Scout Media, the bankrupt college sports website network that fired its founder and former chief executive Jim Heckman in July, is preparing for a court fight over whether Heckman is now trying to interfere with its bankruptcy auction process.
Scout has asked Judge Michael E. Wiles of the U.S. Bankruptcy Court for the Southern District of New York for permission to depose Heckman and pursue discovery against him. Wiles is set to rule on the motion Wednesday, a bit over two weeks before Scout's Jan. 27 bankruptcy auction.
Scout claims that Heckman has been sabotaging the relationships between it and its publishers, who operate and maintain college team-specific sites and are paid on a monthly basis.
Scout is one of three website networks that battle for territory in one of the most rough and tumble spaces in sports media: college football and basketball recruiting. Scout, much like competitors Rivals.com and 247Sports.com, operates in a hub and spoke model: subscription-based websites that cover specific colleges align themselves with a central parent company.
All three websites publish rankings of top college football and basketball recruits that are pored over by fans and players alike. Scout's team-specific sites charge members about $100 a year for access to team coverage, recruiting analysis and heavily-trafficked message boards.
Whoever buys Scout's assets at auction will take over the company's contracts with its team site publishers.
"After interfering with the debtors' contractual relationships with their publishers, Mr. Heckman has then been reporting the existence of a disturbance within their ranks to other potential buyers," Scout wrote in its motion to depose Heckman. "In the hopes that they will become concerned about the health of these publisher contracts and will either lower their bid for the debtor's assets... or refrain from bidding altogether."
The debtor said that Heckman may be interested in bidding on its assets. After his ouster from Scout, Heckman founded a new digital media company, theMaven Network Inc., which is scheduled to start publishing in the first quarter of this year.
Along for the ride are Scout's former chief technical officer, chief operating officer and 12 of its former digital engineers, who resigned en masse in protest of Heckman's dismissal. The company went public on the Pink tier of OTC Markets in November through a reverse merger with shell company Integrated Surgical Systems Inc.
A Scout spokesperson declined to comment on the situation beyond the company's court filings.
Heckman denied that he had contacted publishers in an objection to the discovery motion filed Monday. He said that he had been forced out as part of a hostile takeover of the company by Russian investors while he was in the middle of negotiating a sale of Scout for an amount that would have paid off all of its debts.
If Heckman had interest in Scout before, he doesn't any longer: the former executive said in the objection that he will not make a bid at the auction.
"As a result of an orchestrated program of harassment and intimidation, the debtors have now succeeded in chasing away the most likely and most qualified bidder, as [I] nor anyone associated with [me] will be bidding at the crippled auction that has been constructed by management," Heckman said in his objection.
A spokesperson for theMaven deferred a request for comment to Heckman's filing. Heckman's lawyer, Brad Fisher of Davis Wright Tremaine, did not respond to multiple requests for comment.
Heckman was fired as chairman from Scout on July 10 for allegedly disregarding his duty to act as a faithful fiduciary to the company. A source familiar with the debtor's prepetition operations said that Heckman had allegedly been hiding the company's poor financial performance and that a large pool of the company's creditors had been left unpaid.
A source close to Heckman disputed this characterization of his connection to the debtor's financial situation and said that the Russian investors had been slow-paying the debtor's vendors, employees and team site publishers. The source asked not to be identified due to the ongoing dispute between Heckman and Scout.
Some of Heckman's expenditures also drew scrutiny. Heckman used at least $400,000 in company funds to charter a yacht at the Cannes Lions International Festival of Creativity - a major advertising festival in France - said the source familiar with the debtor's prepetition operations, who asked not to be identified due to the sensitivity of the debtor's bankruptcy process.
The source close to Heckman did not dispute that he chartered the yacht but said that the expense had been pre-approved by the company's board of directors, which the source said was on the boat.
A current Scout team site publisher told The Deal that Heckman was questioned at a May conference in Las Vegas over the late paychecks and that he responded that he was working to secure more finances and would pay publishers out of pocket if need be. The current publisher requested not to be identified due to his current contractual relationship with the debtor.
Heckman has vigorously denied any financial misconduct on his part. He said the allegations were "unsubstantiated and baseless" in his objection, that he had been cleared by Scout's CFO and that he loaned the company money so it could make payroll. He added that he deferred over $900,000 in salary in 2014 and 2015. This claim is memorialized in the terms of a December 2015 bridge loan between the Russian investors and Scout.
As the founder of both Scout (2001) and Rivals (1998), Heckman is a major figure in the recruiting site universe. He sold Scout to News Corp.'s Fox Sports for $60 million in 2005. Pilot Group-backed North American Membership Group bought Scout in 2013 for an undisclosed price. NAMG, led by CEO Heckman, eventually rebranded itself as Scout Media.
Heckman sold Rivals to a group led by Shannon Terry in 2001, which then sold it to Yahoo (YHOO in 2007 for a reported $100 million. Terry is the founder of 247Sports, which is now owned by CBS (CBS - Get Report) .
Three vendors alleging nonpayment filed an involuntary Chapter 11 bankruptcy petition against Scout on Dec. 1. It filed a voluntary Chapter 11 petition one week later, listing assets and liabilities between $10 million and $50 million.