LOOKING DEEPER INTO TMP'S CHAPTER 11 FILING

[MattBrady]

With the frenzy that began with the news of Todd McFarlane Productions filing for Chapter 11 bankruptcy protection, reactions from the comics community have been coming thick and fast. We thought it best to look closer at the larger picture, and address some persistent points that may not be entirely accurate.

First, despite other, misleading reports, Todd McFarlane has not personally filed for Chapter 11, but rather Todd McFarlane Productions Inc., the company responsible for publishing the Spawn comic book issue #140 recently shipped, making it the longest running title published by Image Comics), as well as other comics and magazines that come out from the McFarlane empire. According to company information, its assets include the rights to more than 250 intellectual properties and characters. The distinction is an important one, as McFarlane is the head of a large entertainment empire, of which, TMP is only one facet. McFarlane himself is not bankrupt, and his other companies (though some are rumored to be struggling) are in no way affected by the filing.

As such, the filing of Chapter 11 in no way affects either McFarlane Toys or Todd McFarlane Entertainment. While McFarlane’s toy company is well known among comic and toy fans, Todd McFarlane Entertainment is the California-based company under which McFarlane produces animation for films and music videos (such as for Korn and Pearl Jam), as well as feature films, and videogame projects. There are four other companies that make up the full picture of McFarlane’s empire.

Again, as regular Newsarama readers know when it comes to Chapter 11 filing, the process is initiated to allow a company to reorganize in order to once again become profitable, and/or address claims by its creditors. When it comes to comic book publishers in 2004, TMP unfortunately isn’t unique in filing Chapter 11. Tampa-based CrossGen Entertainment filed the same on June 17th, citing debts larger than their income allowed them to pay.

In the case of TMP, the debt cited for the filing is the $15 million awarded by a jury to Tony Twist, a former St. Louis Blues hockey player whose name McFarlane appropriated for the name of a particularly violent mobster who appeared in both the Spawn comic book and HBO animated series. Twist – the hockey player, was known to be an “enforcer,” that is, someone sent in to beat on another player, to deliver a message, to “enforce.” The character in the comic, was a mobster known for his sadistic ways.

While the character was introduced in 1993, Twist didn’t file suit until 1997, claiming that having the character named after him damaged his ability to obtain lucrative endorsement deals, that is, he suffered financial damages from what he saw as McFarlane’s unauthorized use of this name. Image Comics, which publishes Spawn, as well as Wizard Magazine, which published a Spawn Special were among other defendants named in the case, but they were all dropped, with the end result of Twist suing TMP alone.

The matter went to court, and, despite McFarlane’s claim that he was protected under the First Amendment, a St. Louis jury sided with Twist, awarding the (now ex) hockey player $24.5 million. That verdict was overturned in 2002 by the Appellate Court; and then that verdict was overturned in 2003 by the Missouri Supreme Court, which sent it back down the lower courts for a decision. In 2004, a jury again sided with Twist, this time awarding the former hockey player $15 million in damages, despite numerous authors and literary groups siding with McFarlane, and expressing grave concerns over what a victory for Twist would mean for creators, who could now, apparently, be held liable for “damages” suffered by individuals who share the same name as characters in works.

Interestingly, the award made by the jury - $15 million for reported “damages” consisting mostly of lost endorsement deals for Twist, which would have occurred in the timeframe between 1993 and roughly the late ‘90s, after which the character named Twist no longer appeared in the comic, would have placed him, a mid-to-lower tier NHL player in the higher echelons of sports figures receiving endorsement deals at the time. This, despite the fact that NHL players lag far behind NBA, NFL and MLB players in terms of endorsement contracts - outside of Wayne Gretzky and Mario Lemieux, barely a handful have had contracts since the early '90s.

In short, that’s the $15 million that is owed by TMP to Twist. The case is still being appealed, but until that time when an appeal comes down in favor of McFarlane, TMP has a $15 million Sword of Damocles over its head. While the company has apparently been able to continue publishing since the Twist decision earlier this year, it’s easy to see that TMP’s ability to gain credit, as well as attract new properties could be adversely affected by what potential investors would see as...well, a $15 million debt.

Additionally, TMP isn’t the first company to file for Chapter 11 protection after having a judgment made against it. With the case in the appeals process, filing Chapter 11 could also be seen as TMP buying some waiting time, pulling it off the table, in terms of being forced to liquidate to pay the $15 million. Under Chapter 11, companies are required to create and produce a reorganization plan, which then must be approved by all creditors. While there is much legal maneuvering that can be done in the time between filing and producing a plan for approval by creditors (for example, it was during this time period that CrossGen sold its assets to Disney), a monkey wrench thrown into the TMP filing is that Twist himself is the largest unsecured creditor of TMP (to date, see below), and therefore, would almost certainly be one of the voices that has to approve any proposed reorganization by TMP.

As Newsarama reported on Saturday, court documents show that TMP has filed a motion to allow it to continue with the appeals process during the Chapter 11 proceedings, which, admittedly, can stretch on and on.

As for the other unsecured debts, unfortunately in today’s industry, $60,000 owed to creators barely raises an eyebrow. Something that does cause an eyebrow to twitch though, is the $683,901.55 owed to McFarlane Toys by TMP, an intercompany loan. While such back-and-forths of money are relatively routine under a collection of businesses under one umbrella, such as the McFarlane companies, under their structure, TMP licensed McFarlane Toys rights to produce Spawn and all related characters that are owned by TMP. As a licensor, TMP would then collect royalties from McFarlane Toys. To see money flowing in the other direction is…at least, interesting.

The paperwork filed with the court also shows that on November 19th, 2004, TMP received a loan from Stephen A. McConnell of $500,000 (at 2% interest per month), which would mature on November 18th, 2005. According to the financing statement of the loan, TMP is using all rights to its accounts receivable as collateral, that is, all money coming into TMP, and in a business world moebius loop, the guarantors of the loan are McFarlane and his wife (TMP head) Wanda Kolomyjec.

According to the filings, TMP has proposed that the cash will be placed into a segregated account, and be used by TMP to continue operations, while TMP will pay only the interest due on the loan in the interim.

Other filings with the court point to a wild card in the debts owed by McFarlane – that is, the judgment against TMP by a court in favor of Neil Gaiman. Though Gaiman is listed as one of the largest unsecured creditors, the amount is not specified. In a later filing, TMP stated that, while a jury has found in favor of Gaiman, a final judgment amount will not be specified until a court-appointed accountant’s validation of “certain intellectual property and profits.” Those properties of course, being, Angela, Medieval Spawn, and Cogliostro, characters created by Gaiman, and used by McFarlane, who did not fairly pay Gaiman. While a dollar amount that will be decided upon is anybody’s guess, it could easily range into the millions, as Medieval Spawn and Angela have been used repeatedly in the Spawn comic book series, Cogliostro appeared in the Spawn feature film, and all three have been translated into toys at least once.

Viewed in that light, that is, TMP has a $15 million judgment against it, and another, possible multi-million dollar judgement waiting in the wings, the "protection" aspect of a Chapter 11 filing becomes much clearer.

As previously reported, TMP has filed for an expedited hearing to be held, if the court agrees, today, December 20th, 2004. If the Court agrees with TMP’s motions, stays will be granted, the cash loan will be able to be used, and the appeal against the Twist verdict will continue – in other words, business will continue as usual for TMP.

Since the news broke, comic fans have wondered and speculated just what TMP’s filing for Chapter 11 would mean for Image Comics, of which McFarlane is President and a founding partner. Posting on the Newsarama messageboards, Image Publisher Erik Larsen has said that the filing by McFarlane will have no financial impact for Image as a whole, and Spawn will continue to be published, adding “This is nowhere near the big deal people here are making it out to be. Todd is NOT broke--Image is NOT filing for bankruptcy and Spawn is NOT ending.”

Supporting that statement, Larsen later added: “When I took over as publisher one of the beefs retailers had about Todd was that Spawn was late (about a YEAR late--Todd slipped off the schedule, a week here and there over ten or more years and it added up). Recently, I helped convince Todd to cancel the orders for those books and have it resolicited. THAT is why the books are being resolicited now. It's in better shape now than it has been in years. It's coming out on a regular basis and is no longer shipping returnable.”

Given Image’s corporate structure, Larsen’s comment about TMP’s filing not damaging Image is true – TMP’s income does not support any large part of Image, as Image’s income as a company is generated on a per book basis, that is, creators/studios pay Image a fee per issue (and other associated costs), which is not related to the book’s performance in the marketplace.

As reported, TMP has asked the court for an expedited hearing today which will allow the company to operate as normal.

[JDooley]

Good luck Todd! I know a lot of people don't like TMC, but I wouldn't wish this on anyone. You know TV is flooded with advertisements with hockey players. I love hockey to death but the stars never get endorsement deals. Gretzky, Mario, Hull and more never get money that football, Basketball and Baseball stars (or others like Lance Armstrong) get. Twist was never even a "star". 15 million is insane for a homage by a hockey fan. The death of common sense...

[Noreikas]

While I don't like the attitude that Todd MacFarlane is famous for, I hate to see this happen.

1) There's no way that this "character" of Tony Twist caused the hockey player 15 million dollars worth of damages and lost endorsements. We're talking a comic book that in it's hey dey sold 100,000-200,000 copies a month. In fact, the only way I have heard of either the real Tony or the character was because of this lawsuit.

While I believe some of this is karma because of many of Todd's past actions, I do hope he gets this decision overturned and turned around. Say what you will about him, but Todd did provide some interesting characters and stories and great art to the industry.

[Reliant]

Originally posted by Noreikas
While I don't like the attitude that Todd MacFarlane is famous for, I hate to see this happen.

1) There's no way that this "character" of Tony Twist caused the hockey player 15 million dollars worth of damages and lost endorsements. We're talking a comic book that in it's hey dey sold 100,000-200,000 copies a month. In fact, the only way I have heard of either the real Tony or the character was because of this lawsuit.

I live in Saint Louis, was a fan of the Spawn comic book--until Greg left as penciller--and hell, even I didn't see the connection between Twist and the comic book character. This was merely a case of a former hockey thug-turned-local public access sport show panelist trying to squeeze a multi-million dollar fortune to retire on out of someone who created a character with the same name. Most people didn't even know of the Spawn comic book at all (and still don't). Nobody thought for one moment that the comic book character was having a negative impact on the real-life person...

Defamation of character--what character?

If anything, the real-life person is an insult to the comic book character...

What a joke...

[SanityOrMadness]

Can I just ask here - who owns Image? The remaining (post-Lee & Liefeld leaving) founders all have equal shares, right? What company owns McFarlane's share?

[Volunteer]

Are SPAWN and supporting characters the property of TMP? If so, is it possible that McFarlane could lose control of the Spwan character? Given the whole Miracleman issue, that would actually be pretty funny.

Volunteer

[Posco]

It´s unbelievable that such a ridiculous case and jury decision can make a company go under. Isn´t parody protected under free speech any longer? (And even if there had been ground for a financial award - the sum would still have been totally unjustified. Did the jury just side with the local city sports hero?)

Christian

[dollman]

As the biggest hockey fan on this board, I'm thoroughly disgusted by Twist's opportunistic play for a big cash payout that he never received in during his playing days.
Endorsement opportunities? Please....he's a hockey player, and not even a well known one at that.

Aside from Gretzky and Lemieux, both of whom have and had endorsement opportunities in Canada, it's an incredible stretch for Twist to claim that he lost endorsement deals worth $15 or $24 Million on either side of the border.

Gretzky currently has endorsements with Ford Canada and the Bay Stores (a Canadian retailing icon). Lemieux hasn't had any since 2002, when he was the spokesperson for Chunky Soup. I could be wrong, but I suspect that Gretzky's biggest endorsement deals comes from Canada, not the US. And for the most part, I suspect this is true of the majority of hockey players in the NHL, past or present.

Even the rare time that we see a hockey player on a Nike or EA game endorsement Stateside, no way they're commanding $15 million.

[perk9600]

Tony Twist didn't even make 15 million in his entire career for playing hockey.

So that number is just bogus in my opinion.

[campbell551]

Todd has become that which he hated in his youth. I hate to see this happen to somebody, but isn't it a little poetic? Keep in mind that Todd is a huge sports fan and there is no doubt that he knew he was using someone else's name when he created this character. The funny thing is, is that if he had picked up the phone and asked Twist if he could use the name, the guy probably would have been OK with it.

[dollman]

Originally posted by campbell551
Todd has become that which he hated in his youth. I hate to see this happen to somebody, but isn't it a little poetic? Keep in mind that Todd is a huge sports fan and there is no doubt that he knew he was using someone else's name when he created this character. The funny thing is, is that if he had picked up the phone and asked Twist if he could use the name, the guy probably would have been OK with it.

Didn't McFarlene appropriate Peter David's name for a pedophile or some unsavory character in a Spawn story? I remember Peter David being incredibly pissed, but he didn't sue. If anything, David would probably have more of case, as he could had argued that he was defamed in the industry where he is well known. I'm the rare breed that follows hockey and comics with the same passion, but really, how many other comic readers even knew that Tony Twist was a hockey player prior to the lawsuit?

This is a frivilous case by Twist and his lawyers.

[Vyper]

I think that the basis that Twist has latched onto for his case is the fact that McFarlane had admitted several years back that the name "Tony Twist" was inspired by the real-life Twist, and was an homage to a hockey player by a hockey fan. That's the only thing Twist could grab hold of, and did.

Having said that, I will repeat what I have said before about this lawsuit - this is utter and total bullshit. People can say what they want about Todd and his ego, but the fact is, it's not about Todd. It's about the fact that an utterly bogus case like this (did Twist have hundreds of endorsers knocking down his door or something - $15,000,000???) can hold up water in court. I had a teacher in High School years ago whose name was Richard Reid, which, as some may know, is also the name of the evil, alternate reality version of Reed Richards, aka Mr. Fantastic. Should he have sued Marvel over it? I mean, his namesake was being depicted as a villain in a high-selling comic book, and might have caused him to lose out on potential job offers from schools that were turned off by a comic book villain sharing the same name.

This is utter idiocy, and shows some serious defficiencies in both the American legal system and the common sense of the jury in question.

I am hoping the case gets overturned once and for all, and TMP stays in business and pays off its creditors.

[gon]

Originally posted by MattBrady
[...] Interestingly, the award made by the jury - $15 million for reported “damages” consisting mostly of lost endorsement deals for Twist, which would have occurred in the timeframe between 1993 and roughly the late ‘90s, after which the character named Twist no longer appeared in the comic, would have placed him, a mid-to-lower tier NHL player in the higher echelons of sports figures receiving endorsement deals at the time. This, despite the fact that NHL players lag far behind NBA, NFL and MLB players in terms of endorsement contracts - outside of Wayne Gretzky and Mario Lemieux, barely a handful have had contracts since the early '90s.

The irony here is that Twist is probably more famous now than he was when playing hockey. Maybe he should try and get some of those sweet endorsements now.

"When I get home after a long day in court suing Todd's ass, I always like to sit down and relax while siping from a cup of Folgers decaf... mmm... delicious"

[grphxkindaguy]

Originally posted by Noreikas
While I don't like the attitude that Todd MacFarlane is famous for, I hate to see this happen.

I'm on the other end of the spectrum, in that I am happy to see the Toddster getting screwed over by the joke that is our American Justice system. I think of it as karmic payback for the screwing over of Gaiman and the other creators who've done past work for him and Toady refused to make right.

His artwork and toys are fantastic, but the man's arrogance and shady business practices make him a scumbag in my book. IMO he's getting his just desserts.

I feel more sorry for the creators that are owed money by this jerk-off. "Hey look at me, I spent MILLIONS on a couple of baseballs, but can't pay the people that did work for me!!!"

There's one profanity I'd really love to call TM right now, but I know Matt would flip out.

[Evil Gilligan]

This lawsuit case is just one example of how screwed up our system is in my opinion. Honestly, if I were to have to go before a jury I think I'd rather have 12 chimps deciding my fate. Have two buttons in front of them labeled "Guilty" or "Innocent" and let them press whichever they choose. The majority of the votes is the verdict. I'd rather live with that then to have 12 morons deciding my fate.

[Cray_ws]

I find it amusing that a guy like Mark Alessi gets ripped apart for running out of money and not paying free-lancers and staff, here we have Todd McFarlane a celebrity creator buying Madonna memorabilia, and baseballs. Yet he's not paying his free-lancers and staff either.

It goes to show you all that these kinda situations can happen to anyone, and some things are beyond their control regardless of who or how much power they have. There's no perfected way of doing business. There's a million things both millionaires could've done to prevent their current situations.

Lets hope that situations like these only educate those out there who hope to one day be a successful figure within the industry.

[Agent Wax]

Twist winning that decision is one of the most absurd things I've ever heard. Seriously, what the hell were the courts thinking? I hope he rots in hell.

-wax-
xxx

[campbell551]

Originally posted by dollman
Didn't McFarlene appropriate Peter David's name for a pedophile or some unsavory character in a Spawn story? I remember Peter David being incredibly pissed, but he didn't sue. If anything, David would probably have more of case, as he could had argued that he was defamed in the industry where he is well known. I'm the rare breed that follows hockey and comics with the same passion, but really, how many other comic readers even knew that Tony Twist was a hockey player prior to the lawsuit?

This is a frivilous case by Twist and his lawyers.

Dollman, you will appreciate this:
Two Canadians make it big in the states and one sues the other one. How much American tax money has gone into this law suit? I tell you, I'm glad I live above the 49th wher stupid law suits like this get laughed out of court by both lawyers and the judge. And please correct me if Twist is not Canadian.

[innocentboy]

my support goes to Todd McFarlane ... if that'll do anything to help the matter.

[JohnSmythe]

This just shows the rediculous court system in the States.

Anyone can sue anyone for anything.

Get a lawyer on a contingency basis and it costs you nothing.

Better than the lottery.

I never heard of this hockey player,
and I bet neither did the jury,
which always seems to consist of a bunch of dimwits.

[Scavenger]

Before anyone brings it up (as it's in the other thread)....Miracleman isn't involved here. McFarlane doesn't own Miracleman and as it turned out, he never did. (He did physicaly have Miracleman stuff, films whatnot, but the legal rights he thought he had, were found durring the Gaiman suit to not actually be there).

As for the Tony Twist thing....is $15 million unheard of? I don't know. But the facts are clear. McFarlane created a character based on a live person without permission...bragged about it, so there's no "gee, it could of just been conicidience with the name"...made the character to be something the real person didn't like, and was sued and lost...TWICE about it. It's something you can't do. Ask Harlan Ellison, he'll tell you about when he was sued for something similar (but far less derogatory).

He did something wrong and is being punished for it. You might not think it was wrong, but the law says it is, and in 2 trials, that's been said.

And frankly, Peter David and John Byrne should have sued McFarlane over the klansmen.

[Fritz]

Have to agree with Scavenger, Todd (and his lawyers) went to trial with this TWICE and lost both times. Todd should be happy that the second jury REDUCED the award to Twist by 9 million dollars! Haven't seen either judgement, but part of award may be penalties in addition to the "actual damages". In cases like these, where someone is suing a company or corporation it seems that juries feel less inhibited to make awards much greater than the actual damages.

Todd could have avoided both Twist trials and the Gaiman trial by settling out of court for (probably) much less. (HAHAHAHAHAHAHA, the idea of Todd backing down, woooh! it cracks me up everytime!).

And for those of you who are critical of the US legal system and are citizens, do something about it! The US system of government was designed to allow it's citizens to update it! That is what your state and federal representatives are there for, not just to collect cash from corporate sponsors...

[MattBrady]

Originally posted by Fritz
Have to agree with Scavenger, Todd (and his lawyers) went to trial with this TWICE and lost both times.

Er, he lost once, won once, lost a second time, and is appealing that decision now.

Not quite as conducive to chest-thumping, but more accurate.

MattB

[Jeremy Williams]

I hope it won`t eventualy affect the toys, I bought more than a few McFarlane action figures, they`ve easily been the best the market has ever produced.

But realisticly when the court sees that the same individual that owns TMP, owns all these other companies and does have the money to reimburse the people he owes money to, he will have to pay up. It doesn`t make sens to do otherwise. It`s like a owner of a Hockey team that lost millions and decide to declare for bankrupcy while his other businesses do well after all: you do have the doe to get yourself out of that hole, unless you really don`t have the money and you only have the furniture left for payment.

Just a guess...

[Josiah Rowe]

Originally posted by Posco
It´s unbelievable that such a ridiculous case and jury decision can make a company go under. Isn´t parody protected under free speech any longer? (And even if there had been ground for a financial award - the sum would still have been totally unjustified. Did the jury just side with the local city sports hero?)

Christian

While I agree that the figure of $15 million is high, the principle here is a valid one. Parody is protected, but you can't intentionally use or profit from someone's name without their permission. That's why the names are always changed in Mad Magazine parodies.

Actually, if Todd had called his character "Phoney Fist" or something, he might have had a parody defence. But as it was, the name was too similar, and Todd admitting that he took the name from the hockey player was a dead giveaway.