Downfall Of A Black Syndication Kingpin

Driven into bankruptcy, The Heritage Networks struggles to regainits footing withoutex-CEO Frank Mercado-Valdes

The Source: All-Access.

Many of the company’s woes began when Mercado-Valdes decided to move away from the core syndicating business and into the much costlier development of original content and acquisition of It’s Showtime at the Apollo. This was contrary to the advice of the firm’s board of directors, which was led by investor Comer Cottrell. “His justification was that he had all the experience and we didn’t know what we were talking about. His whole business was his concept and he had proven he knew how to make money,” says Cottrell. “But [developing original shows] was doing something completely different. So we objected to the production of Livin’ Large and mandated, basically, that he discontinue it, which he did not.”

Making matters worse, Cottrell asserts that Mercado-Valdes wasted money and led a lavish lifestyle that included a condo in New York City’s swank Trump Towers, another in Miami Beach, and a home in Woodstock, New York. Painting a portrait of a rogue executive who did as he wished despite the costs, Cottrell says Mercado-Valdes burned through the company’s cash reserves to fund Livin’ Large and Weekend VIBE. “He owned 75% of the stock and I only owned 25%,” says Cottrell, who helped Mercado-Valdes launch the company in 1992 with a $350,000 loan. “So whenever it became an issue, he outvoted me and made it clear that it was his company.”

Mercado-Valdes also borrowed $13.3 million from Comerica Bank to help with the company’s financing. The idea was that THN would repay the loans with ad receipts generated by the programs. THN also signed a $610,000 bridge financing agreement with Stone Canyon Entertainment L.L.C., secured with liens against all of THN’s property. This made Comerica, Stone Canyon, and Cottrell the first, second, and third lien holders, respectively, on all of THN’s assets, with every other creditor subordinated to Cottrell.

According to Cottrell, members of THN’s board weren’t aware of many of Mercado-Valdes’ deals—particularly the It’s Showtime at the Apollo acquisition. In that deal, THN teamed up with Warner Bros. Domestic Television Distribution to bid $1.6 million a year for five years—a guaranteed $8 million—to win syndication rights for It’s Showtime at the Apollo, beginning with the 2003 — 2004 season. Completing the deal wrested the show from Percy Sutton’s Inner City Broadcasting Corp. (No. 58 on the BE INDUSTRIAL/SERVICE 100 list with $61.5 million in revenues).

Cottrell says the board found out about the deal after he read newspaper and magazine articles about the struggle between Mercado-Valdes and Sutton (see “Showdown at the Apollo,” January 2003). “I told him that, to my knowledge, Percy was one of the more astute businessmen in the country,” Cottrell says. “And, if Percy didn’t think it was a good deal, why would we be going into it?”

Sources say Mercado-Valdes overestimated ad revenues and underestimated the financial outlays of launching Weekend VIBE and Livin’ Large while trying to simultaneously produce It’s Showtime at the Apollo. When Weekend VIBE and Livin’ Large did poorly in the ratings and the expected ad

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