Sunday, July 11, 2010

Xyience Temporarily Taps Out


By: Rich Bergeron

Over a month before it became official, Fight News Unlimited reported that bankruptcy was imminent for Xyience. Our article entitled THE ENRON OF MMA exposed some of the reasons why the company is in such dire straits, but the Las Vegas Review Journal dug a little deeper this week and examined the actual voluntary bankruptcy filing Xyience went forward with last Friday.

The official filing comes after an involuntary bankruptcy petition was filed on behalf of several investors tied into a lawsuit against the current Xyience regime. The petition, filed January 3rd, calls into question the Fertitta Enterprises loan and would essentially block any attempted foreclosure by the current controlling interests, and place all the assets under the court's discretion until the fight over the company is finally decided. Zyen, LLC, the company designed by Fertitta Enterprises to handle the $12,000,000 loan given to Xyience last year, filed a NOTICE OF STRICT FORECLOSURE late last year that allowed for only a 90 day window for investors to mount a fight for the company.

The LVRJ Xyience Bankruptcy article, now being circulated across the on-line MMA news landscape, dropped some major bombshells. Yet, there were some major inconsistencies that went to press in the piece, and the overall tone was extremely favorable to the current regime that is attempting to lock out hundreds of the company's initial investors.

One of the most outrageous misrepresentations of the facts reported include the following passage in the article:

"Sattar said the bankruptcy became necessary when the company was unable to raise $7.5 million more from shareholders."

This quote, coming from the lips of the company's newly-crowned president Omer Sattar, is a blatant misrepresentation of the actual situation that gave rise to the bankruptcy. Before Fertitta Enterprises provided loan capital to Xyience, a letter went out by email to a large group of shareholders telling them that if the deal was not ratified the company would go bankrupt. Once the deal was approved by less than half the shareholders, much of the Fertitta investment went right back into a hefty three-year sponsorship extension with the UFC and also helped to pay off past due sponsorship fees of approximately $6.5 million. According to the Las Vegas Review Journal the Fertittas put almost $18 million in total capital into Xyience, and a hefty chunk of that money came out of one pocket only to go right back into another, since the Fertittas are 90% owners of the UFC. Essentially, Xyience would have had double what they needed to stay in operation if they opted not to be a UFC sponsor this year to the tune of $15 million. Even with the extension in place the latest UFC sponsor (Harley Davidson) bumped Xyience from the center of the mat, and now it appears the company paid an absolutely ridiculous price to have their name on a couple cornerpads of the octagon.

The Las Vegas Review Journal is either guilty of extreme bias or sloppy reporting. Don't expect any follow up stories to question any move the Fertittas make. First of all, the Las Vegas Review Journal is partnered with The Las Vegas Sun, which is owned by the Greenspun Family. The Fertittas' Station Casinos partnered with the Greenspun Family on some notable casino developments. Aliante Station and Green Valley Ranch are both joint operations put together by these two major Vegas movers and shakers.

The Las Vegas Review Journal appears to be providing aid and comfort to their business partners in their latest struggle to save face on Xyience. The LVRJ even quoted Sattar's claims of death threats issued to Xyience officials without even contacting either of the men who reportedly made those threats in order to get a response. Ric Klingenberg was accused of making the threats along with his brother David Bergstrom. The dispute arose over a payment owed to Klingenberg's elderly mother, and both brothers were reportedly given the run around while trying to secure a check for $20,000. Reached by phone recently, Klingenberg categorically denied the description of the events Sattar presented in the voluntary bankruptcy filings.

"I went to that office, that part's true, but we didn't storm in there," said Klingenberg. "And we didn't threaten anybody's lives. We did go in and close the door, because, isn't that what you do when you have a meeting?" Klingenberg said Xyience CFO Michael Levy promised him his mother would get paid when the Fertitta Enterprises loan came through. He also said he left Levy a phone message telling him when he would be there to collect the check. Levy reportedly told Klingenberg his mother "was going to have a Merry Christmas" in late December.

"Voices were raised, and everyone was talking at once," said Klingenberg. "We were told to go find Adam Frank, because he was the only one who could authorize a check." He was later told he'd need to get an attorney in order to collect the funds.

Klingenberg also claims that Sattar lied as far as the bankruptcy. "They didn't file bankruptcy, we did," he said. Klingenberg's family trust is the main plaintiff in the investor suit under which the involuntary bankruptcy petition was filed. He explained that the company's hand was forced by their initial filing.

In the aftermath of the bankruptcy announcement, it now appears the bad press and the legal battles mounting have forced the company to now explore the possibility of selling the whole operation. A follow up article in the LVRJ reports that financing has been approved to help position the company for a sale even while the legal battles for control of Xyience rage on.

The Fertittas have not provided any published comment on their tactics regarding Xyience, leaving President Omer Sattar to provide the company's perspective to the public. Sattar is part of a group that came in to run Xyience from a company called Global Cash Access. Questions surrounding insider trading charges and a late filing of GCA's third-quarter report for 2007 followed the departure of the GCA contingent that is now operating Xyience. GCA's stock plummeted in November of 2007 and has yet to completely recover. Station Casinos was one of GCA's largest accounts, so it appears that the partnership between former GCA employees and Fertitta Enterprises stems from that initial connection.

Although the UFC continues to operate as the top dog in the Mixed Martial Arts industry, this latest debacle with Xyience and some other recent developments point to a rocky future for the pioneers of the sport. While other leagues are constantly looking for ways to co-promote major events, the UFC continues to refuse to even acknowledge that any other league competes with them. Their lawsuit against Randy Couture is also looming as a large distraction. On top of that, Tito Ortiz is planning to leave the organization after his next fight according to While Ortiz has never been one to hold his tongue about his frustrations with Dana White, he has also never been as popular as he is now with MMA fans. As the boyfriend of Pornstar Jenna Jameson and a contestant on the celebrity edition of the Apprentice, Ortiz is at the height of his fame right now. Wherever he goes from here, that league is sure to benefit from his star status while other UFC fighters will take note and might decide to follow his lead when their own contracts run out.

The UFC seems to be having enough growing pains without their principal owners getting heavily involved in a company with such a horrible reputation. Much of the mainstream MMA press reporting on this story of Xyience going bankrupt have just now started asking questions about what's really going on. The question on everyone's mind seems to be: "Why would the Fertittas want to buy into their own sponsor?" We're talking about a huge , profit-driven company here. Fertitta Enterprises is not the kind of outfit you'd expect to touch Xyience with a ten-foot pole. Yet, here they are up to their necks in debt and tied in to the point where they seem to be more willing to cut their losses than actually rebuild the brand. So, what's the motive. Well, you simply have to go back in time a bit to find the answer. We put together an in-depth report over a month ago that outlined how this day would come.

The truth is, the Fertittas never intended to restore the dignity of the company and save the day for the shareholders who built Xyience. If that was their plan, they'd be front and center in the press talking about it. Instead, they're hiding behind straws put in place to act as the fall guys. If they really wanted to clean the slate and keep the company in full operation, they would have tried to secure more financing a long time ago. They would have put the company first. Instead, they immediately signed a contract extension with the UFC as soon as they put their money in. The whole thing just stinks.

This whole bankruptcy fiasco has nothing to do with not having the money to prevent it. If they don't have it, they can certainly get it. The real reason they decided to file bankruptcy is so they can lock out an estimated 380 shareholders who built and sustained this brand even while fraud and corruption were tearing the company apart from within. Just when these folks were told their payday was on the horizon and there could be an IPO as early as this month, these investors are now forced to reclaim their interest in the company through litigation that could last years. Some of them have lost their life savings.

I have run into a lot of MMA fans who read my stories and other stories about Xyience's issues and ask, "Who cares?" They wonder why it's a story at all and who's the victim. The Enron, Tyco, and Worldcom scandals have tempered the American public to such an extent that we seem to expect this kind of back room underhandedness and duplicity. In one case I found a thread where one fan actually praised the Fertittas for the way they rigged their own loan by investing in Xyience.

Yet, there is so much about this story that people should care about. Let's just go back in time again to when Xyience was at the height of its popularity. All kinds of fighters were raking in big sponsorships. GNC agreed to take on a wide array of Xyience products. The Xyience commercials were a viral video hit because of the sexy models drinking Xenergy in them. Hundreds of investors had the feeling that they could depend on this thing becoming really big. Xyience was a big ticket sponsor at a time when fighters were getting paid chump change compared to boxers. Most fighters are still reliant on sponsors, and they will be until the sport gets sanctioned in more states and becomes more of a mainstream draw. In the wake of this huge scandal that now enters Chapter 11 (pun intended), it's clear there's no other sponsor that's going to equal what Xyience was doing in the beginning. Harley Davidson is not out sponsoring all kinds of fighters. You won't find the Lumber Liquidators logo on any fighter's shorts.

The bottom line is a lot of people got screwed so the Fertittas and Dana White could get themselves a fat dividend check. They laid waste to PRIDE first, and now they're focused on Xyience. Every step of the way they've lied to the public about what they were going to do. They said they were going to keep PRIDE going only to let it completely dissolve with no hope for ressurection. Investors in Xyience were told that the Fertitta deal was the only option and they had to do the deal or watch the company go bankrupt. They did the deal, and the company is still going bankrupt. The Xyience mouthpieces working on behalf of the Fertittas said they were going to reorganize Xyience and keep the brand going only to now come out and announce plans to sell it. It's sad that some people out there are willing to chalk all that up as good business sense.

In the end UFC fighters continue to get paid a fraction of what they should for the risks they take. Some great organizations rose and fell because of greed. Honest investors were shafted because the rich wanted to get richer. And we wonder why the economy is in shambles. Look around. People constantly get away with this kind of shady behavior simply because so many of us shrug our shoulders and say, "Who cares?"

As for who's the victim here, it's anybody and everybody who thinks there's nothing wrong with this picture. It's all the folks who choose to look the other way because great fights are still getting made. It's all the legions of brainwashed sheep who refuse to open their minds to the possibility that they're being lied to. It's all the screwed investors and all the fighters being used while their bosses are raking in all the big money. If this kind of behavior is allowed to go on unchecked, everyone loses.

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