Downfall of a black syndication Kingpin: driven into bankruptcy, The Heritage Networks struggles to regain its footing without ex-CEO Frank Mercado-Valdes

Black Enterprise, April, 2005 by Dahna M. Chandler, Derek T. Dingle, Alan Hughes

The Heritage Networks was heralded as the face of black television syndication during the 1990s. With shows such as The Parkers and The Steve Harvey Show, the company was not only profitable but ranked among the largest black-owned companies in the country. But after being saddled with millions in debt and losses, the former BE 100s company was forced to seek Chapter 11 protection. Now it's emerged from bankruptcy as a new entity that, while still black-owned, finds Frank Mercado-Valdes, the company's charismatic founder and CEO, out of the driver's seat.

Mercado-Valdes gained instant industry respect in 1993 as the first black man to go to movie production houses like Warner Bros., Paramount, and Universal to license black-oriented television and movie properties, distribute them to stations in major markets nationwide, and sell advertising on those stations when the shows aired. THN was a syndication company to be reckoned with, due in part to its Monthly Movie Classics, which aired a bevy of classic films starring African Americans and was hosted by legendary husband-and-wife team Ruby Dee and the late Ossie Davis.

In fact, by age 35, Mercado-Valdes had parlayed his love for black movie classics into a multimillion-dollar empire and was head of one of the largest independent, minority-owned syndication companies in the nation. Founded in 1993 as African Heritage Networks and renamed The Heritage Net works in 2002, THN debuted on the 2000 BE INDUSTRIAL/ SERVICE 100 list at No. 97 with $26.5 million in revenues. The company peaked in 2003, its final year on the list, at No. 61 with $61.5 million in revenues. Off-network TV shows, such as The Parkers and Moesha, proved lucrative for Mercado-Valdes' firm, which touted itself as the seventh largest syndication and ad sales company in the $3.3 billion television syndication market.

But it all came crashing down in 2004. How did Mercado-Valdes go from media kingpin to industry pariah? How did his company go from one of the largest black-owned businesses to bankruptcy to finally being sold for a meager $6 million? BLACK ENTERPRISE culled court documents and spoke with industry experts as well as company insiders to answer these questions.

While Mercado-Valdes was revered as a brilliant media strategist for building a syndication empire, associates say he engaged in unsound business tactics, and defaulted on debts to major market studios, advertisers, small independents, and former employees. Mercado-Valdes reportedly developed a "my way or the highway" arrogance and refused to listen to his own advisers. Mercado-Valdes declined to be interviewed for this article.

Valerie Elliott a former employee of THN subsidiary Heritage-Baruch Television Distribution L.L.C., asserts, "Any time Frank felt someone was challenging his authority by questioning a decision he'd made, he got angry and abusive--yelling, cursing, and ridiculing them." Elliott began working with Baruch Entertainment Inc. in 1991 and became a consultant in 2002 when THN absorbed the Washington, D.C.-area firm after 10 years of co-syndicating movies. As the subsidiary's former marketing director, Elliot was responsible for raising the ratings of the 2001 THN show The Source: All-Access.

Many of the company's woes began when Mercado-Valdes decided to move away from the core syndicating business and into the much costlier development of original content and acquisition of It's Showtime at the Apollo. This was contrary to the advice of the firm's board of directors, which was led by investor Comer Cottrell. "His justification was that he had all the experience and we didn't know what we were talking about. His whole business was his concept and he had proven he knew how to make money," says Cottrell. "But [developing original shows] was doing something completely different. So we objected to the production of Livin' Large and mandated, basically, that he discontinue it, which he did not."

Making matters worse, Cottrell asserts that Mercado-Valdes wasted money and led a lavish lifestyle that included a condo in New York City's swank Trump Towers, another in Miami Beach, and a home in Woodstock, New York. Painting a portrait of a rogue executive who did as he wished despite the costs, Cottrell says Mercado-Valdes burned through the company's cash reserves to fund Livin' Large and Weekend VIBE. "He owned 75% of the stock and I only owned 25%," says Cottrell, who helped Mercado-Valdes launch the company in 1992 with a $350,000 loan. "So whenever it became an issue, he outvoted me and made it clear that it was his company."

Mercado-Valdes also borrowed $13.3 million from Comerica Bank to help with the company's financing. The idea was that THN would repay the loans with ad receipts generated by the programs. THN also signed a $610,000 bridge financing agreement with Stone Canyon Entertainment L.L.C., secured with liens against all of THN's property. This made Comerica, Stone Canyon, and Cottrell the first, second, and third lien holders, respectively, on all of THN's assets, with every other creditor subordinated to Cottrell.