January 1, 2003
Showdown At The Apollo
of the show’s real profits and a cash advance that would be the larger of $650,000, or 7.1% of the gross receipts of each applicable broadcast season” over a five-year period. Afterward, Margolis claims the negotiations were plagued by “a mood of confusion and mistrust.” As the process dragged on into July, a second proposal offering $53 million over seven years, with a multi-tiered compensation structure, was submitted.
Chris Lancey, president and CEO of Western International, says they and Inner City increased their offer because, “We thought it would be very good for the foundation to have a good income stream over a period of years to make improvements to the theater and to pay their staff.”
Nicole A. Bernard, senior vice president of new business development and communications for the foundation, says flatly that the first bid of $650,000 “was not acceptable” because the foundation would not see a profit. Furthermore, she says, the second bid from Inner City/Western International had stipulations that did not guarantee the foundation more than the base of $650,000–a figure board members said the general marketplace could beat. Increasing the funding for the foundation was a priority for the board. As Johnson put it: “If their $53 million bid would have, over that seven-year term, guaranteed us $15 million or $20 million in revenue, we would have taken that. But none of their bids ever offered us any more than a $650,000 base in terms of a guarantee.”
Lancey explained that although the Inner City/Western International $53 million bid offered a base of $650,000 for the licensing fee, he and Sutton were satisfied that “[The foundation] was offered a higher percentage of revenue, an upside, if the show generated more money than in previous years.” Since the show had only recently become profitable, the possibility of higher revenue was not a compelling enough selling point for the new board. The foundation wanted a “legally binding” guarantee, which it didn’t believe the Inner City/Western International contract provided. Margolis, however, insists that the offer’s entire $53 million was guaranteed, but he also says, referring to the compensation breakdown of the proposal: “Someone might turn around and say that our arithmetic is wrong and the rate card really wouldn’t yield $36 million, but we don’t think so. And somebody might argue with us and say that the format rights wouldn’t be worth $1 million a year over seven years, and we’d quarrel with that as well.”
WHO TO BELIEVE?
Bernard says the foundation tried to negotiate a deal with Inner City/Western International while also taking additional bids, but time became a factor. If the foundation didn’t reach an agreement by August, it risked canceling the show for a year. “Advertisers typically make commitments to shows they’re going to support for the upcoming season by June, so as a distributor, if you don’t know you’ve got a show, you can’t buy ad time,” she says.
By mid-July, Bernard says the foundation had received additional offers from Mercado-Valdes and a third company, which she