Joystiq: Could you explain the series of events that led to SouthPeak's acquisition of Gamecock?
Mike Wilson: Gamecock had one main investor who owned the vast majority of the company, and could basically do with it what he pleased, until such time as the rest of us had earned more equity in an earn-out scheme. This investor was a good guy, from outside the industry, who owned and ran a big company in other media. Basically, when things started to crumble so rapidly in the economy last Sept/Oct, he lost an enormous amount of money in his main businesses and assets overall, and with no end in sight, had a bit of a panic like the rest of the world at that time. He and his board decided that with their main business bleeding so badly, they needed to cut off anything 'ancillary', such as his investment in outside businesses, one of which was our company.
This all came about very quickly, and the timing was terrible as we were just finishing up some of our bigger titles for Christmas (Legendary and Mushroom Men), and it was time to do the big marketing push and build out the COG's. 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.
An industry friend introduced us to Terry Phillips at SouthPeak, who we in turn introduced to our investor, and inside a week they'd arrived at an exclusive negotiation deal (which proved tragic, as we had much better competing offers come in just after it was too late). A week later, we were bought, and all we could do was put on a happy face and hope for the best.
During the negotiations, was SouthPeak made aware of Gamecock's outstanding liabilities?
Yes of course ... this was basically an assets versus liabilities sale, and complete due diligence materials had to be delivered. 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.' Typical stuff, but at lightspeed due to the situation.
What was SouthPeak's initial stance concerning said liabilities? Did they have any particular instructions or conditions?
Well, it was interesting. 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. 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. Harry and I clearly were not interested in this, and it became clear that us working with SP wasn't going to work out, and that they truly had no intention of keeping the Austin team in place.
So, we left, pleading with them to honor our employees contracts, keep as many of them on as possible for as long as possible, and then worked to reduce our own non-competes, and severance packages along with it, which was the only thing we were walking away with.
How were Gamecock's vendors informed and dealt with during and after the acquisition?
We told a few of them immediately, and the rest read about it in the press release that was issued immediately. We told them all that SouthPeak was a strong company and that they'd get paid, it might just take a bit during the transition. They were all asked to submit 'proof of performance' for the moneys they were owed, which we rounded up for them and submitted to SP management immediately.
That's about the end of it from my standpoint ... I was then gone, and my email address being forwarded to SP management, with no forwarding, or even telling people I was no longer there. I didn't realize this until months later, how many people were left thinking that Harry and I had just 'taken the money and ran' or were just ignoring their emails, which we of course were never receiving. Incredibly damaging and frustrating, obviously. Particularly when what we were actually doing was paying a laywer huge sums of money to fight for our severance and non-compete reduction.
Did every vendor contract have signed documentation and associated invoices?
Well, no. Like many publishers and production houses who source work outside, we had a huge number of projects with independent vendors going at all times. For the larger, more longterm projects, we would do a scope-of-work agreement, but more often these were just small and quick contractor jobs, with terms agreed on email and then invoiced. Standard stuff.
Can you name some examples of vendors that went unpaid after the move? Biggest / smallest amount?
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. They were paid only if SP 'needed them' for something beyond work they had already completely, or if it was believed they would actually follow through with a lawsuit. Obviously many of these people couldn't afford to pursue this, or this was the bet, and others would give up rather than go through the nastiness, especially when told that they were lucky to get anything, take it or leave it, SP is barely in business, etc etc.
Can you think of any legitimate reason why South Peak would be unable to pay vendors?
Uhm, no. SP posted record numbers in the quarter immediately after the transaction. They could pay whomever they chose to pay, or were forced to.
If vendors have gone unpaid, what course of action is available to them?
Some of the smallest, but most committed ones, have actually followed all the way through even in small claims court, which has various limits from state to state. Many, many others have settled for a fraction (sometimes as little as 25%) of what they were owed, and signed agreements not to speak of it once they were paid.
How likely would you say their victory is in any resulting lawsuit?
I really can't say. Venues vary by location, state to state, country to country, and of course a lot depends on your lawyer and your judge. But there have been many people who have won, been paid in full, if they truly followed through. The bet is that most won't, or will accept much less, if threatened with a lengthy, expensive, and painful process.
At the time of negotiation, was there ever any doubt as to whether SouthPeak would honor these debts?
Not at all. But then we weren't really involved in the negotiation. The only people we knew who knew SP were our PR firm, Sandbox, who told us they were generally good guys who paid their bills. So this is what we told our employees and vendors. I have since learned that this has never been the case with any company run by Terry Phillips.
What is your response to allegations that SouthPeak has placed the blame for delayed payment on Gamecock's management?
Any time I was made aware of the vague allegations these guys would make in their standard strong-arming of these people, I would let SP management know, as well as our lawyers and theirs. I gave them a 'final warning' in March, and never heard back, but also never heard of anymore such allegations, at least not in writing. It wasn't until E3 that we found out from industry friends the extent to which they had verbally thrown us under the bus, encouraging people to believe we had indeed 'cashed out and ran', which of course angered us to no end. We got absolutely nothing for the small amount of equity that we owned, and as I said, got a reduced severance in order to be able to start working on our new company. Which was more than some of our other employees got, some of whom are still involved in lawsuits to get what they rightfully had coming.
As I said to SP management, while it is completely their choice how to run their business and who to pay or not pay, it is completely unfair and beneath all of us to try to place any blame on GC management for their choice to not pay liabilities that were fully disclosed before they bought the company, in full detail. 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.