SpongeTech In Hot Water?
Is SpongeTech, the company that picked up cut-rate sponsor inventory from defunct companies during the financial fallout, now in trouble with the S.E.C.? The Securities and Exchange kind.
The New York Post ran a story this morning on the S.E.C.'s suspension of SpongeTech from trading due to questions "raised about the accuracy and adequacy of publicly disseminated information concerning the penny-stock company's sales, revenues and investment agreements."
You'll recall that "the smarter sponge"-maker has has been on a tear signing signage-based sponsorship deals with 28 Major League Baseball teams, 9 National Football League teams and most recently the USTA/U.S. Open. Last month in fact, they released a letter to shareholders to update them on all of the activity.
Meanwhile, separate of that case, SpongeTech has filed a trademark infringement lawsuit against a California company of the same name. According to the Post, critics have charged "that SpongeTech officials hoped to rally shareholders and increase the stock price."
The S.E.C. issued a brief statement yesterday stating:
The Commission temporarily suspended trading in the securities of SpongeTech because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the amount of sales and customer orders received by SpongeTech, investment agreements entered into by SpongeTech, and SpongeTech's revenues as reported in its financial statements. In addition, SpongeTech has not filed any periodic reports with the Commission since the period ended Feb. 28, 2009.
Meanwhile, The Post says that their own efforts "to locate some of SpongeTech Delivery Systems' biggest customers fell flat last month; it could not confirm the phone numbers and addresses for those customers, which the company provided."
Aside from all of this, SpongeTech may soon be delisted as an OTC stock because of a share price hovering around $.06.
SpongeTech got heavily into sports sponsorship after the financial meltdown created a unique opportunity, according to ESPN The Magazine's Tim Keown:
They would approach professional sports teams with the idea of taking over in-stadium advertising space previously used by companies that were either defunct or not interested in taking huge bailout funds and having to answer questions about why they're spending to litter America's backstops.
"We took up a lot of the advertising space that had been used by AIG," SpongeTech COO Steven Moskowitz told Keown.
"It was the perfect opportunity buy, and the SpongeTech suits were smart enough to lock into three-year deals at the down-market rates, thereby ensuring that anybody who wants to learn about the company won't have to worry about forgetting it exists, providing it still does," Keown wrote last month.
SpongeTech isn't shy about talking about its own financial performance or its use of sponsorship as a pure play media buy. SpongeTech's website says "SpongeTech's multi-media marketing strategy is making millions of memorable impressions every day." The firm's financial and sponsorship activities are so intertwined that on some signage they have even carried the term "publicly traded" as in the video above.
Meanwhile St. Petersburg Times business columnist Robert Trigaux offers up a cautionary tale:
It's not the kind of publicity pro sports teams like, even if they are hungry to sign up any and all potential corporate sponsors. In early 2008, the Tampa Bay Rays were forced to sue Tampa-based Academic Financial Services Inc. over the sponsor's failure to honor the parties' three-year, $1-million sponsorship contract.
With SpongeTech so publicly tied to teams through prime ballpark real estate, you can bet that even in the instance properties have secured their fees they will be keeping a close eye on how these developments shake out, especially since many stadiums advertise SpongeTech as "publicly traded: SPNG" to their fans and customers.