Sunday, July 11, 2010

Xyience, Zuffa, Fertitta Enterprises, Zyen FULL DISCLOSURE Report

XYIENCE WOES CONTINUE: A “FERTITTAGATE” FULL DISCLOSURE REPORT

By: Rich Bergeron

It’s a story of a Forbes 500 family sunk deep into casino interests, the Ultimate Fighting Championship, and their parent company Zuffa, LLC. And that’s just the half of it. These billionaires have business interests and connections with all kinds of bustling financial institutions.

They wouldn’t engage in corporate bigwig bullshit with that kind of money on the line, not personally. They could have some friends do it for them, though. They could bring in criminal masterminds in tailored suits who were already experienced in manipulating the stock market. Those guys could tweak the numbers and set the stage for bankruptcy before bailing out the back door. That way, one roll of the dice could make them all fat and happy.

It’s a disgraceful and despicable mode of business that takes a company and puts it under the kind of assault Xyience has since suffered. Though the ones left holding the bag may ultimately bear the brunt of the most pointed criticism, this situation was created by a whole host of other interconnected players. Each and every one of them saw something they could steal from Xyience, and they capitalized on their opportunities without hesitation. They didn’t imagine how the stockholders would feel, how the public would ultimately judge their devious actions, or how they would later account for their insatiable greed. They just did it because they thought they could get away with it and because they knew it would make them a ton of money.

Left holding that final bag but not completely “owning it” Fertitta Enterprises and a few friends formed ZYEN, Inc. and a whole lot of UFC and Xyience business went down right after that. Company sales suffered, no further capital came in, and the usual suspects dismantled the whole operation piece by piece to promote huge profits for themselves through the process of setting the company up for a public April Fools Day auction.

There were Xyience layoffs during the holidays, stockholders were wiped out and it all became extremely ugly almost overnight. All the while Fertitta Enterprises and the new Xyience board of directors made a killing.

I had the great pleasure of attending UFC 78 on Xyience’s dime. I saw what I thought were better fights than the media gave them credit for, but more importantly I sat down with the CEOs beforehand. Spouting “Scorched Earth” and woe-is-me-no-hope attitudes, they had already planted the bankruptcy seed. A scant two months and a few weeks after Fertitta Enterprises invests in Xyience it’s going bankrupt all of a sudden? That’s no coincidence.

Why would anyone pump money into a company and then kill it? One reason would be the potential for contract defaults. Their goal is to wipe it all out and start free and clear. They want to be on the other end collecting the check when it’s over, passing the problem child to the highest bidder and getting everything they put in right back. If they can manage a tidy profit on top of that, the charade is a success in their eyes, no matter how many people they had to hurt in the process.

The Fertittas have billions of dollars at stake as operating partners of Station Casinos, and they know how to make business deals work to their advantage. This was not some sloppy oversight on the part of Fertitta Enterprises GM Bill Bullard and the leadership plants they put in place to be the fall guys. This was an orchestrated collapse meant to line the pockets of the principal players and ruin the lives of the rest of the folks who helped put Xyience on the map. Click here for my motion to suspend the bankruptcy and all THE EVIDENCE.

UFC 78 was ironically dubbed “Validation.” That strikes me funny in so many ways since it was the last event in which the UFC used the Xyience logo in the middle of the cage floor. Over the course of the next few months the full extent of the fraud that took place at Xyience would be validated by my own stories and the follow up articles of other independent MMA media outlets.

My Xyience junket to New York City marked the first time I met officially with any representatives of Xyience, and they sold me a bill of goods I couldn’t stomach. What made matters worse for me was the trip back to the airport. Sitting in the back seat of a huge SUV coach service car, I watched New York City’s hustle and bustle go past and couldn’t help but think about how many everyday working people would be screwed by the final Xyience accounting if the bankruptcy did go through as planned. I then caught a glimpse of one of the saddest sights I’ve ever witnessed.

A haggard, aging black woman with a few missing teeth and virtually no meat on her bones sat leaning against a lamp post on a random corner with a tiny blanket wrapped around her. Sobbing and carrying on, she appealed to passers by and received nothing but cold stares and glances of disapproval. I was really dismayed by that dose of hard reality. Here were thousands of people milling about, and none of them bothered to do anything to alleviate this woman’s suffering. Too busy making their way to their favorite restaurant, bar, shopping outlet, or entertainment venue, New Yorkers and tourists alike passed this woman by like she was nothing more than a scattered piece of trash.

This is the all too familiar climate created by capitalism at its worst in this country. The wealth is concentrated and conglomerated under the people and profitable businesses that could easily go without it if they had to. Yet, the poor and downtrodden, the “huddled masses” the inscription on the Statue of Liberty calls to our shores, and all of us working class public citizens slaving to maintain our day jobs are left listlessly wandering the world with no real purpose or direction. One day it may be one of us on that street corner, wailing away in despair, rattling a few pennies around in a paper cup.

This is the kind of suffering my "Enron of MMA" story series puts in perspective. Xyience was never the kind of company that would ever be in the same league as the famous energy trader corporation gone bust, but there are parallels. The situation in which Xyience was raped and left for dead by a few of the prime players at the top was almost a mirror image of the Enron scandal on so many levels. The basic structure of the fraud, the motivating factors for it, and the power of sheer greed to corrupt the whole process was nearly identical in both situations.

The only investment the Fertitta-led investment group made in Xyience was supposed to go right back to the Fertittas through the UFC sponsorship. Any leftovers would later be set aside for acquiring the assets and remaining product while trying to account for none of the other debt. Maintaining a marketing agreement alone was crucial to being able to sell all the cans of Xenergy with the UFC logo already printed on them. Yet, the Xyience brass set up a situation in which Xyience’s first major transaction under Fertitta control was a multi-million dollar title sponsorship deal Zuffa would later default on. That deal would leave nothing in the way of any capital behind to actually purchase product to promote any cash flow whatsoever.

It appears that Xenergy product is now key. It seems to any honest observer that paying for that product should have been the first priority. While in a position to call the shots at Zuffa at the same time they were de facto owners of Xyience, Fertitta Enterprises should have been able to hammer out a workable and affordable deal that would have satisfied both parties as far as the product licensing. However, they instead chose to enrich themselves with a much larger sponsorship than Xyience could afford.

That all makes sense until you consider the true facts. First of all, a marketing agreement is a much different animal than a title sponsorship. If all that was needed was a simple marketing agreement, the octagon advertising portion of the deal should have been set aside. The multi-million dollar fiasco of the UFC/Xyience 3-year contract extension was just smoke and mirrors designed to create a domino effect of other potential post-Xyience sponsors paying above and beyond Xyience’s going rate to get their businesses in the middle of the UFC mat. It was a shrewd way of creating a bidding war for the space. The problem with the process is that it was all built off the back of a bogus, over-inflated company.

All the while, even Zuffa’s own fighters, the guys who fought and LITERALLY shed blood all those years over that Xyience logo, got screwed out of their Xyience money. We're talking guys who literally wore the Xyience logo on their sleeves, over their hearts, or on their shorts, and they got shafted. Chuck Liddell had one-million shares of Xyience stock according to 2005 and 2006 audit numbers from A.J. Robbins. Creditors in the Xyience bankruptcy case include: Travis Lutter; Rich Franklin, Inc.; Matt Serra; Heath Herring; Evan Shoman; and Anderson Silva Enterprises, Incorporated. Bankruptcy paperwork lists several other UFC fighters with Xyience financial issues. The company says they "may be in payment default" in regards to: Michael Bisping ($2,000); BJ Penn ($25,000); Forrest Griffin ($43,333.35); Matt Hughes ($49,999.98); Rich Franklin ($21,000); Josh Koscheck ($21,666.68); Chuck Liddell ($165,000); and Mike Swick ($28,083.35). Other MMA personalities sponsored by Xyience have also been hung out to dry. Payments have also been neglected for: Cung Le ($40,664) and Xyience Model Rachelle "Leah" ($50,000).

The list of Xyience's 280-plus creditors filed in the bankruptcy case covers every letter of the alphabet, except two coincidental characters of the English language: X AND Y. They owe everyone from AC NIELSEN to ZYEN, LLC. Xyience even owes their cleaning staff (3D Janitorial). Some big names on the list: State of Nevada DMV; T Mobile USA, Inc.; The Fight Network, Inc.; United Parcel Service; USA TODAY; Professional Bull Riders, Inc.; MTV Networks; Nevada Department of Taxation; OFFICE DEPOT; Pitney Bowes; MDK MOTORSPORTS, LLC; Missouri Department of Revenue; MMA Training Centers, Inc.; L.A. STARS, LLC; Howard Hughes Properties, IV; Fedex Freight, Internal Revenue Service; Dymatize; Cott Corporation; Dell, Inc.; Discovery Communications; Verizon Wireless; Washington State Department of Revenue; World Poker Tour Enterprises, Inc; and Zuffa Marketing, LLC..

Now that the company is in bankruptcy, acquiring the Xenergy product is such a seriously high priority that the licensing fee imposed by Zuffa to facilitate the Xenergy product recovery is being imposed as a matter of paramount importance.


So why is it that now a smart deal gets hammered out post-bankruptcy when the best time to make this happen was the moment Fertitta Enterprises pumped in $12 million in capital? The answer to that question will surely emerge during the discovery process, but it’s easy to see that a conflict of interest created this whole dilemma. When you have a company like Xyience in the hands of the principal owners of a company Xyience sponsors, you’re bound to have situations in which the controlling players want to make sure their original company makes out a whole lot better than the new company. Add to the conundrum the evidence of all this being part of the grand fraud of the Fertittas buying Xyience specifically to bankrupt it, and what you have is all the explanation you need.

As if it weren’t bad enough that they used their own money to sponsor their own company, they initiated the whole scheme to get more sponsors signed and to make it appear as if the covenants of their $350 million financing package for Zuffa were not in breach at all.

Now embroiled in tons of controversy revolving around some of the details of this shady, raw deal, Xyience bankruptcy documents seem to point to clear damage control methods now being employed by Fertitta Enterprises and their new Xyience board of directors. Now, all of a sudden they’ve justified that huge sponsorship deal as a necessity of doing business.


The first bidder to make a play for the company is connected to Cott through two former Cott executives. Cott is the maker of the stockpile of Xenergy stamped with the UFC logo, as mentioned above.

The UFC defaulted on Xyience’s big sponsorship package in December. Officially, Xyience has no sponsorship interest beyond the UFC logo on the Cott cans from the way it appears. The bankruptcy filings are seriously troubling. Since I am now facing bankruptcy attorneys I’ve waded into their world, and it makes me shudder. The paperwork I’ve compiled has the kind of dirt in it that makes you want to take a shower after you read it.

So, let’s go back in time to the big money 3-year-deal Xyience did with the UFC that went out to press with the numbers all laid out for all to see. Didn’t that set the stage for the domino-effect advertising add-ons of Lumber Liquidators, Harley Davidson, and Bud Light? Didn’t Zuffa have only Xyience as a big-time “real-deal” sponsor at the time they applied for their $350 million loan and credit package? Why did everything Zuffa’s financiers touch turn to shit all of a sudden? PRIDE fell apart, Station Casino workers are up in arms over payment disputes, Randy Couture left the UFC, Tito Ortiz is leaving, Free Agent Fedor ain’t touching the octagon with a ten foot pole. Yet, they are still hyping this thing as the big leagues by touting the big names of Bud Light and Harley Davidson, who had their sponsorships negotiated after the Xyience kickback came in. Like a stack of money at the end of a yo-yo string, Fertitta Enterprises put the capital through the back channel to pay their own sponsorship through investing in Xyience. The only creditor they thought they owed anything to was their own organization.

They might tell you that only means they created their own destiny. They did what they had to do. They came in acting like they cared, wanted to set things straight, and wanted to give so that someday all the stockholders could receive a better day down the line. That’s what they were squawking when they put up the $12 million. They then negotiated a sinister, easy to back out of deal, and they kept Xyience propped up only long enough to engage in the sponsorship deal. All the while they had to know Xyience was on its last legs before they put anything into it. They saw a way they could exploit a bankruptcy, and they took advantage of it. They dropped a “Roofie” in Xyience’s drink and had their way with her.

As long as big business can continue to operate in this selfish, twisted manner without being held accountable, everyone suffers. I only hope that my case in the hands of the bankruptcy courts will result in justice for all, not just the ones with the deepest pockets.

MORE RELATED DOCUMENTS:

ZUFFA CONFIDENTIALITY AGREEMENT

ZYEN/XYIENCE/FERTITTA ENTERPRISES WARRANT AGREEMENT

ZYEN/XYIENCE/FERTITTA ENTERPRISES SECURITY AGREEMENT

XYIENCE PRESIDENT OMER SATTAR FIRST DECLARATION (JANUARY)

OMER SATTAR FINAL DECLARATION (FEBRUARY)

AMENDED SHAREHOLDER COMPLAINT NAMING FERTITTA ENTERPRISES AS DEFENDANTS(PART ONE)

AMENDED SHAREHOLDER COMPLAINT NAMING FERTITTA ENTERPRISES AS DEFENDANTS(PART TWO)












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