A Deeper Look at the Howard Stern Lawsuit Against Sirius XM
By now most everyone that follows the media is well aware that Howard Stern’s production company, One Twelve Productions, and his agent, Don Buchwald have filed a lawsuit against Sirius XM Radio. The suit alleges that Sirius and/or Sirius XM Radio have failed to pay certain performance bonuses due to them based on the company’s subscriber numbers.
There are several factors that Sirius XM investors need to consider…
Immediate Impact
The immediate impact began to show through in after hours trading. This is a potentially HUGE lawsuit, worth hundreds of millions of dollars, brought against the company by one of their top on-air personalities. The stock will likely suffer because of this overhang. This is not uncertainty about whether or not Stern will retire or move to another medium, it is uncertainty with massive financial implications. Watch for an immediate negative impact followed by a period of time where the overhang of such a large suit will degrade investment value.
Class Action Suit
Given the language in the lawsuit, there is serious potential that a class action suit against the company on behalf of the shareholders will come up. Stern’s side alleges in the suit that they brought up the bonus issue several times, including during the recent negotiations when Howard signed a new five year deal. It could be argued that the company breached their duty to shareholders by not bringing to light the significant risks associated with these bonus payments.
UPDATE: It would appear from some email communications I have received that many people do not understand what is being stated here. This site is in no way promoting a class action suit. What is being stated simply recognizes that we live in an extremely litigious and opportunistic society. Often, when things like this suit happen, attorneys look for a way to bring a class action. That is all that this site is saying. We ARE NOT saying such a suit would have merit, nor that such a suit would succeed. The purpose of mentioning this possibility was to explore possible implications. Investors MUST bear in mind, as stated at the bottom of this article, that we have only seen one side of the case at this point.
Liberty Impact
Liberty Media holds preferred shares that equate to 40% of the company no matter what the situation. If Sirius XM needs to dilute shares to pay bonuses, the Liberty stake is still 40% of the company. This situation is now a virtual guarantee that Liberty will not be converting their preferred shares any time soon. Why would they? If they converted now, they lose potential share growth via any dilution Sirius XM may have to do. In effect, with their preferred stake Liberty is insulated from the issue.
In addition, with a suit of this magnitude on the horizon, Liberty may have new considerations on what they may or may not do. Some people think that Liberty may at some point make a move to acquire Sirius XM. With potentially hundreds of millions of dollars at stake, the value of Sirius XM is in question. In one sense a cheaper Sirius XM may be attractive, while on the other hand the risks of the lawsuit may make the company unattractive. All that matters here is what Liberty’s John Malone thinks. It will be interesting to see how this plays out.
The Stakes
The original Howard Stern contract called for bonuses to be paid if Sirius beat internal subscriber estimates in any year by 2, 4, 6, 8, and 10 million subscribers. In other words, Howard was eligible for up to 5 bonuses per year. Now Stern’s side wants to count the XM subscribers in their totals. This would mean that there are several bonuses that they still feel are due. Because these payments were not made, and a suit was filed, the plaintiff is also seeking interest and costs. We are talking about hundreds of millions of dollars, possible dilution, and the impact of Liberty gaining even more shares by keeping their preferred stake.
Long Term
This suit will not likely be settled overnight. The longer this overhang exists, the harder it will be for analysts and the street to attach any premium to this company. This could keep a ceiling on where the price of Sirius XM stock can go. Even with a good financial performance, SIRI will have the baggage of this suit. If class action suits get added to the mix, the story becomes more grim.
What investors need to consider is that this stock may now have limitations that were simply not anticipated by investors. The implications could be substantial and the annual shareholder meeting will certainly be interesting. Watch for analysts to revisit Sirius XM with consideration to the lawsuit as the basis for new price targets that investors may not appreciate.
On Air Battle
Howard Stern has always shared what is happening in his personal life with his audience. This will likely be a subject on the show. Howard is no fool, he will stick to his story and not jeopardize his lawsuit, but will likely slam Sirius XM along the way. Depending on his mood, some pretty quotable lines may come out of the show for quite some time. Do not look for any other talent to bring up the issue. Sirius XM will most likely put out a gag order on other channels.
Possible Defense
Sirius XM does have possible defenses. They can argue that the XM subscribers should not be counted. They can use the “BEST OF” aspect of the XM subscriber base to show that the internal estimates were not beat. They can argue that the subscriber bases were counted separately until 2011. Certainly Sirius XM’s legal department felt that the bonuses were not due and must have felt confident in that assessment. Bear in mind that all we have seen to date is Howard’s side of the story
Watch closely, not only this week but, until the issue is resolved.
Position – Long Sirius XM Radio
This is Howard simply positioning himself to get out of a contract he really didn’t want to sign.
He is positioning himself for a partnership with Apple via iTunes.
In any event Sirius-XM has it coming to them because they are a very poorly managed company.
Howard wants to get bonuses for people who subscribe to XM (before the merger) to avoid listening to him.
Stern is essentially wanting to get compensated twice for the subs he brought to Sirius. The first time as Sirius subs. The second time because as a result of having those subs, Sirius’s value was such that they were able to negotiate a merger with XM.
Having said that, it was a merger of equals, with XM ending up with the majority of board members. Those XM subs weren’t acquired by Sirius any more than the Sirius subs were acquired by XM. The company is SiriusXM. If they had decided to name it XM, would that mean that Sirius had zero subs?
Apple will in no way ever “partner” with Howard Stern. I question if they would even sell videos and audio of his shows in the iTunes store. If Apple had wanted a deal with Stern they wold not have waited until AFTER he signed with Sirius, they would have offered something much earlier.
Apple will in no way attach their logo to Howard Stern. Bank on it.
As a subscriber to XM I could not care any less about Howard Stern. When I subscribed to Sirius in 2005 I didn’t care about Howard Stern. SiriusXM shareholders now have to care and regardless of the outcome this is a huge black eye on this company.
Randy A,
You don’t have a clue what Apple will do.
You are also completely wrong in your conclusions.
“you don’t have a clue what Howard will do”
Right or wrong, it makes no difference what Howard will do.
It’s easy to know what Apple will do. Steve Jobs does not connect with personalities like Stern. Look back on his relationships with other strong personalities like Steve Wosniak and Bill Gates.
Actually, if you have heard Jobs speak about or read his comments on adult content you would KNOW what Apple’s interest in Stern is. If you had read up on apps rejected from the iOS app store because of adult content, you would KNOW what Apple’s interest in Stern is.
Though you might find it hard to believe, Apple is doing just fine without Stern. Howie might think that Apple needs him, and you might think that Apple needs him, but they don’t.
regardless of what apple wants, Stern already received and offer by ex MTV VJ Adam Curry who has been a pioneer in pod casting, and there are plenty of internet radio opportunities out there. It is likely that internet radio and pod casts will give satellite radio a run for its money. All this competition will be good for Stern and consumers alike. Sirius, watch your step…
Apple wouldn’t touch Howard with a 10′ pole.
there are so many aspects to this that it is difficult to even start:
1. Howard has never been happy with the stock price and this lawsuit may be his attempt to recover actual money damages instead of potentially worthless stock;
2. Howard may want out of his contract altogether and this is his way of getting out or extracting better terms from Sirius;
3. The situation with Don Buchwald is extremely interesting since he is the agent for Robin Quivers and Fred Norris as well as for Howard (a situation which for years has reeked of potential conflict of interest) – Based upon Robin’s surprise and shock this morning about the lawsuit, it is apparently clear that neither Howard nor Don ever disclosed the possibility of a lawsuit against Sirius. If Don did not do so, then there is a potential claim by Robin and Fred against Don for breach of his fiduciary duties to them (I never understood why Robin and Fred would ever agree to have Don represent them along with Howard); if the plan for the lawsuit was hatched before they signed with Sirius, then Don’s failure to disclose this to Fred and Robin could be seen as a breach of his fiduciary duty and duty of loyalty as an agent – both Howard and Don should have known such a lawsuit would result in a severe blow to Sirius’ financial state….
Overall, this is an unfortunate situation which reeks of pure greed. Many ask “how much is too much….” With Howard, the greed appears limitless unfortunately.
Fred and Robins contracts more than likely do not have any performance bonuses based on the company’s subscriber numbers.
this lawsuit may not only end up being the end of the Howard Stern Show, but also the end of Sirius as we know it.
They should never have re-signed this clown. He’s going to be the ruin of the company.
AMEN TO THAT.
How about this Howard and Siri come to agreement. If Howard agrees to purchase 200 million shares first in the open mkt and files with the sec———- in return siri/xm gives howard 200 million worth of stock options. Sounds like a good deal to me!
Howard told me that he is using the lawsuit to increase his stock holdings in the company to become the major shareholder and then cancel his own contract.
T-O-P-L-E-S-S
You’ll do it when you get here… topless. T-O-P-L-E-S-S
LFSW!!!!
I am surprised he hasn’t had any death threats yet. He better hire more body guards cause he just angered a hell of alot of people.
What the f%#@ are you talking about?
Howard Stern, who needed the jackass to begin with! All he really has is a big mouth with no brain. If he has shares in the radio company, why would he destroy it. UNLESS he wants the price to get knocked down while he and his buddy Don buy up some more shares. Drop the lawsuit and who makes money?? Not the everday investors. Call the SEC for an investagation!
Spencer… So many people say you’re blowing this Stern suit out of proportion. Not me. Better to know the risks. Thank you. I’d rather know the risk possibilities than not. Staying on the sidelines in cash until the situation becomes more clear.
There are real issues with this suit that investors need to be aware of. What I tried to do is simply point them out. I have had a smattering of emails about the class action comment in my article. I am in no way saying that such a suit would have merit. I am simply acknowledging that we live in a litigious society and class actions are brought against companies for things far more trivial.
Have to totally agree with the article and with you Cashbar. Too many unknowns at this moment to take large positions in SIRI. Auto sales across the board could be down 30% due to Japan quake. Too many unknowns across the Globe right now.
This is so trivial and abdurd. It’s not even material to the financial results. Howard, in his stupdity, decreased the value of his current shares with this moronic move. The long-term outcome of this is zilch. By the way, Mel is about the best CEO out there and he’s not going to bend on this.
Spencer… Brandon Matthews at Satwaves thinks your story has no credibility. That you have an allliance with the WSJ. That what you write is blown way out of proportion and it has no basis in any fact of what could happen. Care to respond?
Cashbar….
Brandon Matthews can think whatever he wants. I will stack my record and credibility against anyone at any time. This site does not cheer, nor do we bash. We present the facts and possibilities as they exist. SiriusBuzz is the most widely read site about satellite radio. There are distinct reasons for the success of this site.
Think about this for a moment:
1. Would Don Buchwald and Howard Stern, both who have reputations for an extreme attention to detail, file a suit that they felt they did not have a chance to win or settle? The answer is no. In contrast, Sirius XM would not refuse to pay unless they felt they had good standing in the contract. What we have here is not a frivolous suit, but a REAL suit with legal arguments on both sides. The likely solution is a settlement. What surprises me is that there was apparently no mediation clause in the contract to avoid such legal actions.
2. We do not write sensationalist headlines to attract readers, nor do we go to message boards to promote our site. We do not tell people what we think they want to hear….we instead present logical articles based on facts and reasonable (and clearly identified) opinion.
3. This is a free site available for anyone to read. We do not charge a subscription and then use google ads on top of that to raise money. My financial success in life is not reliant on this site. I do not do this for my living. I have no meaningful financial stake to influence my writing.
4. This site has no alliance with the Wall Street Journal. I do not submit articles to them, nor do I have any relationship with them. We receive no incentive or consideration from them. They simply choose to quote some of our pieces in their own articles. Think about it….They likely want good and reputable sources about the subject of satellite radio and choose SiriusBuzz for that source.
Spencer, you say: “What surprises me is that there was apparently no mediation clause in the contract to avoid such legal actions.”
How do you know that there was not? Maybe there is such a provision.
That would explain why this lawsuit was filed as a press release, rather than in legal terms.
The next filing by SiriusXM could be a Petition to Compel Arbitration. However, if there was an arbitration provision, and had Stern merely sought arbitration, it would likely not have been a public filing. This complaint is clearly a PRESS RELEASE filing. Stern is trying to get his side out, possibly before he is forced into binding private arbitration, maybe.
I have not seen the contract, but neither have you! Stern cleverly failed to attach a copy of the contract or to quote verbatim the language of the contract, so other than Stern and Sirius and their close agents and attorneys, we are all in the dark on this.
Don’t make these assumptions. If you would have asked the question of whether there is an arbitration provision, that would have been a good question, just don’t assume it.
Point taken…..
In many cases mediation and arbitration clauses state that they are the first course of action ( instead of a lawsuit), and the decision of the mediator or arbitrator are binding.
My assumption was based upon the fact that this suit was even brought. Mediation and arbitration clauses I am familiar with would not allow the suit to be filed.
[Replying to myself because blog won’t allow me to reply to Spencer as chain too long]
Spencer says: “Mediation and arbitration clauses I am familiar with would not allow the suit to be filed.”
Mediation clauses usually require mediation before filing.
Arbitration clauses usually require filing arbitration, not a court action.
However, importantly, that does not mean that one can’t file a court lawsuit! I do it all the time.
A defendant could waive the right to arbitrate by failing to demand it after a lawsuit is filed.
Or, a defendant could file a Petition to Compel Arbitration with the court in order to force the matter out of Court and into arbitration.
Spencer, I take an issue with your “The Stakes” paragraph were you state that “The original Howard Stern Contract calls for”, Have you seen the contract, pretty factual comment if you haven’t.
The incremental bonus terms have been known for quite some time. The suit also spells this out. It is not speculation…it is fact
Why is it that all of these financial commentators and analysts fail to do one thing when commenting on litigation? HAS ANYONE BOTHERED TO TALK TO A LAWYER about the possible exposure a lawsuit like this has? Also, has anyone bothered to assess whether or not Sirius may have any insurance policy that, even if it does not cover a judgment, might cover the defense of these claims? These are questions that a responsible commentator or analyst would make, yet I have seen not a single commentator or analyst make such an inquiry. Exposure and possibility of insurance always need to be asked when sued. Business get sued all the time for all kinds of things. Not all lawsuits are material to the company, however. Here, just because this is Howard Stern, everyone forgets to do the proper analysis. With or without Stern, Sirius still makes money. You are all acting as if this is a lawsuit that could cause the business to cease to exist. A couple years ago Vonage was sued for patent infringement that if proved would have closed Vonage down. Now that’s at big deal. You all have made a lawsuit by Howard Stern into such a cataclysmic event, merely assuming that because it is Howard Stern, it is a business closing lawsuit. Get over the fact that this was Howard Stern and analyze this as you would any other lawsuit.
Certainly the company has insurance. What makes this suit material is that it will involve shares. The company may get compensated, but the dilution (if Stern wins) will impact shareholders in a double whammy. Sterns shares as well as the shares required to keep Liberty ownership at 40%.
I am in no way acting like this will bankrupt SIRI. Where would you come up with that? The potential exposure is however substantial in nature.
my comments here were not directed at solely you, but at all commentators on this topic.
Stern has just become enemy number ONE to all investors….I hope all of them burn in hell! This is our company and not his, we helped bring this company to where it is through word of mouth and self marketing…..They should change the ticket symbol from SIRI to SCREWED!
Get a grip guy 6 million signed up for the day Howard would begin exclusive broadcasting on Sirius all stern fans. Sirius only had 600k subs befor getting Howard on board. Stern fans made Sirius what it is today not the investors STERN FANS don’t believe me check the numbers for yourself. You should be kissing Howards butt without him there would be no Sirius for you to sink money into.
-Stern rules bababooy
I’m sad. Howard promoted Sirius with all his might and influence, just to drag us all along as investors. We’re screwed. It kind of feels like another get rich scheme; guess who got rich?
You all need to chill. The world won’t end and either will SIRI. Get a grip.
Seems rather Ballsy on Sterns part to say that the XM subs count in the numbers-Common sense is saying that this is ridiculous-Gut saying that there were no provisions for the merger in his contract so his agent is being very aggressive trying to say that sub numbers were achieved–I totally disagree with Howards position but like in any lawsuit, settling even for an additional 1 million means more $$ to Howard–His reputation is taking a big hit as this “pigs at the trough” greedy attempted money grab, after receiving so much money in his first contract, seems pathetic—Sounds more like an agent convincing his client that hes entitiled to more and the agent wanting more $$ as he gets a percentage
I have had more than eough experience with business legal affairs to know it is worthless for me to predict what happens in legal cases. I have always been wrong.
What I can say is the timing for this action by Stern’s company isn’t good.
You have too many people making 60-80k paying taxes to fund pensions like the one the retiring San Fran. Chief of Police is going to get, 239K/year; professional football players making millions and not getting enough; government accountants making 20% more than private sector accountants.
Now, along comes a guy who got 100 million a year saying he was “screwed” by the company that paid him.
Why, it’s enough to make the average man cry, eh, excuse me. I meant to say vomit.
I don’t understand how emotional people get when it comes to Stern’s show. Yes I am a fan but that aside he has a proven audience and track record.
I have a feeling this lawsuit is just for show, on both sides. Maybe the contract was not specific enough to anticipate the XM merger (which was reported) so the only way to responsibly settle this would be a lawsuit, as an investor I would be pissed if Sirius just folded and handed over the bonus since the contract was not specific but in a lawsuit / settlement situation I would be satisfied that Sirius at least covered their end. I just see this situation as playing the game and from looking at the stock I don’t see any need to worry.
I believe in Sirius because they seem to understand Exclusive content is king! If you don’t like Sterns show that is fine! You have a choice to listen to anyone else (or no one else) but don’t devalue the effect that Stern has. When he mentions anything (Products, websites…etc) it will trend on Google!
No matter what Stern or any other employee of any company gets paid the Contract needs to be honored or whats the use of a contract?
end-rant 🙂
Stern has lost money on sirius stock he expected to recieve on his first deal. Howard is an honest guy and and is trying to recieve what he feels he is due. Sirius has financial problems due to poor management decisions not this law suit.
Very easy to solve. I have both Sirius and XM
If you want Howard on XM you have to pay extra for those Sirius Channels (Howard, NFL, etc.)- count these towards howard. For the record I did not get howard on XM.
So the dispute is really how many people who have XM signed up for Howard or the NFL………..
I’m the biggest Howard fan there is,but unless the company has a way to track exactly how many subscribers from xm and sirius signed on specificly for Stern,then i think he’s gonna have a tough time winning this suit.Although with that said,the man deserves any bonuses that were spelled out in his contract.Let the poisin out Raven!!!
That’s a fair point. I was an XM subscriber because it came with a new car that I bought. When XM and Sirius merged, I took the opportunity to buy the package that allows me to hear the Stern show. I would think that people like me — who bought the Stern show package — should be counted as Stern subscribers for purposes of his bonus, but not every XM subscriber.
After reading all the articles, the comments, and being in the legal field for 35 years, with Apple being mentioned, and related subscripts, what I see coming is mr Malone and Mel doing lots of talking and in the end there will be some buyout. Where or what or when? I don’t know but in a previous article dealing with autos and Note buy-backs, it was intimated that the siri common stockholders will be very happy soon !!!!!!!!! ERIC. A
“They should never have re-signed this clown. He’s going to be the ruin of the company.”
LOL! There would have been no Sirius were it not for Howard.He took them from several hundred thousand subs to millions and millions. The whole “joined as equals” thing is a canard, Sirius acquired XM. Had that not happened, the arms race between the two companies would have either bankrupted both companies or left Sirius as the last one standing.
Stern deserves to be paid for what he accomplished for Sirius and for satellite radio in general. The companies were attempting to grab market share at the same time that CD sales and radio were disintegrating. 100 commercial-free music channels? WGAF? The whole point of satellite radio is exclusive content. Whether you like Stern or not, he saved a dying company, and possibly a dying medium.
Sirius would have never been able to merge to make one company had it not been for the addition of the stern show. So by aquiring the other company and their subscribers made a larger company and brought more stability to the satelite listening world and all due to a howard stern show. If that was truely in his contract then he should be paid for what was agreed upon. A contract is for protecting employees from their employers not wanting to pay and that is what the courts will decide on.
Please, someone just end the show already. Last week’s temper tantrum Howard threw was immature, and it shows that Howard is a real pussy when he’s not behind the mic. Regardless of whether or not he deserves bonuses from the SIRIUS/XM merger (there’s so many different sides that it’s hard to keep up), all I know is that the show has been horrible from what I’ve been reading up on when going to Stern Fan Network (look, I just like it there).
This lawsuit he’s involved with is practically extortion, because he’s been doing alot of side projects to earn money (i.e. plug all his gadgets and crappy sponsors). Wasn’t it back then that Jackie the Jokeman and Stuttering John did it, and it burned him up? He’s losing his mind, and all the hate towards him lately is just gonna pile up day in and day out until he decides to make his show interesting again by adding a third voice to stop Robin from chirping in every 10 seconds.
You owe you pay no matter what. If it was 12 dollars they would have payed him before it came to this so its not a ? that they owe or not it just they dont want to turn loose of the money just like taxes if you owed the government they would take it no matter if you could afford it or not you must pay
The only thing I see happening here is a bankrupt Xirius/XM.
Howard Stern has a new game plan – it’s called America’s Got Talent. That “wonderful” company he talked about when he was giving out radio’s in Manhattan is now a thorn in his side. He makes millions from Sirius XM, works 3 days a week, 4 hours a day, and gets about 10 weeks vacation. Is this not enough for him? Apparently not.
I don’t care what they say, Sirius/XM is one company now.
And if the contract just says “subscribers”, then he should get paid based on the company’s(S/XM) total subscribers.