold approximately 70% of the tournament-style fiberglass bass boats in the United States last year. Is that the market that will be considered? Or is it bass boats generally? Or all fiberglass freshwater boats? Or all fiberglass boats?  And there could be more than one market at issue?  A relevant market basically includes those products considered as competitive substitutes by customers when faced with a small but significant price increase.

Even if he’s determined to control the vast majority of whatever the relevant market is determined to be, the next issue concerns whether his acquisitions will result in a substantial lessening of competition. If you look at the few major non-White River brands – Phoenix, Bass Cat, Skeeter – it seems that there are still viable alternatives to Nitro/Ranger/Triton/Stratos/Legend at about the same price point, and with seemingly comparable access for anglers in most parts of the country. Whether higher market concentration would lead those independent brands to follow a White River price increase rather than compete with it would be a key question in an antitrust case.  But, for the time being at least, there is still sustainable demand for those other brands, which Uncle Johnny would argue would constrain him in competition.

Other factors that might come into play include any directly anticompetitive measures that Morris might enforce upon his dealer network. If he coercively “asked” them not to deal in non-White River boats, or allowed them to sell them but imposed sales goals that were clearly aimed at undermining his competitors, that might be evidence of inappropriate anti-competitiveness.

Of course, there’s also the issue of who would bring the action against Uncle Johnny.  Private customers and dealers can sue, but the Department of Justice or the Federal Trade Commission are the primary enforcers of the applicable statutes.  They can bring actions on their own, or private entities may ask and try to convince them to bring suit. For these purposes, states’ attorney generals can bring suits on behalf of their citizens, but the point is that someone has to bring the case to stop a merger or anticompetitive conduct.

Even after my expert friend’s tutorial, I’m sure that Johnny Morris still knows more about antitrust law than I ever well, as do the teams of lawyers he no doubt has on retainer. After nearly a half century in business, and experience with the topic including but not limited to his recent efforts to acquire Cabela’s, it’s the world he lives in and I’m sure that he had his staff and hired help explore all of the obvious traps before he pushed the “buy now” button – especially on a purchase like this that is small potatoes as compared to the acquisition of Cabela’s.

But even if his efforts are not anticompetitive in a way that’s contrary to the law, that doesn’t mean it won’t exert some pressure on the remaining independents. No matter what, this is a time when the competition needs to remain especially vigilant about consistently bringing their “A” game. And where should they look for an example of how to do that? Right back into the Johnny Morris playbook. Thirty years ago, a trip to a Bass Pro Shops showroom was truly a destination shopping event. Now with over 80 megamarts to his name, and more certainly on the way, you can’t swing a Senko without hitting one. During that same time period, we’ve seen the widespread demise of the local tackle store, done in not entirely by the BPS expansion, but also by the rise of Wal-Mart and online shopping. While the locals may have largely gone away, the BPS expansion – with its corresponding manufacturing and pricing advantages – hasn’t killed all competition. In fact, from an enthusiast’s perspective, BPS has never been weaker. It’s no longer the place that we go for the best prices, or for the cutting edge equipment, or the widest selection of specialized gear. Hyper-focused online retailers have filled that role – and if you ask a hundred serious tournament anglers where they get their gear, I’d bet that over 90 of them would say that over the past year they’ve shopped at Tackle Warehouse more often than they’ve shopped at BPS.

So if you’re one of the few mainstream independent boat builders (or a bass boat consumer), yes, there’s probably some reason to worry about White River’s acquisition of Legend and others. But there’s also probably an opportunity here – even if the independents can’t order outboards and electronics at the same scale as Johnny Morris, they have something that he doesn’t – the ability to stay lean and nimble and to cater to a hyper-specialized and demanding clientele. If the head of Legend wants to make a major change, even an obvious one, he now likely has to go through seemingly endless layers of review to get the approval to do so, whereas Rick Pierce or Gary Clouse just needs to write it down on a post-it, send it to his secretary, and it becomes so.