ANTA Part I: Turds in the Punchbowl By Muddy Waters Capital

Screenshot from the report “ANTA Part I: Turds in the Punchbowl”

We thought long and hard about the title of this report, which is the first in a series evidencing endemic fraud at ANTA. We kept coming back to “Turds in the Punchbowl.” ANTA is a real business, and in terms of operations and marketing, there’s much to be admired. Presumably, this is why accomplished sportswear entrepreneur Chip Wilson recently agreed to invest in it. But within all this goodness, there’s a distinctly awful truth. Investors cannot rely upon ANTA’s financials. We believe that ANTA posts industry-leading operating margins not because it’s so well operated; but, rather because ANTA uses numerous secretly controlled Tier 1 distributors to fraudulently boost its margins.

We have “Smoking Gun” evidence that ANTA secretly controls a material number of its distributors. In this report, we present documentary evidence that ANTA secretly controls 27 distributors. At least 25 of these of these appear to be Tier 1 distributors. The total number of Tier 1 distributors ANTA controls could be over 40 of the approximately 46 the company has. The secretly controlled distributors collectively appear to account for approximately 70% of ANTA brand sales.

ANTA resolutely claims that its Tier 1 distributors are independent third parties. This is a lie. The fact that ANTA controls its Tier 1 distributors is well-known among senior ANTA executives. ANTA’s senior executives know that ANTA conceals its control of the distributors by using proxy owners. However, this notion of independent distributors is such a charade that ANTA’s senior executives frequently refer to the distributors as “subsidiaries”. We believe ANTA controls these subsidiaries in order to manipulate its reported financials.

During our research process, we first followed paper trails, such as SAIC files, credit reports, and online articles. This research evidenced control of numerous Tier 1 distributors. One of many examples is that for a number of years, the Supervisor of one of the largest distributors was ANTA’s Executive Director with responsibility for sales, Wu Yonghua. Four former senior managers of ANTA and one former manager of a major distributor then expressly stated in interviews that ANTA controls the distributors.

To download the Report (PDF format), go to our website at: ANTA Part I: Turds in the Punchbowl

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