12:53pm PT by Eriq Gardner
Howard Stern Sues Sirius XM Claiming He Was Stiffed On Stock
In 2004, before Howard Stern signed a blockbuster deal with Sirius Satellite Radio, he thought about retiring. Instead, he took a "significant risk" and went with Sirius. The moment is captured in a lawsuit filed today in New York Superior Court where Stern's company, One Twelve Inc., and his agent Don Buchwald are pressing charges that Sirius XM Radio stiffed them on promised stock.
In 2004, Stern was negotiating with both Sirius and XM, two rivals before they merged in 2008. In the lawsuit, Stern says Sirius got the upper hand by promising him that he would be treated like more than just an employee; that he would share in the company's success.
"Sirius needed Stern more than Stern needed Sirius," says the complaint.
Sirius signed a deal with Stern whereby One Twelve would be paid performance-based compensation based on escalating stock awards. The promises of stock are said to have been tied to subscriber growth.
The rewards were set at high levels, the complaint continues. Sirius allegedly promised to give Stern stock if the satellite company over-performed its estimates by 2 million subscribers. When Stern signed the deal, Sirius had 700,000 subscribers. The company projected it would have 3.7 million subscribers by the end of 2006, 7.2 million by 2008, and 12.1 million by 2010.
In reality, Sirius ended up with 6 million subscribers by the end of 2006, nearly 19 million by the end of 2008, and over 20 million by the end of 2010.
Some of the subscriber growth is attributable to the XM merger, of course, but the complaint notes that Stern met his early targets and had agreements in place to account for the subscribers that XM would bring to the table.
Nevertheless, the plaintiffs say that Sirius didn't meet its bargain. During the early days, before the XM merger, "Stern and Buchwald decided not to demand payments while Sirius was struggling or reportedly on the verge of bankruptcy," according to the complaint.
During new contract discussions in December, however, the demand for past payment was once again brought up, with Sirius allegedly refusing to make good.
The plaintiffs explain:
"In 2004, when Sirius desperately needed Stern to make its business viable, it induced him to move to Sirius by offering him a chance to share in the success of the company. Now that Stern has put the company on the map, brought in millions of subscribers, and helped it conquer its chief rival, Sirius has unilaterally decided that Stern has been paid enough. The amounts owed to One Twelve and Buchwald represent a fraction of the revenue that Stern enabled Sirius to achieve, yet Sirius refuses to honor its commitments to him and Buchwald."
Sirius is being sued for breach of contract, and the plaintiffs are seeking unspecified money due, plus interest.
UPDATE: Sirius has issued this statement: "Sirius XM just signed a contract through 2015 with Howard Stern, and he is a valued part of our company. We were thus surprised and disappointed by the subsequent legal action initiaed by his production company and agent. We have me all our obligations under the terms of our 2004 agreement with Howard, his agent and production company."