In many ways, Xyience represented the financial promise of the MMA industry, with ties to some of the sport's top stars, including Chuck Liddell (Pictures) and Matt Hughes (Pictures), and shelf space in GNC and health food stores across the country. But even in a rapidly evolving industry, the company's fall from grace was sudden and dramatic.
In 2007, cracks begin to emerge with missed payments to sponsored fighters, constant turnover in corporate leadership, shareholder discontent and rumors of insolvency. The days of rumored seven-figure endorsement deals and prominent placement at UFC events were gone, replaced by digitally distorted logos on UFC replays and a move from the center of the mat to the Octagon post pad.
On Oct. 13, Xyience announced what appeared to be a fresh start. With Russell Pike, the company's notorious founder and convicted felon, out of the picture, Xyience simultaneously announced a three-year extension of its exclusive partnership with the UFC and a new $12 million funding effort.
"We believe that the combination of new financing and the extension of our UFC relationship firmly positions the company for success as we embark on a worldwide expansion of the Xyience and Xenergy brands," said then CEO Adam Frank at the time.
UFC President Dana White added, "Xyience has been a long-time sponsor of the UFC, and we look forward to our future endeavors together as both of our companies continue their explosive growth."
Optimism was short lived, though, as the embattled company filed for Chapter 11 bankruptcy on Jan. 18.
Bankruptcy filings obtained by Sherdog.com suggest a much deeper relationship between Xyience and Zuffa, parent company of the UFC, than merely a lucrative sponsorship agreement.
In fact, documents reveal that Xyience's third largest shareholder is closely tied to Zuffa and the UFC.
According to a shareholder list filed in court, 5,166,667 shares (7.9 percent of shares outstanding, which constitutes 10.1 percent of voting shares) of Xyience stock are issued to "Bevanda Magica (UFC)." An Italian phrase that translates to "magic drink," Bevanda Magica LLC is listed at 2960 W. Sahara Avenue Suite 200 in Las Vegas. The company was formed on May 17, 2007 with Frank and Lorenzo Fertitta listed as its managers. Zuffa's corporate headquarters, along with several subsidiaries, is variously listed in filings with the Nevada secretary of state's office as 2960 West Sahara Avenue Suite 200 or Suite 100.
Requests for comment from Zuffa LLC went unanswered.
Also named on the shareholder list are Zuffa Chief Financial Officer John Mulkey, who holds 50,000 shares of Xyience, and resident agent John Hertig, who holds 25,000.
The significant financial investment that UFC co-owners Frank and Lorenzo Fertitta made into Xyience, first reported last October in The Wrestling Observer Newsletter, has also been confirmed by the bankruptcy filing. Xyience's single largest creditor is Zyen, a company controlled by Fertitta Enterprises that is listed at the same address as Bevanda Magica (UFC), according to filings with the Nevada secretary of state's office.
Zyen holds roughly $12.5 million in total claims against Xyience, including approximately $5.3 million in secured claims, which matches all of the company's physical assets. Last week Zyen was granted permission by the judge presiding over the bankruptcy proceeding to make an additional $1 million loan to Xyience.
Xyience's UFC sponsorship is reportedly worth $15 million in the first year, according to the Review-Journal. Zyen's loans to the company total $12.5 million. The filings reflect Zuffa Marketing LLC, a subsidiary of Zuffa, is still owed $3 million.
Requests for comment from Xyience President Omer Sattar on the Fertittas' and Zuffa's involvement in Xyience, as well as the identity of Bevanda Magica went unanswered.
Chapter 11 bankruptcy provides a company with protection from its creditors while it attempts to reorganize. When the company's debts exceed its assets, as is the case for Xyience, the proceedings often result in the company's creditors assuming ownership of the reorganized company.
Xyience has $42,342,831 in liabilities, including $27,319,517 in secured claims, compared to just $5,285,722 in assets, bankruptcy filings show. Accordingly, the Fertitta brothers could stand to become majority owners of the reorganized company.
Last week Sattar told the Las Vegas Review-Journal that Xyience would have liquidated under Chapter 7 bankruptcy without the continued support of the Fertittas. "We're excited about the opportunity [to reorganize the company]," Sattar told the newspaper. "Xyience has a great brand name and has a strong affiliation with the UFC."
Xyience is currently involved in eight civil lawsuits and is subject to a pending involuntary bankruptcy filing by Russell Pike and other disgruntled shareholders, according to the bankruptcy filings. The Las Vegas Review-Journal reported accusations of physical threats by Pike and his associates against the current management of the company.
A shareholder, who wished to remain anonymous, told Sherdog.com that Xyience's original owners (Pike and his associates) approached him and other investors to join a lawsuit against the Fertittas.
The shareholder has chosen to remain neutral in the dispute, but told Sherdog.com that "anyone who invested in Xyience by taking the necessary steps and due diligence should have understood from their PPM (private placement memorandum) that it was extremely high risk."
The filings also validate reports of Xyience's failure to honor endorsement agreements. According to the filings, Xyience owes Rich Franklin (Pictures) ($21,000), Anderson Silva ($11,666.66), Matt Serra (Pictures) ($36,000), Travis Lutter (Pictures) ($36,000) and Heath Herring (Pictures) ($8,000).
In November, Sherdog.com confirmed reports that Chuck Liddell (Pictures), Forrest Griffin (Pictures), Matt Hughes (Pictures) and Franklin had struggled collecting from the company. All four fighters were prominently featured in Xyience's multimillion-dollar marketing campaign, including a series of television commercials.
Adam Swift is the Editor of Payout: The Business of MMA and a contributor to Sherdog.comview original article >>
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