Sports Authority had a problem as it wound down business at its first batch of stores closed after it filed for bankruptcy protection: they hadn’t sold everything, and needed to either leave merchandise behind for landlords to deal with, or send it back to vendors. The problem was that the vendors and the company’s lenders disagreed on who should get the proceeds of selling that merchandise: the vendors it belonged to, or the lenders who are supposed to get paid as the bankrupt sporting goods retailer sells everything off.

Sports Authority didn’t own everything in its stores: some merchandise was provided to the retailer on consignment, and the retailer would keep part of the sale price only if it sold. Liquidating everything from merchandise to the fixtures on the walls has led to a dilemma for the retailer: they could send that consignment merchandise back, but lenders counted on making some money from the sale of those items.

Vendors, meanwhile, worried that Sports Authority’s lenders would put liens on the merchandise before it was returned, and that the lenders would want to be paid before the merchandise was handed over.

The compromise reached back at the beginning of the chain’s bankruptcy involved piles of winter gear that was still sitting around in April. The retailer came to an agreement that it would sell that merchandise and give the suppliers 60% of the proceeds, rather than shipping it back.

When Consumerist visited a liquidating Sports Authority store in Syracuse, NY that has now closed, we found lots of cold-weather gear for sale. Even in upstate New York, there isn’t much demand for snow gear by Memorial Day weekend.

Instead of sending back a lot of outdated merchandise, the store and its vendors agreed to just sell the merchandise and hold the proceeds in escrow:m an outside account that would be released to the vendors at a future date. That was the agreement before the company decided to liquidate all of its stores, though.

This week, the bankruptcy judge approved [PDF] the retailer’s proposal to pay out pre-set percentages of sale prices to vendors whose consignment merchandise is still sitting in stores. By doing that, the lenders at least get some money back on merchandise.

Items that were sold before the judge approved this motion will be paid out at the percentage agreed to in the vendors’ original agreements with Sports Authority. Items sold afterward will get a pre-set percentage that differs by company.

The items that would have been left behind in now-abandoned stores will either be transferred to another liquidating store to be sold, or picked up by the vendor, according to the vendor’s wishes.

Sports Authority Reaches Settlement Over Consignment Vendor Claims [SportsOneSource]

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