Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Vomiting in fireplaces, napping under tables, plying executives with booze and kebabs.

A London lawsuit has made lurid allegations over the behavior of Mike Ashley, founder and chief executive of Sports Direct International Plc. The case has been brought by Jeffrey Blue, an ex-Merrill Lynch investment banker who used to work for Ashley, and who alleges that his boss reneged on the promise of a 15 million-pound ($19.4 million) bonus.

Steady On
Mike Ashley has had a torrid 12 months. And he's now fighting an ex-banker in court over an alleged unpaid bonus
Source: Bloomberg, Company reports

Yet on Monday, as the claims were heard, shares in the retailer were little changed. That's pretty much par for the course with Sports Direct.

When Ashley was quizzed by -- or rather, won over -- lawmakers last year, shares in Sports Direct went up during his 90-minute appearance. That, incidentally, lifted the value of his own holding in the company by about 13 million pounds.

When you invest in Sports Direct, you pays your money and takes your choice. Ashley may be unconventional, but his instincts are usually in the right direction. After all, he built the company from a single shop to one with a market capitalization of about 5 billion pounds at its peak in 2014.

Ashley's behavior was no different when the shares were riding high three years ago and the company was being lauded as a model of caring capitalism thanks to its employee share plan that paid out thousands of pounds to staff.

Not Too Shabby
Sports Direct's return on common equity is below the average of 25.03 percent, but it isn't bottom of the pack
Source: Bloomberg
Note: Shows retail, clothing & accessories, footwear companies listed in the U.K. with revenue of more than $500 million and market capitalization above $1 billion.

What has driven Sports Direct's stock lower is problems within the core business. Consumers turning away from stores after the Guardian newspaper revealed the poor treatment of workers prompted a series of profit warnings. Failure to hedge Sports Direct's exposure to the dollar slashed margins.

There are signs that Ashley is trying to take control of the situation. He took on the CEO role after parting company with long-standing right-hand man Dave Forsey. Sports Direct also said last month that it has now fully hedged its dollar exposure. And sales should have been boosted by the recent warm weather, lifting demand for shorts and swimwear.

Playing Catch Up
JD Sports boasted a better price/earnings ratio since mid 2015. Not anymore
Source: Bloomberg

Meanwhile, pain in the sector isn't confined to Sports Direct. Shares in high-flying rival JD Sports Fashion Plc fell as much as 12 percent last Thursday after the company left trading expectations unchanged rather than raising them as it has done in the past. It also hinted at margin pressure.

Where Ashley's behavior and Sports Direct's share price are more correlated is in corporate governance.

Here, Ashley still needs to get a grip. No longer supporting Chairman Keith Hellawell, who minority shareholders voted against last year, and bolstering the ranks of Sports Direct's executive and non-executive directors would be a start.

If he can't do this, then, as Gadfly has argued, Ashley should take Sports Direct private. After all, he has raised his stake from 55 percent to 61 percent.

Ashley's canny business decisions would be shielded from public scrutiny, but then so would his drunken shenanigans.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net