According to an article in the Business Journal, Motorsports Authentics may be forced into Chapter 11 bankruptcy if it fails to win extensions needed to pay off royalties and to renegotiate contracts with various teams. Motorsports Authentics holds the rights to sell clothing, diecasts and other merchandise for many of the top drivers and teams in the sport, including Dale Earnhardt Jr., Hendrick Motorsports and Stewart-Haas Racing. The company has alleged failed to pay royalties in a timely fashion and has also lost $7.878 million in 2006 and $42.975 million in 2007.
The article said:
“Motorsports Authentics stopped paying certain guaranteed royalties under several license agreements during the summer when royalties on the projected sales were less than the guaranteed minimum royalties, according to the SEC filing. The company has received notice from licensors alleging default if Motorsports Authentics doesn’t pay the unearned royalties by certain deadlines.”
The company is hoping to obtain extensions from licensors; but if the extensions are not granted, Motorsports Authentics’ ability to operate its business will be severely impaired. To continue operating without extensions from licensors, the company would need to file Chapter 11 bankruptcy which would stop the licensors from taking action about the company. Bankruptcy would also allow Motorsports Authentics to renegotiate the license agreements and/or release it from its other debt obligations.