company, to distribute and help finance the show. But because the show hadn’t generated a profit for several years, some complained the foundation often went without adequate funding for maintenance of the theater.
Sutton claims he pumped $80 million into producing and distributing the show with his partners until it finally became profitable two years ago.
While no wrongdoing was found, the damage was done. The lawsuit ended when the $4.4 million judgment was thrown out and Sutton and his partners agreed to pay the foundation $150,000 for future audits. New York Attorney General Eliot Spitzer then ordered an open bidding process to set a fair market price for the trademark and licensing of It’s Showtime at the Apollo. After the lawsuit, the foundation decided to restructure its board by appointing seasoned professionals, including AOL Time Warner CEO Richard Parsons, who could help the theater become profitable.
NEW BOARD, NEW MANDATE, NEW RULES
Sutton was able to keep the licensing contract he won in 1998, which called for a $650,000 annual fee for the show’s syndication rights and $450,000 a year to rent the theater; but when the contract expired in April 2002, the dynamics of the bidding process changed. Derek Johnson, former president and CEO of the theater foundation, says the new board had three priorities when awarding the new contract for It’s Showtime at the Apollo: “to return the greatest economic value for the licensing of the show back to the foundation; to partner with the entity we thought could effectively build, preserve, and grow the Apollo brand; and to retain as much control over the Apollo brand and depiction as possible.” With this new man
date, gamesmanship apparently overtook the bidding process.
Although It’s Showtime at the Apollo had been profitable for the last two years under Inner City/Western International–grossing $11 million in revenues in 2001–the show was in the red for most of its first 13 years. To have any chance of recouping those losses, it was critical for Inner City/Western International to retain the syndication contract. They had the advantage of being the incumbents, which granted them a three-week exclusive period to negotiate a deal, but early on, good-faith communications between Inner City/Western International and the foundation broke down. Both sides give differing accounts of the haggling that began in April and dragged on through the summer until Mercado-Valdes was awarded a one-year, $1.6 million syndication deal in August. But one thing is clear: The new board put more emphasis on adhering to the letter of the law regarding new negotiations rather than cooperating in a spirit of doing good business. In fact, both sides agree that there was little face-to-face negotiating throughout the summer, but neither gave any real reasons as to why. Both sides tell conflicting tales about a series of letters, faxes, “conversations with our lawyers,” and nonresponsive behavior that prevented substantive discussions about the licensing agreement.
According to Inner City attorney Gerry Margolis, Inner City/Western International submitted its first bid April 27, 2002, offering the foundation “25%