1:09pm PT by Eriq Gardner
Viacom Under Attack Over Management of MMA Outfit
A Turkish company that was a founding investor in Bellator has filed a lawsuit charging Viacom with diverting money from the mixed martial arts promotion outfit.
The case brought by Koloni Reklam, Sanayi, Ticaret LTD/STI belongs in the category of vertical integration, except this one mentions how companies are paying tens of millions to put their logos on top of cage mats.
According to a complaint filed in Los Angeles Superior Court, the plaintiff invested $1 million in Bellator in 2009. By the end of the following year, Viacom made its first deal for Bellator, which bills itself as "The Toughest Tournament in Sports." After more deals, Viacom began exhibiting matches on Spike TV and gained a 97 percent interest in the promotion. This had the effect of diluting the plaintiff's own ownership stake.
Koloni Reklam expresses frustration in its lawsuit for not having a clearer picture of the financials of its investment, but says this is attributable to "Viacom's deliberate attempts to conceal Bellator's financial status from minority members."
In May, the plaintiff says it finally got financial statements from Viacom, and according to the complaint, the documents "only highlight Viacom's failure to pursue all profits Bellator would be entitled to if Viacom had been acting in Bellator's interests rather than its own."
Viacom is alleged to be causing damage to the league by causing one of its subsidiaries to divert revenue tied to in-show sponsorship integrations. A licensing agreement provides that Bellator is to get 50 percent of "advertisements that integrate multiple methods of promotion, such as televised commercial break advertisements combined with in-show logo placement on cage mats," but the lawsuit implies that Viacom is structuring these ad deals in a suspicious fashion.
"Using its wide range of business interests, Viacom is able to divert income to its affiliated companies while purposefully obscuring the terms of these advertising contract," states the lawsuit. "By doing so, Viacom can retain all revenues within its empire while depriving Bellator and its minority members of the significant revenue that is diverted to its other business interests."
With such revenue — said to be "tens of millions to over a hundred million dollars," but also "impossible to determine" at the moment — the plaintiff says Bellator would be profitable, without need for further investment capital diluting plaintiff's ownership stake.
Viacom allegedly adjusted Bellator's account to credit $500,000 for three years of unpaid money under the licensing agreement, but the plaintiff says it was only "a transparent attempt to further mislead and placate Plaintiff in order to divert attention from the true sum owed."
The plaintiff is also taking on Viacom for directing Spike TV to substantially reduce the number of Bellator events, which means diminished revenue for the company and an unhappy minority investor.
The complaint (read in full here) filed by Ekwan Rhow and other attorneys at Bird, Marella, demands an order compelling Viacom to purchase plaintiff's interest in Bellator or in the alternative, dissolve the company. Asserting causes of action including breaches of contract, fiduciary duty, and good faith and fair dealing, the plaintiff is also seeking compensatory and punitive damages.
A spokesperson for Spike TV responded, "The lawsuit is without merit and we intend to defend the matter vigorously."