MatPat and DEFY Media - Does anyone have more info?

[Son of A Lich!]

MatPat has put out two videos about DEFY Media (The Multi-Channel Network he was partnered with) and 1.7 million dollars they "Stole" from 50 channels when the company closed out.


https://www.youtube.com/watch?v=ACNhHTqIVqk

Full disclosure - I'm not an entrepreneur, business finance expert, foreclosure expert or anything of the ilk.

I just have a really hard time trusting MatPat at face value.

Other channels, such as Smosh, that have gone under due to DEFY's sudden closing have stated that they were part of a partnership where they were being paid in part with private stocks of the company, and since the company has gone under, they are being held responsible for the debts incurred by DEFY. If they have 10% of the stocks in the company, they are owing 10% of the red ink.

Ally Bank, the bank that gave DEFY media their loan, hadn't been receiving minimum payments and as such, closed the company out. The Stocks that were supposed to be an investment and generate dividends to the channels outside of personal views and generate revenue for the content creators has instead turned into an albatross on the neck of these channels.

But MatPat has never said anything about the company offering private stocks as part of their pay. He has gone to great lengths talking about how DEFY received the money from YouTube and was to pay them out to the channels, and implies that the second half of that transaction never happened without outright stating this is the case. He talks about how MCNs look like great investment opportunities on paper, due to receiving this revenue from the channels, but is actually an empty company that doesn't actually have a means of generating money without taking it from content creators.

Am I off base here? Or does it look like MatPat had a substantial amount invested into DEFY that is coming back to bite him, and he's making Ally Bank look like the bad guy for not giving him the money from his channel's earnings, due to how much he owed when DEFY went down.

I don't know enough about Business law and finances to make a solid argument, but this seems off to me and if nothing else, I'd like to know more info from a third party non-biased source.

I guess in the era of Paid Content, MatPat's first video sounds like an advertisement for his own MCN to my ears.He establishes a need for the product, warns about competitors, establishes what he does differently and assures that he's just an honest do good spirit whose been hurt before.

This just doesn't seem right to me.

Thank you.

[Calemyr]

This just doesn't seem right to me.

Thank you.

As I follow it, the argument is this:

1) Channel does their thing. Viewers endure advertisements while watching their work
2) Ad revenue is generated
3) YouTube sends a check for this revenue to MCN
4) MCN takes their share and sends the rest to the channel
5) Channel pays their bills and the wages for their staff and continues doing their thing, return to step one, hopefully with everyone a little richer and a little happier.

When Defy died, it still had $1.7 Million in money it hadn't sent to the channels it represented, which should have been paid out in step 4. This money was rightfully earned by the channels already, with Defy having no ownership of it (it's share had already been taken). Yet this money is now being used to pay back Defy's debts rather than being returned to the people it rightfully belongs to. Meanwhile, the channels that earned that money, some of which live paycheck to paycheck, just lose out because Defy kept their money on their way down.

The catch of this is, an MCN is pretty much a shell company. They don't have any assets beyond the ad revenue. They provide a service* and take a cut of the earnings. When they fold, there's not much of anything to sell off to pay the debts that are owed. Like a guy dying with a colossal bar tab. Some people, no, scratch that, a lot of people are not going to see the money they're owed.

The YouTubers (including MatPat) believe that their money should be considered just that: their money and not assets of Defy to be parceled off to pay off Defy's debts, with MatPat arguing that their stake is money rightfully earned while the bank's stake is dividends to an investment and thus shouldn't be considered equivalent.

From my perspective, the only "bad guys" here are the ones at Defy that mishandled the money so poorly as well as misled investors and clients so fantastically. The bank is looking after its own, just like the YouTubers are, their priorities being different because their perspectives are different. And competing.

* The service they provide is largely to be the big guy standing over the channel's shoulder when others try to cheat them, be it from stealing their work for their own channels, making copyright claims on things that don't belong to them (or are protected by Fair Use), or otherwise trying to strongarm or injure a channel that lacks the muscle to fight back. It's kinda like hiring a security company to protect your house: hopefully they never have to lift a finger for you, but hopefully their very involvement will keep the vultures looking for easier pickings.

Hopefully that makes sense.

[Rater202]

The argument I've seen is that since the money does not legally belong to Defy, it can't legally be treated as Defy's money so if Ally Bank takes the money they'd be commiting what is legally theft.

I don't know if that holds up in th letter of the law, but it's certainly the spirit of the definition.

And it's a known factor that Banks have been able to get away with things to increase their profits that are, in fact, illegal(Off the top of my head, delaying withdrawle and deposti orders to garruntee overdrafts, which is Fraud, being met with a politly worded letter asking them to stop) Matpat istaking it to the Court of Public Opinion to get Ally to give the money to the people it legally belongs to.

Regardless of how things go, that Money doesn't belong to Defy or to Ally Bank but to the people who signed on with Defy, many of whom only did so becuase Youtube wouldn't let them monetiz their videos or let them use certain perks if they didn't sign up with an MCN.

And even ignoring who legally owns the money, who is best able to eat a loss:

The million dollar banking institution that knowingly took a risk?

Or the 50 small businesses who will fold if they don't get this money and who had no choice but to sign up with Defy or a similar shell?

[Z3ro]

Without doing some more digging I can't answer more questions, but here's one I can:


Other channels, such as Smosh, that have gone under due to DEFY's sudden closing have stated that they were part of a partnership where they were being paid in part with private stocks of the company, and since the company has gone under, they are being held responsible for the debts incurred by DEFY. If they have 10% of the stocks in the company, they are owing 10% of the red ink.

If they were awarded company stock, it is highly unlikely they will be responsible for any corporate debts.* One of the primary reasons you start a corporation in the first place is so you won't be personally liable for debts incurred by the company.

ETA:

The argument I've seen is that since the money does not legally belong to Defy, it can't legally be treated as Defy's money so if Ally Bank takes the money they'd be commiting what is legally theft.


It's highly likely the MCN signed an agreement with the content creators that, essentially, says it is their money. If that is the case it wouldn't be theft; it would be breach of contract and have nothing to do with the bank's actions.

* Not to say there's no way they could be; depending on exactly what happened and what type of agreement they signed they could be.