By Zach Arnold | December 30, 2009
I have two articles left to write in the Fight Opinion Five article series and I will get those done soon. As you might suspect, the last two topics will deal with scandals in Mixed Martial Arts. I remember a tagline that Ryan Harkness once attached to me, which is that I do my best work when there is a scandal brewing or when a company is dying. True or not, I am often associated with covering the biggest scandals in MMA this past decade.
One person who also found his name involved in scandal was Rich Bergeron. Bergeron has been aggressively campaigning against individuals that were involved in Xyience. If you recall, Bergeron found himself on the end of the lawsuit and having to defend himself pro se. Bergeron was dismissed as crazy and a lunatic, but as the Xyience situation unravels, it looks like the facts may be more friendly to Rich than people first thought.
If you don’t recall what scandal there was involving Xyience, search here. In short, Xyience was that beverage drink that fighters were pushing because they were sponsoring UFC fighters. And of course, Xyience management had been friendly with UFC management beyond MMA circles. Then the dirt-digging started to happen and that’s where Rich found that where there is smoke, there may be fire. Eventually, Xyience went bankrupt but the Fertitta empire (through a company called Zyen, LLC) took over. This is why you still see Xyience at UFC events. Xyience product is getting distribution clearance in various places now across the States.
The whole key to the scandal involving Xyience and how it went bankrupt is very complicated, which is why as a scandal it didn’t gain the traction that you thought it might have. If you can’t explain a scandal in a paragraph or two and it involves a ton of layers of facts to analyze, expect people’s eyes to glaze over. My opinion on what happened with Xyience is that as a scandal, it has/had all the key ingredients to blow up into something bigger if bigger media outlets focused on it and realized why UFC management thought Xyience was so important. Remember — when UFC took out those loans a few years ago (along with that revolving line of credit), was Xyience or PRIDE part of what was listed as key assets? Bergeron made the claim that Xyience was and he further claimed that if you connected the dots that you could show what was “really going on” between Xyience and UFC.
The key problem that Bergeron and others who paid attention to the Xyience scandal have in terms of getting the public interested is that no one has shown the hardcore fans, let along the casual fan why they should give a damn about a beverage drink maker going bankrupt and how UFC management having a close relationship with former owners of Xyience means anything in relation to the business end of UFC itself.
Compare and contract the Xyience scandal to the yakuza scandal involving Shukan Gendai’s negative campaign with PRIDE — the weekly magazine connected the dots and made claim after claim regarding not only mobsters, but also claims against Fuji TV sports producer Kunio Kiyohara (who was a powerful figure because his father was a big name in the newspaper industry). In the States, few people online believed the scandal would go anywhere. The truth is that Gendai, along with other media outlets in Japan, started picking up on the story and figured out ways to convince people that it was important. Combine that with the fact that shame still means something in Japan and you had a scandal that brought down PRIDE.
As for Xyience? It’s 2010 and people may not care about the scandal, but there may be good legal reason to care. The liquidating trustee for Xyience in bankruptcy proceedings has filed a complaint against Zyen LLC and Fertitta Enterprises in relation to Xyience. Station Casinos is struggling and things have not been going swimmingly lately for the Fertitta family. In the legal document linked in this paragraph, the liquidation trustee writes the following paragraph:
This Adversary Complaint arises from the premeditated decision of Fertitta Enterprises, including one of its officer and lead operators (Mr. Bullard), to take over ownership of the Debtor while stripping the Debtor’s secured and unsecured creditors of the considerable value that they possessed through their claims against the Debtor and its assets.
Document translation: Xyience got bankrupted on purpose by Xyen LLC (Fertitta) so that they could take over the assets and rip off the creditors.
I would strongly urge you to read that legal document and look at the full complaint by the Trustee. It’s very direct and blunt in terms of its accusations against the Fertittas and Zyen LLC. Here’s one more paragraph to give you a sample of just how direct the complaint is:
When it became evident that the Debtor’s financial structure — that is, its secured and other unsecured creditors, and the substantial number of outstanding stockholders — would render an ordinary takeover through stock acquisition too expensive, Zuffa and its owners decided instead capture the company through a series of secured loans, forced defaults and then a foreclosure of the assets.
And this may just be the beginning of the legal trouble brewing over Xyience.
On page 8:
On October 5, 2007, the Debtor used the Zyen loan proceeds to make the following payments, among others: (a) $4.5 million to Zuffa (substantially all of which was on account of missed payments under the January sponsorship agreement): (b) $1,029,166.67 to Fertitta Enterprises: (c) $257,187.50 to Mr. Frank: and (d) $257,187.50 to Mr. Sanford.
On page 9:
Despite knowing that the Debtor would be defaulting on its sponsorship agreement, and thus would be prohibited from selling merchandise containing the UFC label and trademark, Messrs. Bullard, Frank and Sanford, throughout November and December 2007, caused the Debtor to order and have millions of dollars worth of product manufactured with the UFC label so that the Debtor would be forced to deal with Zuffa, on Zuffa’s terms, when following the Zyen strict foreclosure, the Debtor was forced into a bankruptcy proceeding.
In December 2007, as the parties had planned, Zuffa terminated the October sponsorship agreement.
The complaint goes on to claim that the parties involved were involved in an inside transfer scheme that violated Nevada’s Uniform Fraudulent Transfer Act, along with Breach of Fiduciary Duty claims.
I applaud anyone who is doing the dirty work in finding out information regarding this case. The challenge for those who seriously believe that there is a story here that the public should care about is how to market this story, how to tell it, and how to package it in a way where people can simply connect the dots and be able to tell their friends about it without forgetting what exactly the scandal is about.
The truth is that the usual suspects in the media will not touch this story — it’s too under the radar and it’s simply high-risk, no-reward. I don’t expect many blogs or micro sites to touch the story either because it bores them to tears, so whoever keeps up on this case is going to have to do a really good job of trying to convince the opinion makers (writers) to mention it if they want to keep this full steam ahead. Plus, everyone is afraid of getting sued.
The fact that the Xyience case has now hit the court system is an advantage in terms of comparing this scandal to the yakuza scandal that destroyed PRIDE. PRIDE was taken down by a weekly magazine. In the Xyience case, we have a legal paper trail developing.
And that paper trail is going to prove to be fascinating in relation to how Xyience was presented on the financial paperwork that Zuffa LLC filed to get the hundreds of millions of dollars they borrowed. Now that we know that some of that Zuffa debt was purchased by parties such as Mark Cuban, what will happen if someone like the Xyience Inc. trustee can prove in court that fraud took place by the Fertittas?