This is not necessarily related to Pokemon anymore as 4Kids no longer dubs the show or manages the franchise’s international licensing, but it is still interesting nonetheless. According to an article by The Hollywood Reporter, 4Kids is being sued by the makers of Yu-Gi-Oh for essentially embezzling money. The entire article has been reproduced below. This follows their loss of the Pokemon license and their dubbing rights to One Piece.
‘Yu-Gi-Oh!’ Creator Terminates U.S. Deal and Sues for Millions of Dollars (Exclusive)
According to the lawsuit, an audit turned up secret deals to defraud Japanese companies of anime profits
4Kids Entertainment has made quite a business out of taking Japanese anime programming like Pokemon and Yu-Gi-Oh! and dubbing it into English for the pleasure of U.S. children. Just how lucrative? The Yu-Gi-Oh! franchise, including a popular TV show and various merchandising, is said to have earned 4Kids over $152 million in income between 2001 and 2009.
But now, the Japanese animation studio that first created the anime hits is attacking, claiming that 4Kids owes it millions of dollars for making secret agreements with TV networks and home video distributors as well as making improper royalty deductions, including for the cost of the actual dubbing. As the result of alleged contractual breaches, the Japanese companies behind the show reveal they have just terminated their licensing agreements with 4Kids. They now want past money owed too.
TV Tokyo Corporation and Nihon Ad Systems filed the lawsuit last week in New York federal court.
According to the complaint, the plaintiffs exercised their right to audit 4Kids’ financial books in 2010 to see whether they were getting paid 50% of gross income, minus pre-defined expenses, as agreed upon in the original licensing agreement.
The auditor allegedly turned up some questionable accounting concerning deals made by 4Kids with the Cartoon Network and other parties.
For example, 4Kids is said to have made an agreement with Funimation Productions, giving it the right to exploit the YGO series on home video. “4Kids conspired with Funimation to fraudulently hide from Plaintiffs more than 45% of the total income Funimation paid to 4Kids from the sale of the home videos,” the complaint states.
Allegedly, 4Kids not only licensed YGO, but also several other Japanese animation series it didn’t own. Under the terms of this supposedly secret deal, which allegedly included a strict confidentiality clause, 4Kids didn’t have to do much besides perform certain marketing services. It was Funimation’s job to produce and distribute the series, and for this right, Funimation paid a $1.3 million advance and gave over nearly $4 million in a service fee, which was allegedly then hidden from the plaintiffs.
4Kids is said to have made a similar “strictly confidential” deal with Majesco Sales Inc. to produce and distribute videos of the YGO episodes on Nintendo’s Gameboy Advanced game system, and allegedly never turned over any royalties.
The complaint also details some improper deductions, including more than $2.5 million worth of international withholding taxes, bank charges, insurance coverage, YGO style guide art, the cost of the audit itself, and even the cost of the dubbing. TV Tokyo says 4Kids “expressly agreed to bear [such costs] under the agreement.”
After the auditor’s report, the parties met in February to discuss the situation. The plaintiffs are said to have made an offer, which was rejected. After further discussions, on March 17, 4Kids wired $1 million as a “good faith” initial payment. The next day, reps for the Japanese companies flew to the U.S. for a final meeting to see if they could resolve the mess.
“4Kids abruptly terminated this meeting without a resolution to any of the outstanding issues,” says the complaint.
In response, TV Tokyo Corporation and Nihon Ad Systems have cancelled the agreement and filed a lawsuit, seeking more than $4 million in damages and other relief for breach of contract and fraud. The legal dispute also leaves the future of some of the most popular Japanese programming on U.S. television in some doubt.
Attempts to reach 4Kids for comment were unsuccessful.
To be honest, this behavior is not surprising – 4Kids has been employing questionable practices since before even Pokemon’s time. Roland Kelts, author of the book Japanamerica, spoke at the New York Anime Festival in 2008 where he revealed that 4Kids essentially took advantage of the Japanese when it bought the rights to Pokemon (described below). In retrospect, it is no wonder why TPCi (previously PUSA) took their licensing away when they had the chance in 2006. I still remember PUSA officials telling me then that 4Kids was asking for too much money when their renewal came up (on the franchise’s 10th anniversary); it seems like Pokemon learned from their previous mistake and acted on it by denying the company its licensing and dubbing rights and doing it themselves in-house. And it also seems like these other companies from Japan that are dealing with 4Kids are beginning to catch on as well.
Kelts began his discussions with the Pokemon phenomenon, when the game and cartoon exploded on the American consciousness in 1998. He also briefly digressed to relay the tale of how 4Kids’ Al Kahn managed to get the Japanese owners of Pokemon to sign over subsidiary rights in return for a paltry $10 million, mostly because Pokemon’s Japanese owners at Shogakukan had no legal team on staff to process the thick contract and didn’t understand what they were signing away. Kelts related that Shogakukan’s Masakazu Kubo told him, “That was our fault. If you do business with another country, you have to learn how that other country does business,” even though this simple mistake ultimately cost them millions of dollars.