News: Analysis & Commentary: Bankruptcies
SUSAN POWTER'S WALLET GETS A NASTY WORKOUT
This year was supposed to be another blockbuster for Susan J. Powter, the fitness guru with the bleached-blonde crewcut who has made millions from her Stop the Insanity! video program and books. But so far, 1995 looks like a dud: On Jan. 3, days before her third book was scheduled for release, Powter filed for personal bankruptcy in Los Angeles.
The filing comes after a three-month legal battle between Powter and her two partners. Powter blames the bankruptcy--listing liabilities of more than $3.2 million and assets of $500,000 to $999,000--on the feud. "I can't pay my bills because of the excessive litigation," she says. "The Susan Powter Corp. made a hell of a lot of money last year, but it went to the company, not to me. I have no control over where all the money I make goes."
And that's a lot of cash. What little financial information the private company divulges indicates 1994 revenues were north of $50 million. Every cent from Powter's ventures--including a TV show, infomercials, books, exercise videos, and clothing--goes to the company. "The question is, where is that money and was it managed properly?" says Powter, who owns 50% of Susan Powter Corp. Her partners, brothers Gerald and Richard Frankel, both Dallas businessmen, own the other half. Powter, 37, earns a salary based on profits but says she has no access to the revenue. "Jerry Frankel has chosen to unilaterally take control of the Susan Powter Corp.," she says, calling her contract the "equivalent of slave labor."
The Frankels deny they have taken advantage of Powter. Gerald Frankel says Powter gets 42.5% of net profits, while the brothers split another 42.5%, and Elizabeth "Rusty" Robertson, Powter's personal manager, gets 15%. In the past two years, Powter has received a payout of $3.4 million and Robertson $1.3 million, he says. "That's hardly slave labor."
The wrangling dates back to October, when the Frankels and Susan Powter Corp. sued Powter in a Texas court for breach of contract. Among other allegations, they claimed she improperly agreed to make exercise videos for an arm of Atlantic Recording Corp. Powter, who denies the allegations, two days later sued the Frankels and the company in Los Angeles Superior Court for fraud, deceit, and breach of contract, among other charges. She claims that in 1991 the Frankels forced her to sign an employment contract she didn't properly understand. Gerald Frankel denies the charges.
The question: How long can Powter fight the Frankels? "Susan is being sued with her own money," says Rob-ertson. "There's no way she can afford to continue to do this." According to the bankruptcy petition, legal fees so far total $1.7 million. Robertson expects an additional $1.5 million worth this year.
DEJA VU. Gerald Frankel doesn't understand Powter's griping. If it weren't for him and his brother, he says, Powter might still be teaching exercise classes at the Dallas fitness center she started in 1989. "We discovered her," he says. "We invested close to $1 million in her the first two years before we saw any profits. Before we met her, she made something like $14,000 a year."
But this isn't the first time one of Gerald Frankel's deals has gone sour. He also owns Jerell Inc., a $60 million Dallas-based women's apparel manufacturer, whose retail customers include J.C. Penney Co. and Dillard Department Stores Inc. Six years ago, Frankel got into a legal scuffle with designer Sandra Garratt, creator of the popular Units and Multiples women's casual lines. In March, 1989, Garratt sued Jerell for allegedly violating a licensing agreement, claiming Jerell failed to pay her more than $4 million in royalties and developed and marketed rival clothing based on her designs. Frankel denies the charges.
Battling Jerell, Garratt drained her funds and filed for bankruptcy. Her suit was rolled into the bankruptcy case, and Jerell won exclusive rights to the Multiples line. "What's going on with Susan sounds a lot like what happened to me," says Garratt. "I would warn anybody if this man [Gerald Frankel] comes anywhere near you, run away screaming." For Powter, who rose to fame exhorting women to "Stop The Insanity!" of dieting and take control of their lives, the legal insanity may just be starting.
THE POWTER MACHINE
TELEVISION The Susan Powter Show, a syndicated daily women's issues talkfest, debuted last September. It's carried by nearly 200 television stations.
BOOKS Powter earned a $600,000 advance for Stop the Insanity!, a best-selling book published in September, 1993, by Simon & Schuster. Powter then got a $2 million advance for Pocket Powter, a paperback distillation of her diet and exercise advice. A third book, Food, was due for release Jan. 12.
INFOMERCIALS Two 30-minute Stop the Insanity! TV infomercials featuring Powter's diet bring in nearly $1 million a week.
VIDEOS Lean, Strong, and Healthy With Susan
Powter is one of the country's top-selling exercise
videos. It's one of four that Powter has produced under a contract with A*Vision, a unit of Atlantic Recording.
DATA: RPR & ASSOCIATES, BUSINESS WEEKBy Stephanie Anderson Forest in Dallas