The bankruptcy of Dr. Phil‘s Merit Street Media has taken another turn, with its distribution partner suing the company for fraud and breach of contract.
In a lawsuit filed in Texas federal court on Tuesday, Trinity Broadcasting accuses Dr. Phil, whose surname is McGraw, of swindling the Christian TV network under a $500 million, ten-year deal in which he allegedly failed to deliver a single episode of his flagship talk show.
McGraw’s Merit Street Media is in bankruptcy court and simultaneously suing Trinity for breach of contract that the company says led to its downfall. The court has called the dispute anything but “routine,” mainly because McGraw conditioned a loan to Merit Street on the company winning its lawsuit against the network.
Merit Street claimed Trinity Broadcasting didn’t live up to the terms of their joint venture, specifically by failing to secure national distribution. Shortly after the launch of its TV arm, the network “began to abuse its power as a controlling shareholder” and forced it to enter into a series of expensive distribution deals rather than through its own network of local TV stations; engaged in self-dealing by leasing TBN studios space to produce McGraw’s shows; and provided “shoddy production services,” Merit Street alleged.
In its lawsuit, Trinity Broadcasting, which owns 70% of Merit Street, offers a different version of events. It says McGraw approached the company in 2022 as he was looking for a network to replace CBS as a production and distribution partner for his show, making certain representations regarding the financial success and ongoing popularity of his syndicated series.
Chief among them: a 40 percent cut in the $68 million per year cost to make Dr. Phil by moving all production to Texas and terminating all unionized employees. McGraw also said that he owned the rights the series, that CBS sold out advertising inventory for the show and that he would create new, 90-minute episodes.
With his production banner Peteski, McGraw told Trinity Broadcasting that it must sign a deal with Peteski and pay him $20 million as a gesture of good faith or he’d accept an offer from CBS to pay him $75 million annually. Anything less, he claimed, would be a “deal killer,” the lawsuit says.
Under a purported $500 million, ten-year deal, Trinity Broadcasting would provide production and distribution services to Merit Street and Peteski, in turn, would provide new content, including 160 new episodes, according to the complaint.
The relationship turned sour last year when it became clear that McGraw couldn’t deliver the viewership numbers, product integrations and advertising revenues they promised to Trinity Broadcasting, the company alleges. It says it spent more than $100 million by the end of June, some of which had to recorded as loans to Merit Street. That figure grew as Trinity Broadcasting continued to funnel up to $13 million into the production per month while McGraw failed to make a single episode, the lawsuit claims.
At the same time, McGraw hired dozens of employees from Dr. Phil despite agreeing to slash production costs by terminating all ununionized employees and hiring local workers. He also refused to hand over old episodes of his talk show to Merit Street and make a $9 million payment for Peteski’s 30% interest in the company.
“Instead, McGraw brazenly demanded that TBN pay him $100 million to obtain a 50% interest in the media library,” states the complaint, which notes that he insisted that Merit Street enter into lucrative distribution deals with friends Steve Harvey, Nancy Grace (Cops) and Chris Harrison (The Bachelor).
When Trinity Broadcasting told McGraw that the funding would end, he urged the network to hand over ownership control of Merit Street in order to secure lucrative investments at a $425 million valuation. Relying on that representation, Trinity Broadcasting increased Peteski’s share in Merit Street to 70% while diluting its stake to 30% for nothing. Once the deal was finalized, McGraw described the plan as a “ganster move” to reduce the network to nothing more than a “passive minority investor,” the lawsuit alleges.
Trinity Broadcasting says it learned of Merit Street’s Chapter 11 filing in July, which allegedly wasn’t approved by its members on the board of directors. It accuses McGraw of plundering the company and plotting to pull the license for Dr. Phil for use at Envoy, his new venture.
The lawsuit advances several claims for fraud and breach of contract. It seeks a court order of both companies’ rights and obligations under their deal, as well as a ruling that McGraw agreed to hand over his library of old episodes of Dr. Phil as part of Peteski’s consideration for receiving a 30 percent stake in Merit Street.
More to come.
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