This Penthouse liquidation has shocked a lot of people in the industry, but for those who have been paying attention, we knew it was only a matter of time.
According to an article on XBIZ, Dream Media now holds the ExWorks loans and claims Penthouse owes it more than $10 million. From my understanding, this is the only “secured” debtor.
The bankruptcy trustee appointed to oversee Penthouse Global Media’s bankruptcy case has entered into an agreement to sell all the assets of the iconic adult entertainment company to Dream Media or anyone who wishes to overbid what Dream Media is owed.
This means, if you can come up with enough money, you too can be the next owner of Penthouse.
Here is the problem, the price doesn’t match the revenue potential.
Nobody except apparently Stormy Daniels has gotten paid by Penthouse since Kelly Holland took over. This means the web hosting company, porn agents, the IRS and damn sure not the affiliates. And now we can’t even file a claim for the money owed to us for the traffic we’ve been sending to Penthouse for the past few years because that deadline has already passed.
But even if you did file a claim, you wouldn’t get much if anything. Because when the company sales, all the money goes first to the secured creditors – that’s the IRS and this Dream Media company. And then the rest gets split up among the MANY MANY MANY MANY MANY MANY unsecured debtors. This is just page 1 of the 7 pages of creditors.
The site has changed hands many times so now people are wondering how much is the company worth?
“The trustee has determined that there exists no reasonable prospect of rehabilitating the debtor’s operations through a Chapter 11 plan of reorganization.”
That is the first factor to consider. Now as far as the website goes, consider just how many affiliates have been screwed for years now. Our traffic hasn’t properly been tracked since Kelly Holland took over, nor have we been paid. Trust is hard to earn back. So that’s an issue. Of course, this can be negated if the buyer already has their own infrastructure.
One of the assets that could have been worth something was excluded from the auction, which is the Vice token. The trustee has excluded this from the sale.
Free porn sites have devalued the overall value of any content owned by Penthouse. So even though it is indeed an iconic brand, that doesn’t mean the very thing that has hurt every company in the industry, hasn’t hurt Penthouse as well. That’s just a fact we all face.
Then there is the magazine. Getting shelf placement is expensive. While this isn’t my area of expertise, others who do know more about it than me have spoken and said that the cost to produce a magazine has increased, sales are down and even getting shelf space anymore is very expensive.
So what about going all digital then? When Penthouse decided to go all digital there was a huge uproar about it from their current subscriber base, so they had to immediately backpedal saying it will then be available in both print and digital format. But if it cost more to print the magazine than you actually make, you can’t exactly sustain this model long term. So that’s an issue.
So what are people saying it’s worth? One person suggested a few hundred thousand. I think that’s ridiculous. You can’t even place a bid with the trustee without $250,000 or $300,000 cash up front and an NDA.
There is no way in heck the current winning “bidder” if you will, Dream Media who is owed $10 million is going to accept a winning bid of $300k. Not going to happen, period.
So what might be acceptable? Some are saying the $2 million to $2.5 million range is far more reasonable.
I don’t know what the winning bid will be, but I think we all learned the $9 million Kelly Holland spent in 2016 was ridiculous, especially knowing she didn’t have the money to even operate the company and keep it afloat for a few months, while she did the restructure.
9 Responses
Dream Media is a secured creditor, not debtor.
Also, it’s difficult to argue that “the price doesn’t match the revenue potential” when we don’t yet know the price. I haven’t looked at Penthouse’s books, but I can assure you that the good will in brand name and Penthouse’s library could easily be worth far in excess of $10 million.
If “nobody except apparently Stormy Daniels has gotten paid by Penthouse since Kelly Holland took over” that is irrelevant to the sale. The whole point of bankruptcy is to discharge all debts. It also cancels all outstanding contracts under which Penthouse was required to perform. Any assets auctioned by the trustee will be transferred free and clear to the buyer.
And shelf space for Penthouse is not an issue either since the magazine published its final print issue earlier this year. That means they canceled any contracts with distributors, jobbers, etc. for Penthouse Magazine. If a buyer would want to revive the print version in today’s digital age, they’d have to get a new deal, or shoehorn it into their own existing deal, but that has nothing to do with Penthouse, its bankruptcy, or the auction.
According to this link ( https://bit.ly/2s8bWnn ), Penthouse is claiming between $0 and $50,000 in assets. It doesn’t sound like Kelly Holland thinks the name, print and web operations will make a damn thing and after the trustee told her the company cannot be saved she probably planned on simply shutting Penthouse down, the trustee selling the movie library (most of which she directed over the past 20 years) for tenths of a penny on the dollar and moving on. Maybe the secured creditor has other plans but I suspect if the trustee gets a $300,000 bid for the name and operations I will be highly surprised. If the secured creditor is a private investment group and is willing to operate the company themselves (some do that, some even lend with terms designed to force a company into bankruptcy so they can take over lock, stock and barrel — look at the first Radio Shack bankruptcy for a good example of this) Penthouse might survive in some form but otherwise the company and the iconic name are likely done.
Those assets and liabilities are before the discharge of debts. If, for example, the brand has been licensed to so many entities that it is likely tied up in deals that aren’t generating any revenue. Bankruptcy will cancel Penthouse’s ongoing obligations under those contracts. Now, the brand has no doubt been diluted somewhat, but my point is, one cannot read a pre-bankruptcy asset/liability statement as the summa — the sum and substance — of the value of the assets at auction.
The whole thing is a huge mess, and there were problems, allegedly, with Holland’s original loan.
Here is a partial list of the assets to be auctioned:
Publishing
Penthouse Magazine & Letters
Broadcasting/Programming
Operates four (4) channels and licenses content
in 100+ countries
Licensing
50+ current licensing agreements and opportunities to expand the brand
Photos and Memorabilia
Films
Copyright to 1,200+ titles, including cult classic Caligula.
It seems likely that Penthouse will be chopped up in many many pieces, with the few most valuable ones — the brand names and the library — being the only ones we’ll ever hear about again, in someone else’s ownership and control. But that doesn’t mean there’s no value left to be sold. Many assets will probably be sold at a bargain price, meaning a decent ROI for the buyer.
Also, it’s not up to “Dream Media who is owed $10 million . . . to accept a winning bid of $300k.” The trustee decides what is or isn’t a good bid. Being a secured creditor just means they get paid first out of whatever money is raised via bids approved by the trustee.
You can read about the stalking horse bid from Dream Media Corp in my post today. It’s a smart move that represents an attempt to test the market for a debtor’s assets in advance of their auction. The intent is to maximize the value of its assets or avoid low bids, as part of (or before) a court auction.
https://mikesouth.com/legal/penthouse-may-be-bought-by-high-times-suitor-25797/
I didn’t have the full paperwork packet available to me when I made the comment. I am aware of how bankruptcy works in the US but usually when a trustee reports that the company cannot be saved and the creditors would get more out of a liquidation than a continuing operation and the public record (the part you don’t have to pay for) states assets are $50K or less and debts are over $10 million and up to $50 million no one gets paid (I linked my information in one of my comments). What your article describes would be better characterized as the trustee thinks someone will pay big bucks for one or more assets and creditors come out ahead by a liquidation — not as characterized in another article on this site as that (paraphrased) the company cannot be saved. As for the “stalking horse” bid, since I have commented several times on Penthouse liquidation articles it should be noted that when I originally commented I did a Google search on Penthouse and nothing came up regarding any stalking horse bids. I don’t know what Kelli had access to at the time of her article.
In a US bankruptcy if the secured creditor is willing to kick in some cash for distribution to other creditors to take the company over and other serious bids aren’t received, many times the secured creditor does get the company in a Chapter 7 (liquidation) bankruptcy of a corporation. That is one difference between a US bankruptcy and one in the colonies, in many countries the only bankruptcy process available is a liquidation and the company cannot continue as a going concern. The first Radio Shack bankruptcy is a good example of that, the loan that the private investment group made to them was structured to force them into bankruptcy under such terms that the PIG could take the company for what was at the time of the loan much less money than a less dishonest immediate purchase would have cost them. That sort of sounds like what ExWorks and Dream Media attempted with this loan but Kelly was a piss poor businesswoman and she left the company in such poor condition that ExWorks and then Dream Media decided they couldn’t make enough profit from a Radio Shack-style, bankruptcy court sanctioned takeover to make it worth their while (these PIGs like to get their investment back from a sale to another buyer at a much inflated price within 2-3 years in this scenario, they usually aren’t in it for the long term). I will save everyone here a complete explanation of this process but if you would like my analysis of the Radio Shack deal (that bankruptcy will likely be in university finance textbooks for decades to come) I would be happy to explain further off-site.
Basically you’re correct. Remember, ExWorks owned the debt — the loan at 23% interest that Kelly was a fool to sign. Dream Media Corp. purchased the debt from ExWorks. It’s just as likely, if not more so, that neither entity ever expected or wanted Penthouse to succeed; they just wanted to suck up as much cash as they could and then take the assets when PH inevitably filed for bankruptcy.
Bear in mind that Penthouse cannot, in fact, be “saved” — instead, it will be sold off, either in toto, or piecemeal. The trustee did give PH time to proceed as a going concern, but it’s simply losing to much money at this point. The process started too late. Kelly wanted to keep it going, but steadfastly hoping against hope probably only dug the hole deeper for PH.
Personally, I believe that someone will buy it all and then break it up and sell it off like a bankruptcy auction bidder version of Gordon Gekko.
Yes but that wasn’t what I meant though. What I was saying was, why would he buy up $10 million in debt, to settle for $3 million? Nobody would. That doesn’t make sense.
“Also, it’s difficult to argue that “the price doesn’t match the revenue potential” when we don’t yet know the price.”
While that’s true I was referring to those currently speculating that the thing would go for big bucks. I just don’t see that happening.
While it’s true the current debt will be wiped away, you can’t wipe away the enormous amount of distrust by web hosting companies, agents, affiliates, web designers and others who have been burned by Penthouse int he past and will likely think twice before doing business with them again.
“why would he buy up $10 million in debt, to settle for $3 million? ”
Do we know what he paid? It sure wasn’t 10 million.
I’m not saying the thing is going to sell for 50 million, but after the creditors are all told to fuck off, there’s some real value there. If u read up on stalking horse bids you’ll see that this is basically a no lose situation for Dream Media. It’s like having a reserve bid in place. If no one wants to bid above them, Dream Media will walk away with the whole show.
Lastly, while I see your point about bad will from people screwed over in the past, that most often does not transfer to people who purchase, say, a film catalog. If Larry Flynt, for example, bought the movie library, I doubt companies would stop doing business with LFP because Penthouse screwed them back in 2016.
That is a good point, we don’t know what he paid the acquire the 10 million debt. The documents just give us the debt amount, now what he paid to acquire said debt.