Big payday for American Idol’s Simon Fuller…

January 19, 2010

We may be among the handful of people in this country that has never watched American Idol, but we do know something about SEC filings and the 8-K that CKX Enterprises (CKXE) filed at 5:30 pm on Friday — timed perfectly to avoid being picked up over the long holiday weekend — certainly caught our attention.

As even non-American Idol fans probably know, Simon Fuller, the creator of the worldwide Idol juggernaut, announced last week that he would be stepping down from both CKX and 19 Entertainment and that CKX had reached a new agreement with Fuller. Of course, the press release didn’t have any of the juicy details. That was left to the 8-K, which included three separate contracts — a consulting agreement, an option agreement and a compromise agreement — with Fuller and/or various entities owned by him.

Under the consulting deal, Fuller will get a $400K signing bonus plus 10% of the net profits for three different programs: American Idol, So You Think You Can Dance, and If I Can Dream for the lifetime of the shows, assuming he remains involved. He’ll also get a $5 million advance (the contract oddly uses pounds and dollars interchangeably) for 2010. There’s also a $2.5 million fee for something called “general consulting services”. In exchange, Fuller is required to provide six months of services, which makes it one of the priciest consulting deals we’ve seen.

The option agreement gives CKX the ability to purchase part of Fuller’s new company, called XIX Entertainment Limited (as opposed to 19 Entertainment Ltd., the old company). That option, which expires next month, enables CKX to buy between 10 and 33% of the new company. In exchange, they paid Fuller $815K for that option.

The last part of the deal is the so-called compromise agreement, which pays Fuller another $1.6 million for Fuller’s “ongoing confidentiality”. That agreement also provides for the accelerated vesting of 260,000 shares of CKX. Here’s a snip from that part of the filing:

In connection with this transaction, management will be conducting a thorough review to determine the profitability or applicability of each of the businesses currently conducted by 19 Entertainment. If management determines that it would be in CKX’s and 19 Entertainment’s best interests to discontinue any of 19 Entertainment’s business activities, management may determine to sell or transfer such business to XIX. If XIX elects to pursue any such business, CKX will not profit on any future development of such business, except to the extent that it may benefit as a shareholder in XIX if CKX elects to exercise the Option. Both the exercise of the Option and the transfer by 19 Entertainment of any of its rights with respect to any business activities that may be assumed by XIX will require approval of the majority of CKX’s independent directors pursuant to CKX’s policies on affiliate transactions.

Perhaps the most surprising thing about this multi-faceted and extremely lucrative deal to retain Fuller is that despite the success of the Idol franchise and the various other shows (which we also don’t watch), CKX’s stock hasn’t exactly been a great investment. Indeed, the last time we footnoted CKX, the stock was trading at around $11 a share — close to the price following the reverse-merger that essentially created the company in March 2005.

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