Gamecock acquisition goes south - vendors accuse SouthPeak of not paying up


Created by industry entrepreneurs Mike Wilson, Rick Stults and Harry Miller, the Gamecock Media Group set out to buck-buck-buck the trend -- a perceived sequence of retreads, rehashes and remakes that characterized a rapidly expanding games industry. The games were undoubtedly indie, the choices bizarre and the rooster costumes touted by Wilson and the gang were just plain weird. But not nearly as weird as the David vs. Goliath scenario that ended with the lowly rock slinger shaking hands with his imposing foe.

But in October of 2008, SouthPeak Interactive Corporation stepped out of the role of opposition, instead donning the chivalrous and sharply dressed persona of corporate savior. A shaky economy had compelled Gamecock's main investor to tighten the belt, an act which former Gamecock CEO (and subsequent co-founder of Devolver Digital) Mike Wilson deemed a swift and unexpected crisis. "He and his board decided that with their main business bleeding so badly, they needed to cut off anything 'ancillary'," Wilson said, "such as his investment in outside businesses, one of which was our company." With the timing sitting uncomfortably close to the Christmas rush and promising titles like Legendary and Mushroom Men on the verge of completion, Gamecock needed help.

"And suddenly there was NO money. So, we literally had to find someone to acquire us immediately ... someone who knew the business, could see the imminent revenues versus liabilities, and move very fast." And for a Goliath, SouthPeak was pretty fast. "A week later, we were bought, and all we could do was put on a happy face and hope for the best."

The corporate celerity was largely due to Terry Phillips, chairman of SouthPeak's board and majority owner of the company. "Hindsight is 20/20, and you have to credit Mr. Phillips for moving so quickly," said another Gamecock investor, who wished to remain anonymous. "Entering the controlling partner into an exclusive negotiation was the move that won the deal for him, something that none of the rest of the partners would have signed on for, and a choice that that I'm sure our main partner regrets now."

Regrets seem to be more prevalent in the year following Gamecock's acquisition. While the company was saved from an untimely demise, numerous former vendors who had contributed to the company's lineup -- be that through dialogue editing, video editing or music composition -- now claim to have experienced difficulty obtaining payments owed. Some have already filed lawsuits in small claims court for money that they say was promised by Gamecock, but now legally owed by SouthPeak.


Gamecock co-founders Mike Wilson (left) and Harry Miller (right)

A former Gamecock producer has taken upon himself to speak up for at least four unpaid vendors. "I can think of no reason why my four work-for-hires would not be paid, especially once SouthPeak's lawyer contacted them early on and acknowledged that their invoices were good and would be honored and paid in full," he said, opting to remain anonymous. "Ever since then, for nearly a year, they have been told a check would be sent very soon. At one point, approximately 8 months ago, they were even told that their checks were in the mail."

The outstanding amounts claimed by individual vendors range from as little as $320 to well over $3000. But there are even bigger gaps in payment, noted Mike Wilson. "These ranged from our testing house, Cyan Worlds, who ended up doing huge layoffs because of non-payment, to the big magazine and website publishers, to the smallest of companies and individuals hired for webwork, video production, packaging, you name it. 800 dollars to 800,000 dollars, they were all given essentially the same treatment." And it's this alleged treatment that prompted many of the smaller unpaid vendors to go to court purely out of principal.

"We work in a small industry and I've never seen such ruthless cutthroat behavior from a company -- it's just bad business," said one former Gamecock contributor, addressing SouthPeak's legal resistance. The word coming down from on high, according to communications between vendors and legal representatives, indicated that SouthPeak's purchase of Gamecock unexpectedly placed the company into financial dire straits, rendering payment to vendors financially difficult, if not unlikely.

The excuse didn't sit well with Mike Wilson, who noted that none of the carried-over liabilities should have come as a surprise. "All moneys owed and receivables booked were disclosed in detail before the transaction could close, with us and our investors having to sign declaring that this was 'everything'," he said. "Typical stuff, but at lightspeed due to the situation." This is echoed by a Gamecock investor: "The investor partners' entire interest in doing this deal was to eliminate liabilities. We would not have signed on had we anticipated lawsuits, and Mr. Phillips understood that." SouthPeak's supposed destitution has also frustrated those looking at the company's most recent financial reports, which indicated positive increases in revenue. [Update: In contrast, SouthPeak's stock, has had a rough year.]

Also of concern was the lack of hard, signed contracts between Gamecock and many of its vendors. "It is my understanding that in this business, as in many of the others I'm involved in, vendor agreements are most often a simple invoice for services unless a full contract in warranted. Rick Stults, Gamecock's CFO, was pretty buttoned up with the accounting, as we demanded weekly reports that required backup for funding all along," the investor added.

This understanding is also prevalent among all the affected vendors. An unpaid music composer for Gamecock noted, "While I had not signed a formal contract for each project, on each of my invoices to the company, it was noted that payment for each track would execute a buy out of the rights of the music for use in the trailer." A dialogue editor noted that his contract, like "most video game work," had been verbal. According to the aforementioned Gamecock producer, vendors "were officially sanctioned by management and their invoices were officially honored."

Curiously, some of the vendors were deemed worthy of payment -- provided they accepted reduced amounts immediately. Several were offered an immediate, time-bound 25% settlement, with others being offered anywhere between 50% and 80% settlement spread over more time. Velvet Assassin dialogue editor Barry Leitch was denied payment simply because he had waited "too long" to accept a settlement. He has since given up the fight. "The game industry is infamous for ridiculousness when it comes to being paid for work you've done," he said. "I chose simply to focus elsewhere."

Former Gamecock CEO Mike Wilson had also been involved with the attempts to actively reduce liabilities. "The management partners at Gamecock were clearly not going to benefit from this sale at all, except in some hope that SouthPeak would leave our Austin operation in place, which is what they said they wanted to do. So, their idea for Harry and I to be able to make some money from the deal and feel good about moving forward, was to work to 'reduce the liabilities', and we were offered a commission basically on any moneys we could talk our partners out of taking," he explained. "We have no experience in such things, but I'd imagine this is a pretty typical practice in public companies, so initially we said that we would of course talk to our vendor partners and see what could be done. Again, we were trying to play 'good company men' and hope for the best.

"But it became apparent very quickly that what they actually meant by that was that they were going to try to pay as little as possible ... meaning telling everyone basically to 'screw off, sue us' if they wouldn't accept half or less of what they were rightfully owed." This was the catalyst for Wilson and Miller's departures, and they ultimately only walked away with severance packages.

The story given to several vendors, however, is that Gamecock's upper management simply took the money and ran, a scenario which Wilson vehemently disagrees with: "We have all worked in this industry for a long time, and continue to work in it, and it's hard enough to do the right thing in this business when your competition is bigger and almost universally more cutthroat in its practices, without someone taking your legs out in verbal conversations behind closed doors."

Several dissatisfied vendors attempting to obtain payment from SouthPeak have claimed the entire process has been hampered by poor communication, legal stalling and, according to one in the midst of a lawsuit, SouthPeak representatives "just basically slandering the entire reputation of Gamecock."

In defense of its own reputation, SouthPeak declined to answer any questions and instead offered the following statement: "SouthPeak continues to diligently work through the outstanding details related to the acquisition of Gamecock Media Group. We cannot comment on any pending litigation other than those cited in our public filings."

As one of the company's investors reveals, this whole story could have taken a very different turn after the period of buyout negotiation: "There were other legitimate offers out there that came literally the day after the period expired."

> Page 2: Interview with Mike Wilson

This article was originally published on Joystiq.