Insurance and Media & Marketing

Locals seek $10M to lift Lampoon: Laikin seeks to 're-energize' money-losing L.A. company

March 28, 2005

National Lampoon Inc.'s in the comedy business. Yet in recent years, anyone who perused the L.A.-based company's financial statements would be more apt to grimace than crack a smile.

A group of Indianapolis businessmen who own most of the stock think they can stem the company's heavy losses and in the process breathe new life into a comedy brand best known for the 1978 classic "Animal House" and the 1980s "Vacation" films.

Here's the catch: They need more money to pull it off. In a filing with the Securities and Exchange Commission this month, the company outlined plans to raise about $10 million in a public stock offering.

In addition to bringing additional capital into the company, the offering is expected to give it a higher profile, said Tim Durham, CEO of Indianapolis-based Obsidian Enterprises Inc. and one of Lampoon's largest shareholders.

Lampoon shares already are publicly traded, fetching about $3 apiece on the over-the-counter bulletin board. The offering would broaden the company's ownership base and likely land it listings on the American Stock Exchange and Pacific Stock Exchange.

All that could be good news for members of the Indianapolis contingent, which has yet to see their buying spree that began in 1999 translate into riches. The first to jump in were Dan Laikin and Paul Skjodt, then owners of Biltmore Homes in Indianapolis. Durham started scarfing up shares in 2000.

These days, Laikin, brother of Brightpoint Inc. CEO Bob Laikin, calls the shots, along with Doug Bennett, a former president of Macmillan Publishing in Indianapolis. Dan, 42, in January moved up from chief operating officer to become CEO, while Bennett, 45, shifted from executive vice president to president.

The new titles coincide with the longplanned departure of CEO James Jimirro, 66, a former Walt Disney Co. executive Laikin had criticized as moving too slowly to exploit opportunities in film, home video and other media.

Laikin and Jimirro reached a legal settlement in 2002, under which Jimirro agreed to ease himself out of the company. From then until January, Jimirro remained CEO, and continued to collect his $500,000 annual salary, though he had little involvement in day-to-day management.

Laikin last week declined to comment, citing regulations imposing a "quiet period" before a public offering. However, in a written statement in January, he said: "Over the last couple of years, we have demonstrated a commitment to re-energize and leverage the brand ... and have successfully moved the company back into all areas of media and entertainment."

National Lampoon Inc. draws its name from the humor magazine that launched in 1970 and blossomed over the next decade, giving mass exposure for the first time to now-prominent writers like P.J. O'Rourke.

But the magazine lost its way in the '80s, ceasing monthly publication in '93 and folding altogether in '98. Over the years, National Lampoon became better known for movies-most notably the John Belushi classic "Animal House" and three "Vacation" films starring Chevy Chase.

Through the '90s, Jimirro relied heavily on royalties from those films to fill company coffers. As recently as the last fiscal year, which ended in July, "Animal House" and "Vacation" royalties and fees accounted for one-quarter of the company's $1.9 million in annual revenue.

Nostalgia is great, but Laikin thinks National Lampoon Inc. is only beginning to tap the potential among today's young adults, the company's target market. Since his arrival, he's cut a flurry of deals aimed at milking revenue from National Lampoon archives as well as from new comedy programming and partnerships.

While many of those efforts are in their infancy, the company now receives revenue from a stew of sources, including a National Lampoon TV network piped into college dorms, movies, book publishing, even packaged tours marketed to college students.

In the SEC filing, the company says "the National Lampoon brand is one of the strongest brands in media." It says its strategy is to "continue to provide National Lampoon comedic content and products to as many consumers as possible."

One of the highest-profile avenues is feature films. When "National Lampoon's Van Wilder" opened in 2002, it was the first movie marketed under the Lampoon banner in at least five years. This year, two are slated for release: "National Lampoon's Pledge This!" starring Paris Hilton; and "National Lampoon's The Trouble with Frank," starring Jon Bon Jovi.

George Farra, an Indianapolis investment manager who reviewed National Lampoon's proposed offering at IBJ's request, isn't impressed.

"I don't know who is going to buy this, to tell you the truth," said Farra, a principal with Woodley Farra Manion Portfolio Management. "This is a dog with fleas."

He said he considers National Lampoon "a passé name" unlikely to resonate with young adults. But his biggest concern is the company's continuing financial woes.

In the last fiscal year, National Lampoon reported a loss of $5.1 million, more than double its revenue. Over the past three fiscal years, losses have totaled $12.7 million. Last fall, the company's outside auditor, Stonefield Josephson Inc., expressed "substantial doubt about [the company's] ability to continue as a going concern."

But Durham, a member of National Lampoon's board, said company officials realized short-term results would suffer when they bought the Burly Bear college TV network, now known as National Lampoon Networks, from "Saturday Night Live" creator Lorne Michaels in 2002.

At that time, Burly Bear developed and distributed original programming reaching 3.5 million students at 415 colleges. Today, National Lampoon Networks reaches 4.8 million students at 603 colleges and is "essentially breaking even," Durham said.

"We knew we would have losses at least two or three years. It is kind of the nature of building a brand and a network," he said.

National Lampoon this month announced it lost $7.8 million in the six months ended Jan. 31, though much of that loss stemmed from special charges not related to operations. Included, for instance, was $2.5 million in severance Jimirro received upon his departure as CEO. Revenue for the six months increased 102 percent to $2 million.

SEC filings show a partnership affiliated with a major shareholder, California investor Chris Williams, loaned the company the money to pay Jimirro's severance and related expenses. He's scheduled to be repaid from the offering.

National Lampoon says it expects to use other proceeds to create programming for its college TV network, to bolster sales and marketing, and to strengthen its capital base. The company also plans to buy $1 million key-man life insurance policies on Laikin and Bennett to protect itself in case either dies.

In an SEC filing, National Lampoon says the offering "should alleviate the substantial doubt about the company's ability" to stay in business.

But Farra, the Indianapolis investment manager, says it's far from certain the offering will succeed. He noted the sales effort is led by The Shemano Group Inc. of San Francisco and S.W. Bach & Co. of Long Island, not by Wall Street heavyweights.

And even if the company raises the money, Laikin and other executives still must prove they can ring up profits.

Mark Simonson, a Minnesota graphic designer who pays tribute to the golden age of National Lampoon magazine through his www.marksverylarge.comWeb site, applauds Laikin's aggressiveness, but says it's too early to assess if he'll succeed.

One of his challenges, Simonson said, is that the "sophisticated, low-brow humor" that used to make National Lampoon magazine so unique is now common in commercials and in all forms of media.

"It's not the same culture anymore. I'm not sure you can re-create it even if you have the right people," Simonson said. "If they do make it a success, I don't think it will be by re-creating what was done in the 1970s. It will have to be something fresh."
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