Monday, September 17, 2012

A New Way to Fail in America

John C. Textor, The Bernie Madoff of South Florida
For the better part of the last year I kept abreast of John Textor's latest ruse through someone very close to the visual effects field. We were surprised just how far this guy was going to go, from corrupt and sleazy all the way to unbelievably seedy. And today, it's getting worse by the hour.

The story of Digital Domain begins in 2009 when John C. Textor, as managing principal of Wyndcrest  Holdings LLC, a private equity firm, purchased Digital Domain from James Cameron and others. 

As CEO, Textor decided to move the headquarters of Digital Domain across the continent from Los Angeles to Florida where he planned to build an animation studio to rival Disney, Dreamworks and Pixar.

Upon arrival he sought a business friendly town to build his corporate headquarters, somewhere close to his $4 million home on Jupiter Island in Martin County, Florida.

But Textor couldn't get buy-in from Martin County community leaders on the proposed location, the tax breaks or the accelerated development approvals needed for the construction of the visual effects studio. After lambasting their decision, he went up the road to nearby Port St. Lucie, Florida.
Marina in Port St. Lucie, Florida
It didn’t take Textor long to win over the town fathers, especially when he talked about taking Digital Domain Media Group (DDMG) public and making everyone rich in town.

At the time, the town and county of Port St. Lucie were facing a 14% unemployment rate and saw Textor as a white knight investor who came to their rescue. The city council responded with an array of incentives to make Textor’s dream a reality.

In addition to assuming the $39.9 million bond for building the animation studio, the city council agreed to provide a $10 million economic development grant; the state of Florida added $20 million in cash while St. Lucie County agreed to waive county property taxes for five years.

On top of this the city council of Port St. Lucie would provide millions of dollars for office furniture and money for purchasing state-of-the-art digital effects equipment. They would even develop soccer facilities for employees, as well as a park.

Port St.Lucie offered generous loans and accelerated approvals
DDMG, in turn, initially promised 500 salaries ranging up to an average of $64,233; it would pay off building construction cost with annual payment for 20 years. font-family: Verdana, sans-serif;">As construction began Textor restructured the new company into an array of business units, promising that Port St. Lucie would be the world headquarters of a prestigious international company that was soon going public (NYSE: DDMG). margin: 0in 0in 0.25in; vertical-align: baseline;"> font-family: Verdana, sans-serif;">Private equity managers, like Textor, are notoriously secretive, but as a CEO of an entertainment company he became a promoter, hyping his company at every opportunity. 

Behind the scenes Textor knew that visual effects is a “low-bid, low margin” business, which would not make him wealthier. So he expanded into creating businesses that would train young people through a franchise of visual effects schools. And this may have been the beginning of Textor’s downfall.

It was at a pitch meeting with investors that he revealed his strategy for how he would make money from his schools. Somehow his presentation was taped then distributed on a YouTube video. The tape was widely circulated and was damaging enough to contribute to the stock’s poor performance.

Further, Textor’s business ethics were widely revealed in the video, in which he boasted that his "free (American) labor was better than foreign cheap labor".
Pirate flag flew above DDMG
A firestorm ensued among visual effects bloggers and Textor's admission eventually caught the eye of Variety, which brought Textor's questionable ethics into the mainstream entertainment media.
In the YouTube tape Textor was pitching investors on Digital Domain Institute’s “essential skills” program. Not only would DDI charge students $4,400 for a 10-week course that taught students how to create digital animation for movies. Certified students would then work for free on DDMG projects, in hopes that one day they would be hired by a real visual effects studio, say Dreamworks, Disney or Pixar back in Los Angeles.

The brand of Digital Domain had become a joke.

Then on September 7, 2012 DDMG in Port St. Luicie padlocked the doors with no warning.

The board of directors had hired a new CEO and sought protection from creditors under Chapter 11.

Today, the town of Port St. Lucie still owes $38.4 million for the studio and lost $7.75 million of a $10 million grant. It is considering legal action to recoup its losses and is looking for new tenants for the 115,000-square-foot building that housed DDMG.

 Gov. Rick Scott, the far right Republican governor of Florida, has ordered an investigation into the matter. Scott had contributed $20 million of the state's money in cash to sweeten the deal with Textor.
Textor, once thought to be the savior of Port St. Lucie, is now referred to as "our Bernie Madoff", the disgraced financier.

This coming week a judge will rule whether DDMG can conduct a snap auction which would allow DDMG to sell off the assets of the high-priced equipment and furniture the town had essentially purchased for Textor.
 Currently two visual effect studios are bidding for DDMG assets at the auction, including Jame’s Cameron one of the founders of Digital Domain, through his new company. Another bidder is a major conglomerate in Mumbai.

 To see American made proprietary software and loads of intellectual property  sold off to a foreign visual effects conglomerate may be too much to bear for the taxpayers and voters of Port St. Lucie.

 Meanwhile, the 346 newly unemployed Digital Domain people of Port St. Lucie will be depending on the generosity of the local food bank, using food stamps and turning to other sources of goodwill in the coming weeks and months as they sort out their lives. And the story gets worse.

In nearby West Palm Beach the Mayor is giving back the $20,000 she was given by Textor for her campaign. City officials there continue to have no comments concerning the city’s decision to hand over 2.4 acres of prime downtown land, valued at $10 million to Digital Domain before the company met any performance thresholds toward building a high-rise on the site.

West Palm Beach officials have refused to say whether they knew Digital Domain took two mortgages against the property.

The city is also quiet about $2 million they gave Digital Domain toward the FSU film school, the first installment of a $10 million payment.

The list of failed promises will continue to grow as investigators look at the books, including the one in which  Digital Domain would partner with Florida State University in create a first-in-the nation $28,000-a-year bachelor of fine arts program.

As of last week, classes for the 27 Florida State University students who transferred from schools around the country are in doubt. The school’s new West Palm Beach campus this fall is also in doubt and no one is commenting.

And so ends a cautionary tale taking place in a dystopian world located in Florida. But it could happen anywhere.

Watching John Textor attempt to fool, cheat and rob while boasting about it made me think of Mitt Romney's career at Bain Capital and his run for the presidency. The two men are adept at telling bigger and bigger lies and no one has yet caught on enough to stop them.

Then it came to me. The people who are getting cheated are actually admirers of Textor's and Romney's deviousness because both men have proven there is more potential reward for being greedy than doing honest labor in today's America. These men have found a way to fail upwards, taking few people with them when they cash out and move on.

For an inside look at how Romney got rich, please read Matt Taibbi's brilliant article in Rolling Stone

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