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Bowlero BOWL faces dozens of EEOC discrimination claims

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Bowlero, the buzzy bowling company that was one of the few successful stocks to emerge from the SPAC boom, is the subject of a sprawling federal investigation into age discrimination and retaliation that authorities now want to settle for $60 million, CNBC has learned.

Negotiations over the settlement, proposed by the U.S. Equal Employment Opportunity Commission in early January, failed in April and the case is being referred to the EEOC’s general counsel “for potential enforcement action,” a letter sent by the EEOC shows. 

If the EEOC decides to sue and if it prevails in court, the company could face even steeper fines, experts said. 

Before the agency can sue Bowlero in federal court, the EEOC’s commissioners need to vote on the matter. 

The $60 million resolution proposal has not yet been publicly disclosed and was revealed to CNBC by attorney Daniel Dowe, who represents more than 70 former employees with claims against Bowlero. The EEOC briefed him about the settlement proposal so he could obtain authorization from his clients before agreeing to settle, he said.  

The EEOC’s probe into Bowlero, the world’s largest owner and operator of bowling centers, is wide-ranging and has been ongoing since 2016, company filings with the Securities and Exchange Commission show. It involves at least 73 former employees who claim they were fired based on their age, or out of retaliation, according to the filings. 

The company disclosed in the filings that EEOC’s investigation resulted in a determination of reasonable cause that Bowlero has been engaging in a “pattern or practice” — a term that indicates systemic issues — of age discrimination since at least 2013, which Bowlero denies.

The agency typically finds reasonable cause in only a small fraction of cases each year, EEOC data shows

Experts say the settlement proposal is particularly large for the agency, especially when compared with the monetary benefits the EEOC secured for victims of age discrimination in previous years.

The company has repeatedly denied allegations of discrimination and other wrongdoing.

If Bowlero — which went public in late 2021 through a special purpose acquisition company, or SPAC — ends up settling the case or losing in court, it won’t be a major blow to the company’s balance sheet or operations now, experts said. But the indirect costs could plague Bowlero well into the future, they said.

A Bowlero location at Chelsea Piers in New York City. 

CNBC

Bowlero CEO Thomas Shannon is accused of hosting “obvious beauty contests” with prospective hires over brief video calls to evaluate a candidate’s appearance as part of the hiring process, according to a complaint filed by a former employee and a sworn affidavit filed by another staffer to the EEOC.

At times, Shannon even screened candidates for lower-level, customer-facing roles at the company, which had nearly 10,000 employees across more than 300 bowling centers as of July, documents filed by former employees say. Shannon directed staff to replace aging employees with candidates perceived as young, hip and attractive, documents say.

CNBC sent a detailed message to Bowlero outlining the allegations of discrimination and retaliation made to the EEOC included in this story. When asked for comment, the company’s lawyers sent the same response for each: “This is a meritless claim.”

“Defamatory statements about Mr. Shannon will not be taken lightly,” the attorneys warned.

The 73 EEOC claims brought by individual former employees against the company sparked the larger pattern or practice investigation into age discrimination.

The EEOC has found reasonable cause in 55 of the cases and in the pattern or practice probe, Bowlero has said in filings. The other 18 individual claims remain under investigation, according to a February filing.

Only a fraction of EEOC age discrimination complaints — 2.8% in fiscal 2021 — resulted in reasonable cause determinations, EEOC data show. 

Robert Levy, an employment law attorney who has filed hundreds of EEOC claims on behalf of his clients over the last 20 years, said he was struck by the number of reasonable cause determinations the EEOC made in the complaints against Bowlero. 

“It’s sort of the difference between the organism being sort of rotten to the bone and, you know, a piece of a large organization maybe having some bad actors who handled a individual situation poorly or unlawfully,” Levy, who is not involved with the Bowlero case, told CNBC. 

“I think it cuts right to the heart of the way a company is alleged to be doing business,” he said.

Levy added that the findings raise concerns about “institutional disregard for the anti-discrimination laws.”

The EEOC is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person’s race, color, religion, sex, gender identity, sexual orientation, national origin, age, disability or genetic information. 

When people face such discrimination in the workplace, they can file complaints with the EEOC, which has the authority to investigate the charges and works to settle the cases with employers.   

When settlement negotiations with the EEOC fail, the agency can decide to file suit against the company. If it chooses not to file suit, the victim can typically pursue their own private lawsuit. 

The EEOC declined to comment, citing federal law.

In filings, Bowlero informed investors about the reasonable cause determinations and said the company “contests such determination and intends to defend vigorously.”

While the proposed $60 million settlement with Bowlero was just a proposal, the number stands out when compared with other claims the EEOC has successfully settled out of court. 

EEOC data from fiscal 2021, the most recent available, shows the agency secured a total of $83.8 million in monetary benefits for victims of age discrimination across hundreds of cases over that entire year.

‘Fresh young faces’ to fuel a growth boom

In mid-February, Bowlero wowed investors when it announced what it called a record-breaking $273.4 million in sales in the three months that ended Jan. 1 — a 33.2% year-over-year increase. It posted a net income of $1.4 million.

A little over a month before its second-quarter earnings report was released, Bowlero announced its trailing 12-month revenue had topped $1 billion and its same-store sales had grown about 48% in the period. 

The stock, which started trading around $10 a share in December 2021, has climbed as high as $17 a share this year. It is now trading around $13 a share with a market cap of about $2.2 billion.

Bowlero’s ascent to becoming a profitable public company, which has caught the attention of big bank analysts and even CNBC’s Jim Cramer, started some 26 years ago in a rundown bowling alley in downtown Manhattan.

In 1997, Shannon was in his early 30s and living in New York City when he attended a party at a Union Square bowling alley and immediately saw potential in the pins and smoke-stained walls, he has said.

“It was the very traditional, warm beer, cold food, smelly bathroom, scary person on the lane next to you bowling center,” Bowlero Chief Financial Officer and President Brett Parker said during a presentation at the Raymond James Institutional Investors conference in March. Parker is leaving his role as the company’s chief financial officer later in May to focus on what Shannon called “strategic relationships,” the company announced Tuesday. Parker will remain as vice chairman of the board and president. 

“But thank you to Tom, because he had the vision to see that and know that it could and should be something more,” Parker said. 

The Bowlero location at Chelsea Piers in New York City.

CNBC

With a $3,000 cash down payment and “$2 million borrowed,” Shannon bought the bowling alley and transformed it from a “dingy” hole in the wall to an “upmarket experience” with elevated food and drink offerings, sleek renovations and world-class customer service, the company has said. 

Shannon would spend the next two decades replicating that model in tired bowling alleys across America and building an empire that embodied his vision of cool. 

The company reached a turning point in 2013. It went from running six bowling alleys to 272 overnight after it acquired AMF, which was then the largest bowling company in the world and was in bankruptcy.

The following year, Shannon’s company acquired the Brunswick Corporation, the second-largest bowling company in the world, and changed his company’s name to Bowlero.

As aging alleys across the country began to get the Bowlero makeover, another part of the plan was unfolding behind closed doors, former employees say. Not only did the centers need a refresh, but Shannon determined its staff did as well, according to complaints filed to the EEOC. 

Between 2013 and 2015, at least 287 managers from 351 bowling centers were fired, according to employment data filed to the EEOC compiled by Dowe from former employees. 

Senior managers who survived the purge told the EEOC they were pressured to replace longtime staffers because “they were too old” and the company wanted “fresh young faces,” according to an affidavit filed by a former employee.

Customers arrive at a Bowlero location in Eden Prairie, Minnesota, March 18, 2017.

Andy King | Getty Images Entertainment | Getty Images

One top-performing employee in his mid-50s was fired “shortly after being stricken with a medical condition that caused his face to become disfigured,” a former member of the human resources team told the EEOC in a sworn affidavit.

Among staff, the top executive was also known to make condescending jokes about women, off-handed remarks that were “racially motivated” and negative comments about LGBTQ people, the affidavit says. Some female employees didn’t openly disclose their marital status or their pregnancies out of fear of losing their jobs, the former HR employee told the EEOC.

“It was well-known within the company that motherhood is the end of your career at the company if you work for Shannon,” said the employee. “Pregnancy was totally against Shannon’s practices of having attractive, sexually appealing persons at the forefront of his company, regardless of merit and competence.”

The employee recalled an instance where a “highly-qualified pregnant woman … was denied future opportunities because she ‘was showing.'” 

Bowlero called all of those allegations “meritless.”

In March 2022, the EEOC made its finding of reasonable cause that Bowlero has been engaging in a pattern or practice of age-related discrimination since 2013, which coincides with the company’s acquisition of AMF and its expansion, securities filings show.

Bowlero goes public

Bowlero CEO Thomas Shannon, center, at the New York Stock Exchange, Dec. 16, 2021.

Source: NYSE

In its first S-4, filed to the SEC on July 21, 2021, Bowlero said, “there are currently a number of claims and legal proceedings pending against us.” It noted any potential liabilities were “not expected to have a material effect on our consolidated financial condition, results of operations or cash flows.” But Bowlero did not disclose the scope of the EEOC’s probe. 

The company used the same language under the heading “legal proceedings” in its next three amended S-4s until it received a letter from the SEC asking about the EEOC probe. 

“We are aware that certain former employees of Bowlero have filed charges with the U.S. Equal Employment Opportunity Commission alleging certain unlawful employment practices and discrimination,” says the SEC’s letter, dated Nov. 5, 2021. “Please advise what consideration you have given to disclosing these charges pursuant to Item 103 of Regulation S-K.”

Three days later, the company filed another amended S-4 and disclosed the scope of the EEOC’s probe. Bowlero reiterated in the edited filing that it did not expect the probe to have a “material effect” on its financial health.

The filing said that “management believes such claims to be in the ordinary course and without substantive merit.”

The SEC flagged the omission before Bowlero’s stock started trading, and correspondence with the agency is a routine part of the process. Still, experts questioned why the investigation was not disclosed at first.

“If the EEOC was investigating you, why didn’t you disclose this initially?” said Anthony Sabino, a longtime business attorney and law professor at The Peter J. Tobin College of Business at St. John’s University.

“Why did it take four tries?” he asked. “The bottom line is, it’s got to be disclosed.”

Bowlero, through attorneys, said it did not withhold material information at the time.

“The Company believed in 2021 and continues to believe that the EEOC claims at issue are without merit, is defending the claims aggressively and is confident that it will prevail,” the company’s lawyers said.

The attorneys said “there was no need” to disclose the probe when Bowlero went public, but the company later did so and has “updated its disclosures as appropriate since its IPO.”

Preplanned stock sales

In the midst of Bowlero’s settlement negotiations with the EEOC, which began Aug. 22, 2022, and failed in April, Shannon entered into a prescheduled trading plan, or a 10b5-1, to sell some of his holdings, filings show.

Between Jan. 6 and March 3, Shannon sold 2.4 million shares of his stock for about $35 million, securities filings show. The shares represent a fraction of Shannon’s overall holdings and the sales didn’t affect his over 80% voting power, which largely comes from his holdings in “super voting shares” of class B common stock.

Bowlero’s lawyers said the timing of the stock sales was set in November 2022 and that Shannon entered into the plan “at a time when he had no material non-public information about the company.” They added he “had no discretion over the timing or magnitude of sales” once the plan was established.

In December, the EEOC made 42 more reasonable cause determinations after the stock sale plan was enacted. Bowlero did not disclose the update until it filed a quarterly report on Feb. 15. 

The Bowlero location at Chelsea Piers in New York City.

CNBC

The company’s lawyers said that although “disclosure of the additional [reasonable] cause filings may not have been required, [Bowlero] elected to do so in its quarterly filings—precisely as is contemplated by the securities laws. [Bowlero] has been, and will continue to be, in full compliance with its disclosure requirements.” 

There is no evidence that Bowlero broke federal law in regard to its disclosures, experts said.

Most executives receive stock as part of their compensation and the plans are a way for them to safely sell those holdings without spooking shareholders or arousing suspicion that they are engaging in insider trading.

They serve an important purpose, because without them, executives could face liability for selling their holdings, which they are entitled to do. 

However, in general, 10b5-1 plans have also come under criticism for the shield they could provide to executives — and how the plans could allow them to time the release of positive or negative information. 

For example, executives could wait to disclose negative information until after sales from a 10b5-1 are complete, to avoid a drop in the stock price, experts said. They may also release positive information prior to the start of the sale plan so they can benefit from any boost in the share price, according to experts. 

In a December 2020 white paper, Joshua Mitts, a law professor at Columbia University and one of the leading experts on securities laws and 10b5-1 plans, found that public companies disproportionately disclose positive news on days when executives sell shares under predetermined 10b5-1 plans.  

Failed negotiations, court battle could come

In an April 11 letter sent by the EEOC to Bowlero and the plaintiffs’ attorney Dowe, the agency said efforts to settle the allegations had been “unsuccessful” and the matter was being referred to the EEOC’s Office of General Counsel “for potential enforcement action.”

Dowe said negotiations fell apart when Bowlero countered the EEOC’s $60 million settlement proposal with a proposal of $500,000. 

Patrick Boyd, a labor and employment law attorney with The Boyd Law Group, said Bowlero could benefit from fighting the case in court, if the EEOC sues.

“They get a chance to really scrutinize the individual plaintiffs and the claims that they have and maybe lop off some of the claims or scare some plaintiffs away,” Boyd said. 

On the other hand, it can be very “advantageous” for discrimination victims if the EEOC decides to prosecute their case and it could result in higher settlements, said Levy, the employment law attorney who has worked on EEOC claims.

In Levy’s experience, settlements obtained through litigation tend to be higher than the amounts decided on during EEOC mediation, he said. Further, victims’ damages and attorneys fees accrue more the longer the case goes on, which also contribute to higher settlements, he said. 

The Bowlero location at Chelsea Piers in New York City.

CNBC

Regardless, Bowlero appears to be well-situated to pay damages if it loses in court. Raphael Duguay, an assistant professor of accounting at Yale University’s School of Management, reviewed Bowlero’s balance sheet and said a multimillion-dollar settlement or verdict wouldn’t have a major impact on its operations or cash flow and would represent a loss of only a few cents per share. 

Analysts who cover the company agreed. They told CNBC they weren’t concerned about the EEOC’s probe or any potential settlements.

Steven Wieczynski, a managing director at Stifel who initiated coverage of Bowlero at a price target of $26 in late March, said he doesn’t care about the ongoing EEOC case and its settlement proposal. He said if Bowlero was ordered to pay a settlement “it would have no impact” on his view of the company “even if they had to pay $100 million.”

Still, Duguay said that the indirect costs of the EEOC’s investigation, while hard to calculate, could be damaging in the long term and larger than the agency’s proposed settlement given the rise in consumer activism. 

“That indirect cost would take the form of reputational damage because there’s public shaming; this comes out and then people don’t go to their bowling alleys anymore, so they’re losing a lot of revenue,” Duguay said. “I think that’s the key concern.”

“If the EEOC conveys the message that Bowlero is a serious offender in terms of discrimination and lack of inclusion, the indirect effects of that can be very significant,” Duguay said. 

In response, Bowlero’s attorneys reiterated that the company expects to withstand any outcome of the probe.

“Most importantly, the Company believes the EEOC claims are meritless and that it ultimately will prevail,” the lawyers said. “Second, the Company has more than sufficient resources to resolve the matter if it chooses to do so.”

Disclosure: “Mad Money with Jim Cramer” airs on CNBC.

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