Perelman's Team Nearly Destroyed
Last week, I laid out a very bare bones timeline of how the price increases of comic books during the late-1980's led to the massive decline in comics sales during the decade of the 1990's. My belief is that these price increases were mostly unnecessary, and were initiated by the management team at Marvel Comics in an attempt to appease majority stockholder Ronald O. Perelman's seemingly insatiable appetite for earnings. I also believe that in their desperate efforts to wring the last drop of cash out of what had previously been a relatively small company, the Perelman team ultimately nearly destroyed not only Marvel, but the entire world of comics.
To get an idea of what happened to Marvel between 1989-1999 from a financial perspective, I highly recommend reading COMIC WARS by Dan Raviv. That book is tough reading, as it is filled with chapter after chapter of details of what happened both before, and during, Marvel's 1996 bankruptcy. It is well worth the effort to get through it, however, as it is packed with details about those epic battles that have previously never been revealed. The one failing I see in the book is that the writer is primarily concerned only with the testosterone tinged financial battles between Ronald O. Perelman, Carl Icahn, and Ike Perlmutter. His empathy for those in the comics world who were negatively impacted is minimal.
Having been someone who nearly saw his life's efforts wiped out by the battles waged for control of Marvel, I viewed that period from a different perspective. By the time Marvel declared bankruptcy on December 27th, 1996, I had already watched an estimated 4,000 of my fellow comics retailers go broke. A decade that began with the highest of hopes began imploding in late 1992, and by the end of 1993 had turned into a bloodbath. Before it was over, this wave of destruction would wipe out all the Direct Market distributors except Diamond, and would decimate the working capital positions of nearly every comics retailer. Publisher sales dropped by over 70% during this period, and fans left our world in droves.
The reason that I place the onus for all this destruction on Ronald O. Perelman is because he was the puppeteer who set into motion the policies that ultimately nearly ended our world. From the beginning, his agenda was purely financial. He saw Marvel as an undervalued asset when he purchased the company for the bargain price of $82.5 million in January of 1989. He reasoned, quite correctly, that if he raised prices and output, that hard-core Marvel fans would devote a larger and larger portion of their disposable income toward buying comics. Once he had enough sales numbers in place to prove this hypothesis, he then took Marvel public, selling 40% of its stock for vastly more than he paid for the entire company. The flaw in his plan, however, was that he promised investors in Marvel even further brand extensions, and more price increases. That this plan was clearly impossible became evident to most comics retailers early in 1993, as more and more fans simply quit collecting due to the high cost, and amida widespread perception of declining quality in Marvel comics.
Had Perelman been willing to back off at this point, the day might still have been saved. Comics had been steadily increasing in cost since 1961, and many fans were somewhat accepting of this trend. If Perelman's team had simply acknowledged that they had pushed the envelope too far in their haste to go public, they then could have concentrated on restoring quality to the books, and all might have been all right. Instead, however, Perelman's team denied that their actions were any part of the problem, and blamed the Direct Market distributors for somehow sabotaging Marvel's sales. This led to their disastrous decision to purchase Heroes World Distributing, and begin a program of self-distributing Marvel comics.
As I related in my column a couple of weeks ago, Diamond and Capital, the two main distributors to the comics world in 1994, had already substantially weakened the Direct Market by allowing too many undercapitalized and inexperienced retailers to open their doors during the epic battles they waged for market share during the 1980's and early 1990's. When these neophyte retailers were faced with having to order from Heroes World in addition to their primary distributor, they began folding in droves. This led to even further declines in the sales in Marvel Comics.
While all this operating idiocy was going on, Ronald O. Perelman continued trying to build Marvel into a mini entertainment conglomerate. In a flurry of acquisitions during the early 1990's, Marvel purchased Fleer Trading Cards, SkyBox Trading Cards, Panini Stickers, Welsh Magazines, and Malibu Publishing. The total cost of these acquisitions (plus an ill-advised repurchase of half of the stock held by the public) ultimately pushed Marvel's bank debt to over $700 million dollars. That's more than eight times what Perelman paid for the company in 1989! At the same time as Marvel was going deeply into debt internally, Perelman convinced an army of gullible investors to purchase $900 million in zero coupon bonds, with the only collateral backing the bonds being his ownership of 60% of Marvel's stock. Because the paper trails are hard to follow, there is some debate as to how much all this financial magic ultimately netted Perelman, but Raviv speculates that he (through his holding companies) benefited to the tune of somewhere between $200-$400 million dollars.
To put those huge numbers into perspective, I believe that Perelman's gains in Marvel stock and bonds exceeded the profits that had been earned by all the comics publishers put together during at least the previous three decades. Perhaps in the entire history of comics... In doing so, however, his policies led to the near-collapse of the largest publisher in the industry, and massive distress for everyone else associated with comics. That's why I believe that Perelman caused more harm to the comics world than Fredric Wertham. Wertham did cause enormous damage, but at least his efforts were initiated because of heart-felt convictions that comics were causing harm to children. Perelman simply wanted to make a buck, and seemingly cared not in the least if there was a world of comics left when he was through. Just how close he came to destroying our entire world becomes chillingly evident in Raviv's book. At times we were but one judicial decision away from a complete shutdown of Marvel, which would have led to a massive collapse of the entire Direct Market system. I doubt if any but the smallest publishers would have survived such a catastrophe. Let us all hope and pray that nothing of this magnitude every happens again.
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