Kinkade’s Media Arts financial woes worson; class actions to be filed

For those of you who have missed it, People magazine ran an article recently depicting three tragic tales of people who have invested life savings in art galleries under the Thomas Kinkade Media Arts Program, only those to lose it all. One lost a beautiful 6,000-sq. ft. home and after a divorce, ended up in a small apartment with his dog. Another, a dentist turned pastor, said he and his wife lost their nest egg investing in three galleries. He said they were told they could net $500,000 a year, and were assured that only two dealers had ever failed. One died of cancer and the other ended up in a mental institution. They have since learned there are at least 10 other lawsuits against the company. The third, a Michigan couple who was once very well off, lost most of their investment and had to take menial jobs out of state to survive. All three have multi-million-dollar lawsuits against Media Arts, alleging the company defrauded dealers by saturating the market with galleries and unloading inventory on discount chains.

But Media Arts CEO Tony Thomopoulos countered in the article that these are rare exceptions among the 300 gallery owners, and that most are happy and successful. Dana Levitt, attorney for the company, agrees. He feels that thus far the litigation on these cases is going very well. He said, “Although there have been no substantive decisions on the merits of the case, Media Arts has been very successful in all the procedural battles, and I suspect it will continue to be. And, I suspect we will be successful when we get to the merits, as well.”

In my column last February, I reported on the one lawsuit filed on behalf of the Wittmans alleging fraud and violations of the Michigan Franchise Investment Law. According to plaintiff attorney Norman Yatooma, the legal action is challenging Kinkade’s proclamation on its Web site that it is a licensed distributor program, not a franchise. Yatooma said that issue had still not been decided. He said he feels confident in the case because they had a similar lawsuit on the franchise issues against Exxon Mobil Corp. In that class action, which also claimed it was not a franchise governed by the Michigan Franchise Investment Law, the federal court in Michigan just determined Exxon was wrong. But Levitt disagrees. He says the company stands strong on its position that Media Arts operates a distributorship, not a franchise.

But if the company maintains that they have nearly 300 successful art gallery owners, one has to wonder why the Christian artist’s company is doing so poorly financially. The July 2003 issue of the Silicon Valley/San Jose Business Journal stated that Media Arts had a net loss of $3.6 million, or 27 cents per share on revenues of $10.8 million for its second quarter. In the previous quarter report, it said it had a net loss of $2.6 million, or 19 cents per share, on revenues of $16.2 million. Thomopoulos made excuses in a Detroit News Business report blaming the war and the execution of brand strategy in a difficult economy. In spite of that, the report said that Thomas Kinkade managed to pocket $5.7 million in commissions from Media Arts last year. They have also had a shift in CEOs the past few years.

Yatooma said they not only plan to file a class-action lawsuit on behalf of the shareholders because of diluted value in their shares, but they will also file one on behalf of the collectors. He feels the company has saturated the market through mass retailer like Target, Sam’s Club and even QVC, and the art is no longer worth a fraction of what it was once valued. He said, “The value of their artwork has been so grossly diluted; it’s hardly worth more than a coloring book.”