Midway to sell Mortal Kombat?

Struggling publisher Midway, currently in Chapter 11, is to put Mortal Kombat up for sale.

In court filings, Midway is seeking permission for an employee incentive plan covering 29 employees worth $3.8 million (they have to ask the court for permission for this kind of expenditure now that they are in Chapter 11 bankruptcy.) The incentive plan covers:

• Signing a publishing/distribution agreement for Midway’s Wheelman game (already achieved following a publishing deal with Ubisoft), performance by Midway entitling it to $6 million and receipt of those proceeds. This is worth $500,000.
• EITHER agreeing an asset purchase agreement for the Mortal Kombat franchise OR submitting a reorganisation plan to the courts:  $1.3 million
• EITHER completion of the sale of the Mortal Kombat franchise or acceptance by the courts of  reorganisation or liquidation plan: $1.5 million.

The most recent iteration of the Mortal Kombat franchise, Mortal Kombat vs DC Universe, is reported to have shipped almost 2 million units, according to CEO Matt Booty.

It’s worth pointing out that Midway was acquired from financially-stricken media mogul Sumner Redstone for $100,000 and the assumption of $70 million in debt in December 2008. If investor Mark Thomas is one of the 29 employees included in the court documents, then he may stand to have his investment repaid, even as Midway staggers its way towards bankruptcy. (As an aside, the Chicago Tribune says bondholders are very keen to discover the identity of the secretive Mark Thomas and allege in a filing that “there must be a connection between Redstone and Thomas given that Redstone essentially gifted his rights in [Midway] to Thomas.”)

It will be fascinating to see if Midway can sell the franchise without a developer, and if so, for how much. The last pure intellectual property (meaning just the rights to a brand, not a developer with IP, talented staff, tools and the rights to historic royalties) that I can remember being sold was when Atari sold the rights to Civilization for $22.3 million to Take Two in January 2005. At that point, Civilization was said to have sold over 5 million units in its 15 years of existence, and Mortal Kombat must have beaten that (I can’t find any figures at the moment, please comment if you know how well the series has done.)

It seems likely that Midway will be forced to sell its IP. The key question is whether buyers will stump up for this premium asset or, given Midway’s distressed status, will be able to force the price down.