Xyience, a Las Vegas energy drink company that gained a lot of notoriety as a major sponsor of the Ultimate Fighting Championships, has filed for Chapter 11 bankruptcy protection. The Chapter 11 protection asks for protection from creditors while the company tries to reorganize.
Bad News for the UFC
Popular Mixed Martial Arts news site MMA News Desk has confirmed that Xyience reported a staggering $42.3 million in liabilities and only $5.3 million in assets. Xyience sells its energy drink through a reported 230 convenience and grocery stores. The voluntary bankruptcy petition, which was filed last Friday, follows an involuntary petition that was filed January 3 by a group that was reportedly lead by Xyience founder and former CEO Russell Pike.
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In an interview with the Las Vegas Review Journal, Xyience President Omer Sattar actually expressed optimism of all thing. The prexy was quoted as saying "We're excited about the opportunity (to reorganize the company) ... Xyience has a great brand name and has a strong affiliation with the UFC."
According to MMA News Desk editor Arturo Collozo Jr., this is where it gets just a little complicated. Frank and Lorenzo Fertitta, whose family founded Station Casinos, are the owners of UFC. According to Collozo, the bankruptcy filing lists The Fertittas as creditors of Xyience with $12.5 million in unsecured claims and $5.3 million in secured claims.
In an interview with the Las Vegas Review Journal, Xyience prexy Sattar is quoted as saying Xyience would have filed for liquidation under Chapter 7 had not it not enjoyed the continued support of the Fertittas. Sattar said Xyience continues as a key UFC sponsor, Xyience signed a $15 million sponsorship agreement with the UFC for 2007.
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In the interview, Sattar said the bankruptcy became necessary when the company was unable to raise $7.5 million more from shareholders. In the bankruptcy filing, Sattar claimed "Those negotiations, however, were derailed by a campaign of intimidations and threats led by company founder and former CEO Mr. Pike, Terry Cardenas, Ronald Solomon and Rick Klingenberg... Associates of Mr. Pike and Mr. Klingenberg made threats of physical violence against Xyience management and board members and, on at least one occasion, showed up uninvited at the home of one member of management... Mr. Klingenberg and his brother David Bergstrom stormed into the Xyience office, cornering (Chief Financial Officer) Michael Levy in an office and refusing to allow Mr. Levy to depart until their demands were met."
In the filing, Sattar also claimed that Klingenberg and Bergstrom made threats that they receive twenty thousand dollars, or "they would return the next day with guys who had a 100 percent collection rate," and the statement was that "somebody was going to ... get killed."
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Collozo, who studied the filing and the records available, has reported that Xyience was founded in 2004, and sales were $109,000. Those sales grew in 2006 to $20.4 million.
When Pike resigned and tried to sell Xyience stock in California, the state's Department of Corporations issued a desist and refrain order against Xyience, according to court papers. Sattar said the company has obtained postbankruptcy financing enabling it to pay for a backlog of drinks being kept by the drink maker, Cott Corp. The financing will enable Xyience to avoid losing shelf space to competitors, which would be difficult to regain, he said.
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The finances of Xyience have been the subject of wild speculation on the sports blogs. UFC just announced a new major sponsor, their first "mainstream" brand name sponorship deal, with the Milwaukee-based Harley Davidson motorcycle company.
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