Meredith Corporation filed a lawsuit against the Maven, the new owner of Sports Illustrated, for more than $1 million for breach of contract. According to the 10-page complaint filed in the U.S. District Court of Delaware on Monday, the Maven owes Meredith money for services rendered under two separate agreements, an outsourcing agreement and a transition services agreement. Under the agreements, Meredith agreed to provide services to continue publishing Sports Illustrated and its websites without interruption for a specified period of time.
In January 2018, Meredith acquired Sports Illustrated when it bought Time Inc. In May 2019, Meredith entered into an agreement to sell Sports Illustrated to Authentic Brands Group (ABG) who then licensed Sports Illustrated to the Maven, giving it the right to publish the magazine’s print and digital versions for at least 10 years, in exchange for an upfront payment of $45 million against future royalties, according to a May 18, 2020 SEC filing.
As part of the transition, Meredith agreed to provide certain services to the SI brand, including accounting, human resources, digital sales support, space sharing, IT, website support and data integration/analytics, to the Sports Illustrated brand in exchange for agreed-upon compensation. In addition, Meredith agreed to provide transition services for the digital and print publications, including consumer marketing, print and editorial workflow systems and tools, and magazine and premedia support services.
The Maven fails to pay
Despite repeated attempts to work with the Maven, Meredith continued to provide services until July 14, 2020. After offsetting the balance due with accounts receivable, the Maven still owes just under $1.1 million. Meredith seeks that amount plus a late payment interest charge of 10% per year and attorney’s fees and costs associated with the lawsuit.
“…Meredith spent months attempting to work with Maven in good faith to arrange for payment of its outstanding obligations, and Meredith even agreed to extend the (contract’s) termination date to accommodate Maven. Instead of paying its full obligations or agreeing to a payment plan, Maven stalled and has refused to make full and timely payment as required,” said Meredith’s attorneys in the complaint.
The Maven’s May 10-Q filing with SEC
In the Maven’s May 10-Q filing with the SEC, the company disclosed that, since early March 2020, the company had experienced a sharp decline in revenue and earnings. They began cost cutting measures, but management said they have “substantial doubt about the Company’s ability to continue as a going concern” because the future impact of COVID-19 is unknown. They did, however, receive a $5.7 million SBA loan on April 6 as part of the Coronavirus Aid, Relief and Economic Security Act (CARES) which the company said it would spend the proceeds on payroll costs.
“As a result of the recent COVID-19 outbreak or other adverse public health developments, including voluntary and mandatory quarantines, travel restrictions and other restrictions, our operations, and those of our customers, have and are anticipated to continue to experience delays or disruptions and temporary suspensions of operations. In addition, our financial condition and results of operations have been and are likely to continue to be adversely affected by the coronavirus outbreak. The timeline and potential magnitude of the COVID-19 outbreak is currently unknown,” said the Maven in the SEC filing.
The Maven’s June update
On June 5, the Maven provided a status update and guidance for 2020. The digital publishing, distribution and monetization platform stated they now reach more than 150 million monthly unique visitors. They have also merged with other industry leaders, including TheStreet, from which they derive subscription revenue. The company said the efficiency of their business has improved because of the additions of new partners and cut costs by $80 million in annualized operating expenses.
“Our shared platform vision is paying off for those who had the foresight to anticipate the media landscape,” said Avi Zimak, Chief Revenue & Strategy Officer. “Millions in cost savings, combined with access to tens of millions of viewers offer a more stable business model for publishers — especially in the face of today’s difficult-to-navigate headwinds under COVID-19.”
The lawsuit and the Maven’s own status update seem to be at odds with each other. The company is talking about how well it is doing and the great strides they have made, while acknowledging the challenges presented by COVID-19 and limited live sports. Yet this information has not been disclosed. It seems likely that Meredith will win a judgment in their favor, or at the very least, the two parties will settle, but it is disconcerting that the Maven does not seem to be fully acknowledging its situation or that they may have gotten in over their heads.