Things don’t seem to be going well over at Scout Media. This summer saw the company’s board terminate CEO Jim Heckman, which led to the product team resigning en masse while plenty of writers and publishers complained about missed payments and Heckman’s spending. Now, the company has been hit with an involuntary Chapter 11 petition in a New York bankruptcy court from three creditors claiming they owe almost $800,000 and seeking to put the company into bankruptcy so they can recover some of their money. That led to an internal memo Awful Announcing has obtained:
“THIS IS NOT FOR INTERNAL OR EXTERNAL COMMUNICATION. PLEASE DO NOT POST OR PRINT.We just learned that a group of three companies (creditors) filed an involuntary Chapter 11 against Scout in the State of NY today. This is [sic] does not impact our day to day operations nor the current status of our sales process. From a publisher / employee standpoint “business as usual” remains in tact [sic]. You may receive inbound questions regarding this. “
We have comment from a former Scout publisher below, but first, Tom Corrigan of The Wall Street Journal has more on Scout’s public response and how these proceedings will work:
In court papers filed Thursday with the U.S. Bankruptcy Court in New York, three creditors launched an involuntary chapter 11 proceeding against Scout Media, saying the company is past due on a total of about $800,000.
In a statement Friday, Scout Media President Craig Amazeen said the sports network would continue operating normally but declined to comment further.
If the bankruptcy wins a judge’s approval and is allowed to proceed, it would force Scout Media to create a plan to repay its creditors and could spell the end of the sports network altogether. Scout Media has 21 days to reply to the bankruptcy filing. Judge Michael Wiles will oversee the case.
Who exactly is behind this petition? Ian Wenik of TheStreet details that it’s led by a print services company that already won a court judgement against Scout, with a catering company and a Seattle staffing agency also joining in:
Leading the charge of petitioning creditors is print services company LSC Communications, which holds a $671,651 claim on a judgment in its favor after it sued Scout in New York State Supreme Court.LSC sued Scout in November 2015 after the company allegedly failed to pay $712,000 it owed on a catalog printing contract. The two sides settled in April for $667,001, but the agreement fell through after Scout Media allegedly defaulted on an agreed-upon $34,555 monthly payment. Judge Ellen M. Coin entered a judgment in favor of LSC on Oct. 26.…Seattle staffing agency iMatch Services (owed $81,613) and catering company On Safari Foods ($29,116) are the other petitioning creditors.
While LSC Communications’ claimed bill here substantially exceeds that of the other creditors, the involvement of three creditors is notable; as Corrigan mentions, at least three creditors must sign on for an involuntary bankruptcy petition involving a company with 12 or more creditors. The amounts here are also certainly notable, especially when you consider the LSC claim that Scout previously defaulted on a $34,555 monthly payment. If that’s accurate, it suggests they could have trouble coming up with a workable payment plan for these three creditors.
There have been further reports of major issues at Scout both before and after Heckman’s July departure. We previously reported on regular payment delays of a week or more before Heckman’s departure, and one former Scout publisher spoke to Awful Announcing Friday and said they ran into a four-month gap in getting paid after Heckman left. “And that was after multiple inquiries: ‘Hey, where’s our money?'” he said. “We would be told ‘Oh, it’s coming at the end of this month.’ Or ‘it’s coming at the end of this month.’ And then they wouldn’t reply for a while. And then [four months later] we got paid. …We were handcuffed a bit by the delay.”
The former publisher also said the departure of the technical team along with Heckman made things particularly tough, as the technical team wasn’t quickly replaced. Heckman’s exit also led to plenty of airing of grievances amongst publishers, which the former publisher said illuminated bigger problems at Scout. He said that led to his eventual decision to leave.
“There’s a giant Slack channel for all the publishers, and a lot of them started voicing complaints about not getting compensated, and it was like, ‘Oh, you too?'” he said. “Nobody wanted to really admit it right of the gate, but once someone did, it was one of those situations where it became very evident that what we had agreed to wasn’t necessarily going to be fulfilled on their end.”
He said it’s disappointing to hear of this latest news, and he feels for the publishers and writers still with Scout.
“There are a lot of really talented publishers on that network who are unfortunately getting the collateral damage of all the shit hitting the fan,” he said. “Even the quote in that Street article, they’re going to continue to publish quality material, well, they are, but they’re going to do so with the unknown of when they’re going to be compensated for it. And to me, that’s completely not fair to the hard work that those people do, not only from a reporting and sources standpoint, but also trying to keep their readership engaged as business managers, because they have to be very entrepreneurial with what they’re doing. They can’t just be the run-of-the-mill reporter whose job is to literally go out and file a story. They have to do all the backend stuff, all the headache stuff that a reporter shouldn’t have to deal with, and simultaneously not know when they’re going to get paid for it.”
This story wasn’t unexpected for him, though.
“I’m not surprised to see this story; the writing’s been on the wall for probably the last six months,” he said. “I just feel really badly for the individuals who are going to have to punch in tomorrow and make sure their site has content, not knowing what the ramifications of that are going to be.”