Dr. Phil took the stand on Tuesday in a trial that will decide the fate of his media startup’s bankruptcy, a case that involves allegations that he plundered the company to set up his new venture.
His testimony, lasting hours, was defiant. At every turn, he challenged accusations that he swindled partner-turned-adversary Trinity Broadcasting under a $500 million, 10-year deal.
“I’m like the little engine that could,” said Dr. Phil, whose surname is McGraw, referring to the months leading up to the bankruptcy in which Merit Street was starved for cash. “I’m doing everything I can to keep Merit up and running. This theory, that this was all a ploy to set up Envoy Media, is absurd.”
He was asked about his motivation to abruptly move for Chapter 11 protection.
“I didn’t make the decision to file for bankruptcy,” McGraw replied. “I capitulated.”
McGraw’s Merit Street is simultaneously in bankruptcy court and suing Trinity Broadcasting for breach of contract over its downfall. At the same time, the TV host is launching an entirely new venture called Envoy Media. It’s mostly the same as Merit Street but with a user-generated twist. The new company will feature stories from citizen journalists, breaking news and original programming from McGraw and collaborator Steve Harvey.
Trinity Broadcasting, in turn, sued Merit Street, arguing that McGraw initiated the proceedings to protect his own interests. The trial will determine the legitimacy of the company’s Chapter 11 filing.
Among the chief discussion points at Tuesday’s hearing: McGraw’s maneuvering to gain majority control of Merit Street to secure lucrative investments from family and friends at a $425 million valuation. Relying on that representation, Trinity Broadcasting increased McGraw’s stake in Merit Street, via his production banner Peteski, to 70 percent while diluting its own stake to 30 percent.
At a federal courthouse in downtown Dallas, McGraw denied assertions that he only paid $7,000 in that deal. “That was paid by Peteski,” he said. “There was other compensation too, like agreeing not to sue for default to Peteski for millions of dollars and for agreeing to continue to work for free and continuing to manage the corporation.”
Once the deal was finalized, McGraw described the plan as a “gangster move” to reduce the network to nothing more than a “passive minority investor,” according to Trinity Broadcasting’s lawsuit.
At the hearing, McGraw doubled down on his position that the transaction was beneficial for both sides.
“This was a four to five year journey and, if they had stayed in long enough, it would have been the best investment they ever made,” he said.
Under a purported $500 million, 10-year agreement, Trinity Broadcasting would provide production and distribution services to Merit Street and Peteski, in turn, would provide new content, including 160 new episodes.
The relationship turned sour last year when it became clear that McGraw couldn’t deliver the viewership numbers, product integrations and advertising revenues he promised to Trinity Broadcasting, the company alleged. It said it spent more than $100 million by the end of June, some of which had to recorded as loans to Merit Street. That figure ballooned as Trinity Broadcasting continued to funnel up to $13 million into the production per month while McGraw failed to deliver a single episode, though a spokesperson for the TV host has said that 214 new episodes of Dr. Phil Primetime aired on Merit. (The vast discrepancy about what “delivered” entails and which episode orders factor in to the Trinity deal mean there’s a lot of fine print in dispute.)
McGraw was questioned on a text allegedly supporting allegations that McGraw decided on suing Trinity Broadcasting in May to rid itself of debt, with plans to launch Envoy Media. “I’m suing TBN, and they’ll get what they get,” the message from him read.
At this point, “I’m doing everything I can to keep Merit Street on air,” he explained. “Any deal I can make. Anything I could do.”
Earlier in the trial, Trinity Broadcasting president Matt Crouch suggested that Merit Street viewership was concerning. McGraw on Tuesday challenged the assertion.
“I sat here listening to Matt say no one was watching,” he said, drawing an admonishment from the court and impeachment from Trinity Broadcasting’s lawyer. “We’d gone up 51 slots since launch, probably the most successful launch in a decade. We had millions of people watching. I don’t know what he’s talking about. The last thing I wanted to do was sue TBN or shut down Merit Street.”
Merit TV’s linear channel struggled in the year it produced original programming, averaging under 50,000 viewers in primetime for most of that period. Currently, the channel is populated by reruns of McGraw’s various shows, with no new content. It may soon be dropped by distribution partners.
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