Friday, October 28th, 2005

At The Source: Evictions, Lawsuits, and An $18M Bill

From today’s New York Post Online Edition, Keith Kelly reports that The Source has bled $11 million in the past four years, has failed to file taxes, and is even missing subscription mailouts.

One of its lenders, Textron, has called in its debts–reportedly $18 million dollars–and has gone filed a lawsuit in order to recover the losses.

To top it off, the magazine appears to be facing eviction on Monday from the Chelsea digs they moved into not so long ago. David Mays has said the magazine is moving into rented offices about half the size of their current space as part of a “downsizing”.

Here’s an excerpt from the NY Post piece:

The Source’s freewheeling, self-styled moguls appear to routinely write checks to themselves for parties, jewelry, exotic trips and other things — with little or no record-keeping.

“Borrower’s records of checks and wire have little or no back-up and [the] borrower appears to have no internal controls,” claims the suit filed by Textron’s attorney Thomas Finn.

“Senior management seriously mismanages borrower’s cash,” claims the suit.

The suit says that in the first half of 2005, auditors unearthed nearly $1 million in unauthorized expenditures. The figure comprised $422,000 in payments to company insiders, $357,000 to travel agents, and $80,000 for “promotional jewelry.”

The suit estimates 2005 sales at $20.7 million, a decrease of $5.1 million from 2004. The suit alleges that the company’s net loss widened from $831,000 in 2004 to $2.26 million in 2005.

On top of that, the flagship magazine has seen its circulation plunge.

The Source was selling 500,000 copies per month in 2002 and 2003, and is now selling about 250,000 copies a month, the suit claims. Part of the reason for the decline was that the company did not put out the January 2005 issue and has failed to mail at least 140,000 subscriber copies this year.

Reached yesterday, Mays insisted that everything was under control.

“The company is going through a restructuring, which many companies are doing today due to the economy.”

He said The Source has been “hurt because of what is going on in the hip-hop world.”

There are “monopolies” driving hip-hop record labels to merge or go out of business, drying up an advertising base, he said. At the same time, the number of hip-hop clothing lines is shrinking.

“We’re downsizing our space and finding ways to cut our operating costs,” said Mays.

All this comes days after the magazine sued BET for $100 million for backing out of The Source Awards this year. The event was to reportedly to have taken place in Miami on Columbus Day weekend.

In an article with Allhiphop.com, Mays described himself and his colleagues as “freedom fighters”, and promised to file more lawsuits soon, including ones against Funkmaster Flex and against major labels.

Mays told Allhiphop.com, “We are about to enter into a period of serious legal activity.”

posted by Jeff Chang @ 3:28 pm | 0 Comments

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