In the pre-coronavirus days, the Los Angeles Lakers was one of the most valuable and profitable sports franchises on the planet. Forbes estimated last year that the team earned $147 million in 2018 and would fetch about $3.7 billion in a sale.
The Lakers, as ESPN reported on Monday, received $4.6 million in bailout funds from the federal government as part of the $349 billion Paycheck Protection Program meant to backstop struggling small businesses sideswiped by COVID-19. The Lakers operation has fewer than 500 employees, which qualifies it as a small business under the government’s aid guidelines. But the Lakers hardly seem as immediately vulnerable or without access to other resources, as, say, your corner grocer, baker, barber or dry cleaner. The Lakers, undoubtedly aware of a wave of recent disclosures about unlikely companies receiving PPP funds, told ESPN it returned the $4.6 million.
Only an insignificant percentage — 5% or less — of U.S. small businesses appear to have received funding from the problem-riddled program, according to my own take on the data. And much of it, according to Bloomberg News, hasn’t even found its way to small businesses in regions most severely derailed by the coronavirus pandemic.
Despite gaping holes in the program’s launch — or perhaps precisely because of them — the government had to approve a second, $380 billion round of funding last week. The doors opened to prospective small-business borrowers on the new round on Monday, and, like the first round, application and administrative problems erupted. Banks also took to social media to complain about all of the snafus they were encountering.
The Treasury Department and the Small Business Administration have overseen the PPP and haven’t provided enough public information about exactly which companies have received money and how they were screened. It bodes poorly for how effectively this new huge pool of funding will be deployed.
Fortunately, a flow of valuable reporting in recent days has identified some questionable recipients of federal aid and offers a window into how haphazard and inequitable the PPP already appears to be. Consider:
NBC reported that its analysis of about 200 PPP recipients revealed at least a dozen examples of firms possibly leveraging relationships, gaming the program or overcoming problematic backgrounds to receive funding. That group includes Cinedigm Corp., an entertainment company controlled by a Chinese investment firm, and MiMedx Group, a skin-graft company repeatedly mired in law enforcement investigations. It also includes Hallador Energy, Crawford United and Flotek Industries, all of which have ties to the Trump administration and which collectively snared $18.3 million in PPP funds. (Hallador and Crawford didn’t respond to queries from NBC; Flotek said it didn’t take advantage of White House relationships to obtain funding.)
The Associated Press reported that at least 94 PPP recipients were publicly traded companies with market values greater than $100 million. About a quarter of those companies had warned investors long before the coronavirus arrived that their fortunes had so soured that they might not be able to stay in business.
The Washington Post reported that AutoNation Inc., a national network of automobile dealers with 26,000 employees and a $3.2 billion market valuation, received $77 million in PPP funding. “AutoNation used separate tax identification numbers assigned to dozens of its more than 300 locations to apply for at least $266 million in funds for separate dealerships,” the Post reported. I’ve noted in an earlier column that a loophole in the $2.6 trillion federal bailout program would allow large chains and franchises that might not otherwise qualify as small business to apply for PPP aid on a store-by-store or location-by-location basis.
The New York Times and Bloomberg News reported that a group of publicly traded luxury hotel companies controlled by the lodging magnate and Trump donor Monty Bennett received more than $50 million in PPP aid. Bloomberg has also reported that IDT Corp., Universal Stainless and Lindblad Expeditions Holdings Inc. — all companies that have more than 500 employees — received nearly $27 million. (IDT said it’s returning the $10 million it received.)
I wrote earlier about the complaints targeting Shake Shack Inc., Potbelly Corp. and Ruth’s Hospitality Group Inc. — all large restaurant chains — when they disclosed they had received PPP funding.
All of this is just for starters. Much still seems to be amiss with the $729 billion avalanche of federal funds that have cascaded toward banks and small businesses, and we’ll undoubtedly learn of more problems now that we’ve entered the program’s second act. And we still don’t know whether it will have its desired effect: Supporting workers left in the cold by the pandemic while also ensuring that the unprecedented crisis enveloping small businesses doesn’t become an apocalypse.
Timothy L. O’Brien is a senior columnist for Bloomberg Opinion.
