How Could We Possibly
Make a Bid for Marvel?

Last week, I related about how I was, with great reluctance, drawn into being a member of a group seeking to purchase Marvel Comics in January of 1998. After meeting with the group of bankers who had recruited Jim Shooter as their proposed editor-in chief, I agreed to be a part of a plan to bid for the publishing assets of Marvel Comics. My role was to head up Marvel's marketing department until someone more comfortable with the corporate world could be found to replace me. I anticipated that this would take upwards of a year, and I warned both my family, and my staff at Mile High Comics, that I might have to move to New York City for that period of time.

When we arrived at the plush New Jersey offices of Marvel's trustee, John J. Gibbons, the first thing we ran into was an inability to meet with Mr. Gibbons. It seemed that investor Carl Icahn had protested Mr. Gibbons' appointment as trustee on the specious grounds that Mr. Gibbons' law firm had previous had minor interactions with senior creditor Chase Manhattan Bank. While this bit of legal wrangling was going on, Mr. Gibbons could not actually meet with any of the potential bidding groups. All was not lost, however, as we were told that we could proceed with examining Marvel documents for as long as we wished. We were then escorted into a huge conference room, with a fantastic view of the Hudson River. We were told that we had 24-hour access to this room, and that meals, and secretarial help, were to be made available to us at any time.

Once we were alone in the conference room, we divided the job of going through the hundreds of cartons of Marvel files by our various areas of expertise. The bankers went through the financials, the attorney looked at Marvel's corporate activities, Jim Shooter went through the personnel records, and I was assigned the cartons of documents involving Marvel's licensing deals.

The first licensing agreement that I wanted to see was the deal between Marvel and Toy Biz. In a deal crafted years before the bankruptcy, Ron Perelman and Isaac Perlmutter agreed to transfer 46% ownership of Toy Biz to Marvel, in exchange for Toy Biz receiving a perpetual royalty free (!) license to produce any and all toys based on Marvel characters. This first thing that struck me about the agreement was how well it was crafted by Perlmutter's attorneys. They managed to not only nail down not only the rights to produce action figures based on Marvel characters, but also any other kind of toy! This meant that Marvel's staff had to terminate a slew of pre-existing agreements with small companies that previously had the rights to produce items as far afield from toys as kites. Toy Biz never replaced any of the lost products from these terminated deals, choosing instead to focus almost exclusively on action figures. In terms of operating income, this was a total loss of revenue for Marvel.

Once I got past the sad waste of opportunity reflected in the canceled toy deals, I then read a number of licensing deals related to films and other entertainment-related activities. Two trends showed clearly in the contracts. The first is that they were written by folks who had no idea about the characters, and the interactions between the characters. How, for example, could you license Captain America to one entity in a field, and The Avengers to a competing entity? Who then controls the rights to Captain America? Those conflicts created nasty legal battles, some of which go on to this day.

The second trend that I observed was that the licensing contracts written in 1995/1996 showed a definite trend toward front-loading. Front-loading is a technique by which you offer a much better deal in the future, in exchange for a big cash payment today. This technique is typically employed by companies seeking to raise cash quickly, even if it requires cannibalizing their earnings stream for years to come.

By the time I was done reading the licensing contracts, I came to realize that there was nothing of value left to buy in that area. Ronald O. Perelman's staff, either through ignorance, or by design, had completely ruined the prospects for Marvel to earn any substantial licensing revenues. The Toy Biz deal totally screwed up the toy rights, the lawyers had created a tangle of conflicting rights in other areas, and whatever remained had been sold cheaply in exchange for upfront cash payments. With no prospect of any substantial licensing revenues, how could we possibly make a bid for Marvel?

To be continued...

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Mile High Comics, Inc.
Attn: Chuck Rozanski
2151 W. 56th Ave.
Denver, CO 80221

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