Updated: “The Wizard of Spin” says he’s expanding, but the company’s earnings fell nearly 80% last quarter
(Updated: 11:37 a.m. PST)
Michael Sitrick is the biggest name in crisis management, but the public relations guru is grappling with plunging earnings and a stream of executive defections that have set tongues wagging.
In the past, the so-called “Wizard of Spin” has applied his dark arts to everyone from Paris Hilton to Rush Limbaugh, using a cocktail of charm and combativeness to help his clients emerge from scandals relatively unscathed.
However, cracks appear to be showing in Sitrick's aura of invincibility, nearly two years after he sold his company together with partner Brincko Associates, a corporate restructuring firm, to the professional services firm Resources Global for $44.7 million in cash and stock.
Also read: 'Wizard of Spin' Sitrick Sued by Ex-Employee
TheWrap spoke to several former Sitrick employees who claim that business has slowed. Beyond that, public documents show that revenue at the still-profitable Sitrick Brincko Group, as it is now known, is indeed falling.
During its most recent quarter, pre-tax earnings at the Sitrick Brincko fell 79 percent to $193,000, down from $945,000 in the year-ago period, according to documents filed with the Securities Exchange Commission by parent company Resources Connection.
Revenue for the three-month period fell 21 percent, from $6.2 million a year ago to $4.9 million. Indeed, revenue has slid for the past three consecutive quarters.
Six Sitrick executives have left since Jan. 1. They were either lured away by other firms, had their positions eliminated, or quit because of concerns that the company wasn’t hitting the marks needed to secure bonuses.
Among the departures were executive VP Glenn Bunting and San Francisco-based executive David Satterfield, who left to start their own firm, GF Bunting.
Also leaving were Tom Vogel of Sitrick’s New York office, who started his own firm, Rachlan Stategic Communications, and Maya Pagoda, a member of the firm’s bankruptcy team.
The departure of Chris Marlin, the lone member of Sitrick’s Miami office, effectively closed the firm’s operations in Florida.
Joe Giunta, the firm’s general counsel, left because his position was deemed redundant, according to Sitrick.
Looming over it all is a lawsuit brought against Sitrick by two former employees, Richard Wool and Allan Mayer, that alleges that he manipulated the value of an employee stock ownership plan (ESOP) to buy back shares of the company at a steep discount. The suit is heading toward a settlement, according to an individual with knowledge of the litigation.
For his part, Sitrick denies that his firm’s place in the public relations firmament is in jeopardy and said that people had left for a variety of reasons.
That opinion is seconded by Lew Phelps, an executive at the company, who said that the number of people who have left the company is far below the industry average.
"Some people don't work out," Phelps said. "This is a demanding business. We have to deliver for clients in life-or-death situations, but I think the turnover rate at the company is really low."
For his part, Sitrick tells TheWrap that even though the number of bankruptcies the firm is handling is lower than he had hoped, the rest of his business is still strong and it's expanding. He said the firm plans to open an office in London and add staff to its San Francisco, New York and Denver offices.
The company has 235 clients, including such big gets as the Michael Jackson estate.
What makes Sitrick Brincko’s sluggish earnings potentially problematic is that it directly impacts the compensation of many of his top executives.
"Different segments of our business have different cycles," Sitrick said. "We have never managed for the short-term. Rather, we focus on doing what is in the best interests of our clients and the firm for the long-term. This approach has enabled us to dramatically grow the business over the past 23 years and earn a reputation as best-in-class."
Though employees did not receive any money from the sale of the firm to Resources, the understanding was that many executives would be rewarded on the back-end.
As part of the pact with Resources, Sitrick had the potential to earn tens of millions after a four-year period ending in November 2013, if the firm averaged at least $11.3 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) during that period. Sitrick told employees that they would share up to 20 percent of those proceeds if the company exceeded those numbers.
Resources does not break out EBITDA, but it appears that the Sitrick Brincko will fall short of its most optimistic marks. Resources has reduced the amount of money it set aside to pay out any back-end from $59.8 million to $33.4 million, according to recent filings.
The slide may be partly attributable to the fact that Sitrick’s earnings are reported with Brincko Associates. At the time, the company was hoping that by merging Sitrick and Brincko, Resources could become a one-stop shop for corporate bankruptcies. Sitrick would put out public relations fires, while Brincko mopped up the finances, racking up big fees along the way.
So far, it hasn't worked out according to plan. The number of Chapter 11 filings have dried up in recent months, which appears to have had a direct impact on Sitrick Brincko’s balance sheets.
Of course, all it would take is one massive bankruptcy, and the flush times at the crisis management shop might return.
To that end, Sitrick says he has a number of high-profile opportunities on the horizon.
“I remain bullish on the business,” Sitrick said. “I love doing this. I don’t have any hobbies.”