Up until early 2017, LeEco's fundraising efforts had been surprisingly successful, so where did all this money go? It doesn't appear to have gone to vendors it owes money to. The situation had gotten so bad that LeEco has had to deal with disgruntled picketers at its doors, wielding signs that read, "Return my hard-earned money."
Keith Yim, who works for Hong Kong tech news site ePrice.com.hk, told Engadget that as of Chinese New Year in February this year, LeEco still owed his website HK$2 million ($256,000) in advertising fees. As Yim worked with an ad agency that brokered the deal, his company was paid. The middleman, Yim said, had to pay an estimated total of HK$5 million ($640,000) owed by LeEco to a group of the region's tech outlets that it represented, which all displayed banner ads or advertorial packages for LeEco.
Yim also claimed that other publications had called LeEco's finance department every day for their unpaid fees. According to him, half of the publications in question were paid before the Chinese New Year holiday, while the remaining were promised their money after that.
Pixels, a large ad agency operating in Southeast Asia and headquartered in Hong Kong, ran into similar issues. Its co-founder and CEO, Kevin Huang, told Engadget that he stopped accepting orders from LeEco in October of last year after the tech conglomerate racked up multiple late payments. Huang said his agency had placed ads and advertorials for LeEco for about two years. "I remember that there were no problems at the beginning; it was just like any ordinary deal between an advertiser and media outlets," he said. "They paid on time, they continued to place orders; it was like that for about a year and a half."
Around the middle of last year, Huang said LeEco's payments would be overdue by as many as 70 days.
LeEco then proposed to pay back its debts in monthly installments. Without disclosing the actual amount owed and the payment period, Huang explained, "Say it was a six-month schedule. They stalled after five months, then we had to chase them again." To date, Huang said LeEco still owes Pixels the relatively small amount of HK$200,000 ($26,000) and continues to make timely payments.
"The whole industry got unlucky."
Rival agency Innity, which is based in Malaysia, has sued LeTV Sports for approximately HK$3.8 million ($487,000) in outstanding advertising fees. "The whole industry got unlucky. It's just that out of the unlucky ones, we're the luckiest," Huang said, referring to the smaller sum his company is owed.
Another Hong Kong publication owed advertising fees by LeEco, Mobile Magazine, showed Engadget an email exchange in which a LeEco employee proposed a payment schedule with installments due in August and November this year. Similar to Pixels, the source ran advertisements for LeEco for a while with no issue, but payments slowed in May of last year. Mobile Magazine has since lodged a complaint in Hong Kong's courts in an attempt to recoup its money. It's a big move for a small outlet, but it might be necessary.
"Honestly, chasing money is about 'Whoever is the loudest will get the money first,' right?" Huang said. "When you go loud, if they get scared, they'll pay you first."
Former employees paint a picture of a business that repeatedly missed payments, and a CEO who sat on a "throne" while employees suffered.
Inside LeEco, the situation was not much better. Former employees paint a picture of a business that repeatedly missed payments, and a CEO who sat on a "throne" while employees suffered. They told Engadget that some LeEco branches delayed payment to smaller contractors for as long as possible as part of "cost-cutting measures." Some employees said salaries, prior to mass layoffs, were also delayed, while expenses took longer and longer to be paid out.
This sentiment is backed up by anonymous reviews on Glassdoor, which claim the company was not "honest to its employees about layoffs and company status." Multiple people have claimed that the US office would roll out a "special cheesy chair" or "throne" when Jia would visit, and rent furniture for the building's lobby "to make us seem like a real company." One review suggested the "throne" is now "collecting more dust in storage" than the "vacant desks previously used by laid off employees."
Not all employees that LeEco laid off had a bad experience, though. Shiraz Datta, the company's former senior director of research and strategy in the US, told Engadget after he left that his stint was a positive one. "Yes, there were challenges, but I enjoyed my stay," he said. He also confirmed having received a severance package.
As it reportedly continued to incur debts and neglect to timely pay some of its employees, LeEco funneled cash into its LeSEE car-making business. Jia's obsession with automobiles began with a personal investment in Faraday Future, and then he tied that company's fortunes to his own. LeEco's co-founder Ding Lei worked as global CEO at Faraday Future for a spell and also headed up the Chinese company's LeSupercar division. The companies define their relationship as a "strategic partnership," and sources describe seeing Faraday employees at LeEco's offices, in a demarcated area for employees working in the car division. A BuzzFeed report from last year claimed that Faraday Future employees designed LeSEE's concept car and that the company was not reimbursed for their work.
LeEco's holding company told Engadget that it has "been very much focused on solving problems we've encountered as we grow our businesses. We always maintain proactive and transparent communications with suppliers and employees to get their understanding and support, at the same time we're pulling all efforts looking for solutions in a collaborative manner."
While in a mountain of debt, LeEco agreed to buy a stake in a production company founded by Jia's wife, Gan Wei.
The collective symptoms of financial woes points to poor management. Jia himself even acknowledged in a letter to employees that the company "blindly sped ahead" and that "the scale of our external fundraising had trouble satisfying the demands of our rapid expansion." But instead of pulling back its cash-hungry projects in 2016, LeEco continued to seek more financing, offering up more and more shares in exchange.
As the company struggled to climb out from under its mountain of debts, it announced plans to buy a web TV and film production company founded by Jia's wife, Gan Wei. According to a Reuters report, LeEco will buy Gan's 47.8 percent stake in Le Young Pictures to "comply with regulations" and resolve an "industry competition issue." LeEco is getting a 50 percent discount on the current valuation of the stake, but even at that rate Gan will reportedly see a 30-fold return on her initial investment.
In January this year, after a six-hour-long meeting, LeEco scored a $2 billion bailout from real estate giant Sunac China Holdings Ltd. but had to hand over a 33 percent stake in its business. This lifeline turned out to be more of an apron string. While the backing of a large, stable company bought LeEco time and a reprieve from its debtors, as well as the guidance of an established mentor, it also required sacrifices. In May, Jia stepped down as the public company's CEO, reportedly due to pressure from Sunac, and has since vacated several other positions within the company.