An analysis of ECW's Bankruptcy Petition
Forensic accountant and fan Bob Kapur takes a look

When John Powell, John Molinaro and Greg Oliver looked over the ECW bankruptcy statements, it was more than a little confusing. We're not accountants or lawyers, but journalists. Ahh, but we have a tag team parter to call on, long-time SLAM! Wrestling contributor 'Bloodthirsty' Bob Kapur, who by day is a forensic accountant who specializes in investigative accounting for both civil and criminal matters.

By BOB KAPUR -- For SLAM! Wrestling
Sometimes the life of a forensic accountant is a lot of fun. Most days we get to work on complex fraud investigations, where the financial records are like puzzle pieces, with every document an interlocking connection to the next, and only when they are all in place can the picture be revealed.

Some days, however, are not so good. For example, when we're called in to look at the books of a dying company to review the dismal financial situation and figure out what went wrong. Bankruptcies are all too common, each one reminding you how easily the fiscal tides can change... and drown you in a wave of debt.

Today, which I spent reviewing the Bankruptcy Petition filed last week by Extreme Championship Wrestling, was one of those not-so-good days. As a loyal fan, it was upsetting to pore over the schedules, charts, and numbers which effectively closed the book on my favourite wrestling organization.

As an accountant, though, it was pretty interesting.

ECW Petitions for Chapter 11 Bankruptcy

On April 4, 2001, HHG Corp., the parent company of ECW, filed a voluntary Chapter 11 Bankruptcy Petition, stating "... adverse economic financial conditions," as its reason. Simply put, ECW could not afford to pay its debts.

Bankruptcy always seems to have a negative connotation to it. However, the situation is not necessarily as bad as it sounds.

Reorganization vs. Closure

A Chapter 11 Bankruptcy is a formal attempt at reorganization.

In plain English:

The company still exists and still continues to operate. Paul Heyman is still the owner and he still has operating control.

His mandate, however, has changed.

His objective now is to develop a plan to satisfy creditors, either by paying them back or coming to some other acceptable resolution.

The plan could involve shutting down, selling everything, and using the cash to pay everyone back.

Or it could be to rebuild and restart, and use the new money earned to pay them back.

The Bankruptcy Petition formally holds his creditors at bay for the time being to allow him the chance -- i.e. he doesn't have to pay them while the plan is being developed.

Once a plan is developed, if it makes the creditors happy, it's a go.

The hard part is coming up with a solution to please the creditors.

Some of Paul Heyman's Options

So, what can Paul do? I offer four possible alternatives, though others may exist.

1) Restart and Rebuild

In its current state, it's not likely that the company would be able to survive, rebuild and restart. Heck, its current state is what brought us here in the first place!

Besides, it's not possible with no cash. The company has minimal "hard" assets (ie: easily convertible to cash), consisting of $2,000 cash, $4,000 in merchandise, and a truck worth about $20,000. (Note all funds in U.S. dollars.) The other major assets ($860,000 in Accounts Receivable and their videotape library worth $500,000) are are all subject to interpretation and dispute, and shouldn't be relied upon too heavily as a means of getting cash into the business.

Without the Benjamins, it will be impossible to put on any sort of wrestling show. Good luck getting an arena or a production team either -- they're already holding an empty bag of promises, as much of the company's debt is owed to those types of businesses.

Besides, most of the wrestlers are already gone anyway, having signed with either the WWF or WCW. Many wrestlers are also owed substantial amounts -- it appears as if the company just stopped paying everyone some time ago -- and it's unlikely that they would be willing to work for free again.

No, continuing on doesn't look like a feasible option.

2) Sell off everything and pay everyone back

As I mentioned, there's not much to sell. And what there is is already spoken for.

In a liquidation (ie: sell-off and shut down), secured creditors are those whose debt is "guaranteed" by a specific asset. If the creditor wants their money, and the bankrupt company can't pony up the cash, the creditor takes a previously-agreed-upon asset, thank you very much.

Ford Credit already has dibs on the truck. And another $1.4 million is noted as being secured as well by other creditors, probably a blanket claim over all of the company's other assets (the Filing does not specify).

After secured creditors, "Priority" creditors come next, which include the Taxman. The IRS and other government agencies are owed about $35,000, followed by Paul Heyman himself (to the tune of $4,300, the maximum amount he's entitled to under Bankruptcy law).

The company has debts of nearly $8.9 million, including the above. After the secured and Priority creditors, that leaves about $7.4 million left to be paid by a company with holdings of about $2,000 in cash and $4,000 in T-shirts. The unsecured creditors who are left (including most of the ECW roster, several production companies, lawyers, doctors, and a whole slew of others) would be left with nothing.

As mentioned, this reorganization plan needs to be approved by the creditors. You think they'll be satisfied with this deal? Think again.

3) Someone (read: Vince McMahon) buys ECW

Personally, I think the best option, and certainly my first choice if I were given one, would be that a mysterious White Knight could come and save ECW. Pay off all the creditors, buy all the assets and take over the company.

Why not Vince McMahon?

In the papers filed, the WWFE is listed as being owed over $500,000 from ECW. If Vince were smart, he would be looking into forgiving that debt and buying the company outright instead. This could perhaps be the most viable reorganization plan of them all.

In this scenario, Vince pays out the $8.4 million ($8.9 million total debt less his $500,000) -- not major bucks for Vinnie Mac -- and ends up owning the ECW name, including the company's historical videotape library. Not to mention, it would be a huge act of good faith to all the former ECW roster, many of whom are his employees now, anyway.

The creditors would be foolish not to agree -- payment in full? No downside!

Don't think it could happen? Well, that remains to be seen. It was documented that WWF lawyers were already at the Bankruptcy courts, requesting all the information filed in ECW's petition. Now that *could* mean that they're just there to make sure they get their claim in for payment. Of course, it could be the first step towards Vince's ultimate dynasty.

4) Nothing

Of course, Heyman does have the luxury of sitting back and doing nothing for the time being. He has 120 days from the time of the Petition to formalize and submit a plan. Anytime after that, any creditor or a committee of creditors can also submit their own plans. When and if the Courts decide one plan is feasible and fair, that's what will be done.

It's not uncommon for Chapter 11 Bankruptcies to remain unresolved for years. So, for now, Paul could just sit back and relax.

So, What Happened?

Getting back to that whole "puzzle" thing from my first paragraph, what the heck happened? How could a company which made $5.8 million in 1999 and $4.1 million in 2000 hit the wall so hard so fast?

Well, it didn't.

Actually, it looks to me like this situation has been lingering for a long time now.

Salaries of guys who had left a few years ago, like Shane Douglas, were still unpaid. How long had this been going on? Many TV stations, radio stations, advertising companies and the like were owed money. Who knows when these debts originated? Remember the ECW action figures that came out a couple of years ago? It looks like the manufacturers waited a while, too -- they're owed about a quarter of a million dollars.

Truth be told, I can't tell what the problem was. Fiscal mismanagement, lack of priorities, apathy, absentmindedness -- oops, I still can't find my chequebook. Without further information, it's just not possible to tell. Too many missing pieces.

For you cynics and naysayers, it does NOT look like Heyman screwed everyone and took off with the money himself. In fact, he's out to lose over $125,000 for backpay, and others in his family are owed over $3.5 million. It seems to me that the whole Heyman clan made major sacrifices in order to keep the company alive this long.

Only Paul Heyman knows for sure what went wrong. Hopefully, he'll have the chance one day to start over and do it right the next time.

I wish him the best of luck in that regard.

As an accountant, not knowing why ECW folded is a frustrating concept... I'd like to be able to finish the puzzle.

As an ECW fan, though, it just doesn't seem to matter.

It's important to note...

I am an accountant by trade, and in no way a specialist in Bankruptcy Law, especially U.S. law. My comments herein are based purely on my limited knowledge of the United States Bankruptcy Code, and should by no means be taken as gospel. My comments regarding the financial condtion of ECW are based solely upon my understanding of the information contained in their Bankruptcy Petition, which I did not audit, review, or otherwise verify. Readers are cautioned that they should not rely on my comments for any reason whatsoever, and I idemnify myself of all liabilities or losses occasioned by any parties should they do so.

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