Jury in Parlux vs Jay-Z vs Parlux: A Pox on Both of Youse

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Round 2: Parlux Comes Out Swinging at Jay Z

Today, attorneys for plaintiffs Parlux Fragrances and Perfumania filed a blizzard of documents in their ongoing lawsuit against Jay Z. Why? Because at oral arguments on February 28, Jay Z’s side attempted to have key elements of the Parlux complaint tossed out, and Judge Ramos said no.

That opened the way for Parlux to fire the big guns today. They asked the court to compel Jay Z and his company, S. Carter Enterprises, LLC, to produce a ton of documents and to answer interrogatories, i.e., a laundry list of questions regarding the dispute. And they want things to happen quickly—they asked for a hearing on their motion to be held on June 14.

The attorneys are making liberal use of the protective order granted by Judge Ramos that allows them to redact sensitive information or file it under seal. Of the fifteen documents filed by Parlux today, six exhibits are under seal and two others are partially redacted. Still, FirstNerve can fill you in on the big picture.

Parlux claims Jay Z was contractually obligated to be available to market, develop and promote the Gold Jay Z fragrance; yet he nevertheless failed to fulfill these obligations. Therefore, Parlux is demanding relevant information as to why; in particular, they want details about  Jay Z’s schedule at the time and his obligations to other brands and business ventures. Parlux is also asking Jay Z’s side to put up or shut up regarding its counterclaim for damages owed to Jay Z; in other words, get real and tell us how you arrived at the dollar number you are demanding from Parlux.

Although Plaintiffs duly paid the royalties which ultimately inured to the benefit of Jay-Z, Defendants simply refused to uphold their end of the bargain. As Defendants’ counsel acknowledged at oral argument in open court in February 2018, Jay-Z did not show up to a single personal appearance over the entire life of the license.

The brief goes on to quote the same damning courtroom exchange that FirstNerve highlighted.

Parlux recounts how Jay Z bailed on planned November 2013 launch events at Macy’s and Sephora with only a couple of weeks notice, adding:

The November 2013 events are not the only time Parlux sought the required input and involvement from Defendants only to be rebuked and/or ignored. In fact, numerous documents produced in this case demonstrate that this was the modus operandi of the Defendants for the entirety of the contractual relationship. As early as April 30, 2013 – months before the scheduled launch of the initial fragrance – Defendant Jay-Z indicated his unwillingness to meet his contractual obligations.

According the brief, Parlux repeatedly tried to arrange meetings, only to be told by Jay Z’s team that the star was “unavailable.” The brief includes a redacted quote from an internal Jay Z email, after which the Parlux team states:

Apparently, taking the money and not doing the work is Jay-Z’s mantra.

The Parlux brief goes into great (often redacted) detail with respect to Jay Z’s repeated “non-collaborative attitude and stonewalling” which continued throughout 2013 and into 2014. The Parlux brief contains several redacted quotes from emails sent by Jay Z and Desiree Perez, the COO of S. Carter Enterprises (herself an interesting character). On what basis were these quotes kept from public view? [Foul language?—Ed.]

Included in today’s filings by Parlux are the interrogatories for Jay Z and S. Carter Enterprises (SCE) that were sent originally in May 2016. Interestingly, the questions extend to three other Jay Z enterprises: Artistic Brands Development LLC, Marcy Fragrance Trading Co. LLC, and Roc Nation Sports.

Among other things, Parlux wants to know the current disposition and/or ownership of 300,000 shares of Perfumania common stock and 800,000 Perfumania warrants that were given to Jay Z et al. as part of the perfume deal. Also, Parlux is still sore about that missing 18-carat gold dummy bottle of Gold Jay Z; thus they demand:

14. All documents concerning the location of the 18-carat gold GOLD JAY Z bottles designed by Jacob the Jeweler.

Given Jay Z’s many business deals, this demand is a doozy:

20. All documents concerning any effort that SCE or Carter undertook to promote, market and/or support any of the other brands and/or ventures that SCE or Carter own, or in which they otherwise have a financial interest.

In the February hearing, Judge Ramos expressed puzzlement as to why this case it taking so long. If the Parlux brief is to be believed, it is because Jay Z’s attorneys are deliberately dragging their feet. Expect that to continue, but also expect Judge Ramos to turn up the heat and get the case moving.

Jay Z’s Legal Team Takes It on the Chin

Fragrance industry lawsuits have great entertainment value. They give us a glimpse into the commercial wheeling and dealing that goes on behind the perfume world’s facade of glamor, romance, and sophistication. They expose the gritty, greedy, and unsentimental nature of the business, often along with juicy personal details about the players.

One such legal epic began in January, 2016 when Parlux Fragrances sued Shawn “Jay Z” Carter for $18 million. Parlux alleged that Jay Z had failed to promote the Gold Jay Z fragrance as he was specifically required by the license agreement. The following May, Jay Z denied the Parlux claims and filed a counterclaim of his own, asking for about $2.7 million from Parlux for, among other things, more than a million dollars in unpaid guaranteed minimum royalties.

I covered the initial legal skirmishes here, here, and here. Since then, lawyers for Parlux and Jay Z have battled about boring procedural matters. They also crafted an agreement designed to keep details of the Jay Z license agreement out of public view in court filings.

In May, 2017, Jay Z’s lawyers filed a motion for partial summary judgment. They claimed that by continuing to sell Gold Jay Z, Parlux is making “substantial revenues” and yet has failed to pay Jay Z the guaranteed minimum royalties specified in the license agreement. They asked the judge to find Parlux in breach of contract and to declare that Parlux is liable for the ever-growing pile of guaranteed minimum royalty payments. The Parlux lawyers maintain the company doesn’t owe Jay Z a cent, because the contract became a dead letter when Jay Z himself breached it in the first place by failing to promote Gold Jay Z.

Finally, on February 28, 2018, oral arguments took place at the courthouse at 60 Centre Street in lower Manhattan. Things got off to a crackling start and did not go well for Jay Z’s attorney, Gianni Servodidio. The transcripts, sections of which I provide here, make for great reading. They’re better than any courtroom TV drama.

THE COURT OFFICER: All rise. Part 53, New York County Supreme Court is now in session, the Honorable Charles E. Ramos presiding. Be seated and come to order, please. Turn off all cell phones. There is absolutely no talking in the courtroom while the Judge is on the bench.

THE COURT: Good morning.

MR. SERVODIDIO: Good morning, Your Honor.

MR. VIOLA [Parlux attorney]: Good morning.

MR. LICHTMAN [Jay Z attorney]: Good morning.

THE COURT: All fit and ready to proceed with the motion?

MR. SERVODIDIO: Thank you, Your Honor. Good morning, Your Honor. I am Gianni Servodidio, representing the defendants and the counterclaimants S. Carter Enterprises and Shawn Carter. We’re here on a narrow claim today for partial summary judgment for unpaid royalties due under the parties’ license agreement. This motion can be decided based on the very straightforward and simple contractual principle. Under the —

THE COURT: If it was that simple, you wouldn’t be here. You know that and I know that.

MR. SERVODIDIO: Under the election of —

THE COURT: Let me ask you a question: Look —

MR. SERVODIDIO: Yes, Your Honor.

THE COURT: The plaintiff’s position is that they’re not taking advantage of Jay-Z’s license. They’re just selling the inventory that they have in order to mitigate damages. I’m not sure if it’s in the papers or not; I read most of the file. Have you conducted discovery here to the point that — do we know if they’re still manufacturing and bottling under license or is this, in fact, just inventory that they’re getting rid of?

MR. SERVODIDIO: Your Honor, it’s undisputed that they’re continuing to sell licensed products and have done so —

THE COURT: That is not the question I’m asking. Are they still bottling this stuff?

MR. SERVODIDIO: Your Honor, that’s not relevant to the motion that is before the Court.

THE COURT: You know, when I ask you a question, I expect a direct answer.

MR. SERVODIDIO: Yes, Your Honor.

THE COURT: If you’re not going to answer my questions, you can leave.

MR. SERVODIDIO: No. I’m sorry, Your Honor, there is no discovery that’s been conducted on that issue. And, with respect, that it is not germane to this narrow motion. The issue is whether they terminated the contract. And it’s really simple, Your Honor. They never exercised the termination of the contact. It’s simple how to do it. You have to send a notice of breach, which they did. And then you have to follow up with a second thing, which was an actual notice of termination required under the contract. They never did that. Instead what they did was continued — it’s undisputed that they continued to sell licensed product. We’re going on our third year anniversary of sales of licensed products amounting to millions of dollars. They’ve sent us an affidavit from their president —

There follows a lot of give and take about terms of the contract and relevant court decisions in other cases. Judge Ramos was not in a particularly forgiving mood that day. By the time things wrap up, we can imagine the flop sweat glistening on Mr. Servodidio’s forehead.

MR. SERVODIDIO: . . . And what these cases say clearly is that the mere assertion of a [rescission] claim isn’t enough.

THE COURT: On the other hand, here I have an apparently admittedly breaching party saying this is a slam dunk, please pay me.

MR. SERVODIDIO: Your Honor —

THE COURT: At the very least, at the very least don’t I have to consider that this was a mitigation of damages, the selling off of the inventory, number one; and number two, that your client breached?

MR. SERVODIDIO: Your Honor —

THE COURT: I can’t ignore that.

MR. SERVODIDIO: In every single case that we cite today, Your Honor, there is an allegation that the licensor breached. And in some cases —

THE COURT: Is there a denial here that Mr. Jay-Z didn’t show up?

MR. SERVODIDIO: Absolutely. The claim for breach is absolutely disputed and is the subject of hotly contested discovery right now.

THE COURT: Let me ask a very specific question; if you can’t answer it, don’t answer it, because I know you weren’t there. Did Jay-Z appear in New York as required under the contract?

MR. SERVODIDIO: There’s — there was no personal appearance, Your Honor, and that is the — we have defenses for that under the contract.

THE COURT: Motion denied. Thank you very much.

MR. VIOLA: Thank you, Your Honor.

MR. SERVODIDIO: Thank you, Your Honor.

Ouch. That’s gotta hurt.

Having failed in their pre-emptive counterattack, it looks like Jay Z’s team will now have to deal with the non-performance claims brought against their client by Parlux.

Exit question: Which TV actor should play Gianni Servodidio on the inevitable Netflix docudrama?

Parlux Prez: Jay Z Won’t Give Back Our 18-carat, $20,000 Gold Prototype Bottle

Parlux President Donald Loftus

Parlux Fragrances is suing Shawn “Jay Z” Carter and his company Shawn Carter Enterprises for $18 million for allegedly failing to promote the Gold Jay Z fragrance, and for failing to cooperate in the development and launch of subsequent flanker products in the line. Carter denies the charges and claims that Parlux, in fact, owes him $2.7 million.

New York Commercial Division Judge Charles E. Ramos agreed to let the two sides in this dispute redact whatever they like from documents they file publicly with the court. While keeping proprietary information and certain contract terms under seal is routine in commercial litigation, my understanding is that New York state courts usually require justification for each item placed under seal; they don’t simply grant the parties carte blanche to hide whatever they like. But, hey, Jay Z is super-famous and rules are for the little people.

The upshot is that some documents filed with the court have been redacted in their entirety. Others have certain items blacked out, such as an internet URL. [You mean, like “http://www.firstnerve.com/2016/01/however-in-fragrance-industry-it-is.html”?—Ed.] [Yeah, exactly like that.]

Well, a few tasty tidbits do make it past the litigants’ cone of silence. One is the affidavit of Don Loftus filed by the Parlux attorneys on June 9, 2017. Loftus, the former head of Procter & Gamble’s prestige fragrance division, joined Parlux as its president in 2013, the year after the company made its ill-starred and mind-numbingly complex licensing deal with Jay Z and his various entities.

In his affidavit, Loftus recites the particulars of Jay Z’s alleged non-compliance with the terms of the deal. It’s all good, but our favorite part is item 12 (redaction courtesy of Parlux and/or Jay Z legal team):

Item 12 reads: “In addition, Parlux designed and created a prototype GOLD JAY-Z bottle with an 18-carat gold cap and poured gold exterior at a cost in excess of $20,000 to be used in a promotion. Not only did Jay-Z reject the design, but he kept the bottle and refuses to return it.”

“Let me tell you about the very rich. They
are different from you and me.”

F. Scott Fitzgerald
The Rich Boy, 1926

Parlux vs. Jay Z: Why does a celebrity stop promoting his own fragrance?

 In January, Parlux Fragrances filed an $18 million lawsuit against Shawn “Jay Z” Carter and his company for allegedly failing to promote the Gold Jay Z fragrance as explicitly set out in the contract. Parlux also claims Carter refused to participate in the development and launch of flanker products, and that as a result sales of the stand-alone fragrance withered. The Parlux complaint asked for Carter to return 300,000 shares of Perfumania stock (Perfumania is the parent company of Parlux) and 800,000 Perfumania stock warrants that he received as part of the licensing agreement. Parlux also demanded $18 million for compensatory and punitive damages as well as legal fees.

Via my reporting on Twitter @scienceofscent, you can see the legal jousting took a while to get going.

Jay Z sued by his perfume company—I read the court filing so you don’t have to. My take is here: https://t.co/f04E6j1zZK

— Avery Gilbert (@scienceofscent) January 29, 2016

Jay Z gets served. Parlux Fragrances finally finds a law firm to slap their papers on. https://t.co/QPJHz6mZM2#wakemeupwhenitsover

— Avery Gilbert (@scienceofscent) March 29, 2016

BREAKING: Parlux lawyers give Jay Z’s legal team thru April 29 to respond to their $20mill lawsuit.#wakemeupwhenitsover

— Avery Gilbert (@scienceofscent) April 5, 2016

Jay Z’s lawyers ask for more time to respond to $20mill #perfume lawsuit. Parlux agrees, moves deadline to May 6.#BusinessEndOfTheBlotter

— Avery Gilbert (@scienceofscent) April 29, 2016

Well, Jaz Z’s legal team made good on the extended deadline and filed an “Answer and Counterclaim” on May 6th. That same day I kicked off a long visit to California and a short one to Texas. Only now have I managed to wade through all twenty-two pages of Jay Z’s response.

Here’s the bottom line:

Jay Z denies most of the allegations in the Parlux complaint. In his own defense, he accuses Parlux of unreasonable delay in bringing its claims, of acting unethically or in bad faith, and contends that Parlux has not, in fact, suffered actual (as opposed to speculative) damages.

Besides denying the Parlux charges, Team Jay Z makes several counter-claims of its own, namely that Parlux: failed to make royalty payments to Jay Z as specified by the licensing agreement, failed to pay for advertising and promotion of the Gold Jay Z brand as specified by the licensing agreement, and failed to provide accounting reports as specified by the licensing agreement. Jay Z also has some demands for Parlux:

An award of damages to [Shawn Carter Enterprises] and Shawn Carter [personally] in an amount to be determined at trial, presently including past due royalty payments of at least $1,187,500, past due advertising shortfall of at least $1,528,425, and other damages including, but not limited to, future lost profits, lost goodwill, and lost business opportunities.

So basically, Jay Z is telling Parlux “no I didn’t” and “in fact, you owe ME $2.7 million.”

I think I detect, under this mass of tangled cross-dealings, what may have motivated Jay Z to cease promoting his celebrity fragrance.

Recall that Jay Z originally licensed the commercial use of his name to Shawn Carter Enterprises (SCE) which he owns 100%. SCE then licensed the perfume rights to Artistic Brands Development (ABD) on April 18, 2012 in return for stock, upfront payments, guaranteed future royalties, and guaranteed spend on brand advertising. That same day ABD sub-licensed the perfume rights to Jay Z’s name to Parlux, which assumed all the rights and obligations of ABD under the license agreement. This is the basis on which Jay Z now counterclaims payment from Parlux.

Here’s the weird wrinkle: 40% of ABD was owned by Marcy Fragrance Trading Co. LLC, a company 100% owned by none other than . . . Shawn Carter. So it looks to me like Carter wrote a nice, plump deal with himself, and convinced Parlux to agree to pay for it. Which they apparently did, to their eventual regret. If, as he now claims, Parlux failed to deliver on the minimum guaranteed quarterly royalties that Jay Z had negotiated with himself, the lack of an ongoing income stream could explain why he lost interest in making any active contributions to the promotion and brand extension of Gold Jay Z.

It’s hard to feel much sympathy for either side in this dispute.


The lawsuit discussed here is Parlux Fragrances, LLC et al. - v. - S. Carter Enterprises, LLC et al., Case 650403/2016 - New York County Supreme Court.

Jay Z Gets Served

The wheels of justice turn slowly.

According to a new filing in the Parlux Fragrances case against Shawn “Jay Z” Carter, plaintiffs attorneys have finally managed to serve their summons and complaint on a lawyer representing Mr. Carter and his company S. Carter Enterprises, LLC. The firm of Cummings & Lockwood in Stamford, Connecticut will represent Mr. Carter and agreed to accept delivery of the complaint via FedEx on March 21st.

The original complaint was filed in New York Supreme Court on January 25th.

*Yawn.*

Legal eagles tell FirstNerve that there may well have been extensive contact between the two sides before this formal action. The early take is that Parlux may have a good chance at recovering payments and stock given to Mr. Carter, but that claims of commercial loss due to his alleged non-participation in promoting the Gold (Jay Z) fragrance remain a long-shot.

The lawsuit discussed here is Parlux Fragrances, LLC et al. - v. - S. Carter Enterprises, LLC et al., Case 650403/2016 - New York County Supreme Court.

Going for the Gold (Jay Z)

However, in the fragrance industry, it is virtually impossible to sustain the success of a celebrity fragrance brand without: (i) promotional support from the celebrity in the form of public appearances; and (ii) regularly updating and refreshing the brand with “flanker” launches and new line extensions, which are fragrance launches using new packaging, often new fragrance scents and some variation on the name of the originally launched brand.

[Claim #22 in the complaint filed by Parlux Fragrances, LLC and Perfumania Holdings, Inc. against S. Carter Enterprises, LLC and Shawn Carter, filed January 25, 2016, in the Supreme Court of the State of New York.]

Good morning, class. Let’s review the players:

Jay Z is actually Shawn Carter.

S. Carter Enterprises, LLC belongs 100% to Jay Z. It “owns and controls the rights to market the name and any related trademarks of Jay Z.”

Artistic Brands Development, LLC is a Delaware corporation with offices in Miami.

Marcy Fragrance Trading Co. LLC is a Delaware corporation with offices in New York City.

Shawn Carter is “the Manager and 100% member” of Marcy Fragrance.

Marcy Fragrance “owns a 40% membership interest in Artistic Brands.”

Okay. Now let’s review the relationships:

In April, 2012, Carter Enterprises and Shawn “Jay Z” Carter himself granted Artistic Brands the rights to use Jay Z’s likeness “in the manufacture, distribution, promotion, and sale of fragrances and certain related beauty products.”

Around the same time Parlux Fragrances obtained an exclusive sub-license from Artistic Brands for “the sole and exclusive, worldwide right to manufacture, promote, and distribute Jay Z branded fragrances.”

So, Jay Z and a company fully owned by Jay Z grant perfume licensing rights to a company that is 40% owned by Jay Z through yet another company which is fully owned by Jay Z. Everybody clear?

The Jay Z perfume rights are then sub-licensed to another company in which Jay Z has substantial stock and/or warrants.

If you think sounds complicated, take a look at the dense web of relationships between Parlux Fragrances and Perfumania Holdings, Inc. I wrote about them here.

Parlux has done a lot of celebrity fragrances. They thought, not unreasonably, that a Jay Z line would do big business. In fact, they were counting on projected sales of $15 million in year one, and $35 million in year two. As part of the inducements to Jay Z, they agreed to minimum guaranteed royalties, i.e., they would pay him a pile of money whether or not they sold any Jay Z perfume. This is typical of celebrity name deals and is intended as an incentive to make sure the licensee doesn’t sit on the rights but instead gets a product promptly to market.

Parlux did indeed launch Gold Jay Z in October of 2013 and it sold well initially.

Another part of the deal was that Jay Z would provide promotional support to the brand. This is also a standard part of celebrity licensing deals (for obvious reasons) and the Parlux contract was quite specific about Jay Z’s obligations.

And yet, for reasons known only to himself, Shawn Carter apparently refused to do any of the promotional events arranged for him by Parlux. These included any of the required three public appearances per year (at least one in New York City), as well as an appearance on Good Morning America and in the Sephora store in the same building as the TV studio. He also declined to take part in an interview with Women’s Wear Daily editor Pete Born. He declined to appear at Macy’s, to participate in social media promotions, or to provide a quote for Parlux’s press release about the Gold Jay Z launch. (These are all claims made in the Parlux complaint; we haven’t yet heard Jay Z’s response as to their validity.)

If we take the Parlux account at face value, Shawn Carter has done an impressive job of stiff-arming the company behind his fragrance brand. His actions would appear to work against his own financial self-interest. What on earth could be his motivation?

Jay Z would not be the first celebrity to get cold feet after agreeing to a perfume deal. I covered the bizarre saga of the Prince fragrance a few years back. The Purple One had signed a deal with the rather infamous guy behind the Designer Imposters® line of knockoff fragrances. He then didn’t lift a finger to promote the scent. He also failed to offer a defense when sued for losses by the fragrance company, which led to a $3.9 million judgement against him. Prince finally got his legal act together, appealed the verdict, and eventually settled out of court.

Prince being Prince, we can chalk up his non-compliance to his being a talented musician but a temperamental diva. I can’t speak to Jay Z’s merits as an artist, but he is well known as a mogul with vast business interests. It would seem doubtful that he entered into these highly detailed contracts on impulse, or without benefit of beady-eyed legal advice. So what happened? Did he not like the final product? Did he take a dislike to the people at Parlux? Was there something about the incentives of the deal that gave him a bad feeling? Did he change his mind and figure that perfume promotion was not compatible with his desired media persona? Did he simply lose interest? Or is he just an asshole?

Right now we know nothing and can only wait for his attorneys to respond in their own filings with the court. Stay tuned. This should be good.

Weekend Update: Perfumania/Parlux Hires Legit Exec, Jay-Z Gets Richer

Donald J. Loftus

According to a press release on Friday, Donald J. Loftus has been hired as president of Parlux Ltd. and executive vice president of Perfumania Inc. Parlux, of course, produces high-profile celebrity scents by Paris Hilton, Jessica Simpson, Rihanna and a slew of others.

Loftus brings a wealth of experience to the company and is one of the most respected executives in the beauty industry. Most recently, Loftus was the North American President and CEO of P&G Prestige, a position he held for over ten years. Prior to P&G Prestige, he held positions at Cosmopolitan Cosmetics, Escada Beaute, YSL Beauté and also served as Divisional VP at May Department stores. Loftus is a former Chairman of the Board for The Fragrance Foundation and the current Chairman of Fashion Group International.

Let’s hope the hiring of a credible outsider like Loftus will put an end to such embarrassments as last November’s imbecilic Parlux press release for the new Rihanna fragrance.

Speaking of outsiders and insiders, this is a great time to revisit that tangled knot of cross-holdings, family trusts, and related-party sales that constitute the saga of Perfumania and Parlux Fragrances. The last time we checked in, the former was looking to acquire the latter. That deal closed on April 18, 2012, and Parlux (the perfume manufacturer) is now part of Perfumania Inc. (the perfume retailer).

The upshot, as disclosed in a proxy statement for its January 10, 2013 annual shareholders meeting, is that Glenn Nussdorf, Stephen Nussdorf and their sister, Arlene Nussdorf collectively are the beneficial owners of approximately 55% of Perfumania Holdings Inc. The astonishingly unGoogle-able Rene Garcia and certain family trusts and affiliated companies of Rene Garcia own another 24%. In addition, rap mogul Jay-Z, a.k.a. Shawn C. Carter and S. Carter Enterprises, LLC, (a company he controls), own another 11%.

In other words, 90% of the company’s shares are controlled by five people. [Still feel like buying in?—Ed.] [No thanks.]

Perfumania’s various SEC disclosures are a wonder to behold. Here’s one gem:

Glenn, Stephen and Arlene Nussdorf own GSN Trucking, Inc. which provides general transportation and freight services. The Company periodically utilizes GSN to transport both inbound purchases of merchandise and outbound shipments to wholesale customers.

Here’s another: six estate trusts established by the three Nussdorf siblings hold promissory notes from the company worth $85.4 million, while brothers Glenn and Stephen hold another note worth $5 million (it is currently in default, which triggers a higher interest rate). These loans can only be repayed after the company pays off a $225 million line of revolving credit. [Sure you don’t want to invest?—Ed.] [Yes, really sure.]


Capitalist Jay-Z Visiting Communist Hell-hole

Finally, let’s review how Jay-Z got his 11% stake in Perfumania. Two years ago he, along with the cryptic Rene Garcia, created Artistic Brands Development LLC. ABD obtained rights to license fragrances from Rihanna, Kanye West, and Shawn “Jay-Z” Carter himself. ABD then sublicensed the rights to Parlux, in return for warrants to 8 million shares of Parlux. Easy peasy.

A year later, with its acquisition of Parlux on the horizon, Perfumania agreed to give ABD 300,000 Perfumania shares “as consideration for certain licensing transactions contemplated” as part of the merger. Those shares went to ABD’s designee Shawn Cater when the deal closed on April 18, 2012. Easier peasy.

On that same day another deal kicked in: Perfumania issued warrants for 1,599,999 shares to ABD at an $8 strike price. It turns out that ABD owed unpaid guaranteed minimum royalties to its licensees (among them presumably Shawn Carter). As part of this new deal, Perfumania obtained the sublicense rights (that used to belong to Parlux), in return for assuming ABD’s outstanding royalty obligations. (Cash for Jay-Z. Sweet!) Plus ABD and the opaque Garcia Group received warrants for 3,199,972 shares of Perfumania. (More shares for Jay-Z. Sweeter!)

At Friday’s closing price of $5.35 a share, Jay-Z’s 1,919,784 shares of Perfumania are worth $10,270,844.

I couldn’t name a single tune of his, but I admire his talent.

Celebuscents: The business end of the blotter

The torrent of celebrity fragrances spilling into the market shows no signs of slowing. Each season brings new perfumes by A-list divas, rappers and reality show cast members. Some of us question the quality of these offerings. We also wonder whether the sheer number of celebrity perfumes dilutes the market and confuses the consumer. Grousing about celebrity fragrances has become a numbing habit, like complaining about the weather.

Unlike the weather, however, celebrity perfumes are a human phenomenon. They keep coming to market because someone somewhere calculates that the financial rewards are worth the risk. I thought it would be enlightening and perhaps entertaining to shed some light on the business of celebrity scents. Who is giving the green light to all these perfume projects and supplying the risk capital for them? How good a job are they doing financially and creatively?

Our first target of interest is Parlux Fragrances, Inc., based in Fort Lauderdale, Florida. It’s a publicly held company that trades on the NASDAQ. The company produces high profile celebrity scents, including those by Paris Hilton, Jessica Simpson and Queen Latifah. Parlux did Marc Ecko’s Ecko, and Josie Natori’s Natori. They now have the rights to perfumes by Nicole Miller. A scent by shoe designer Vince Camuto is on the way this fall, and next year Parlux will launch a perfume by Rihanna. A Kanye West fragrance is planned for 2011 or early 2012.

Parlux sells about $150 million of perfume annually, mainly to department store retailers such as Bloomingdales, J.C. Penney, Macy’s, Saks, and Sears. It’s biggest customer is Macy’s which accounts for almost a quarter of its annual sales. Macy’s is such a large fraction of its business that Parlux is obliged under financial reporting rules to acknowledge that the loss of Macy’s as a customer would “have a material adverse effect on our total sales.”

An equally significant source of sales is specialty retailer Perfumania, a company with 370 stores located in outlet malls and regional malls in the U.S. Perfumania, like Macy’s, is a customer whose loss would seriously impact Parlux’s financials. There is another twist to this relationship: because the owners of Perfumania’s parent company (Perfumania Holdings, Inc.) also own a significant amount of stock in Parlux, perfume sales to Perfumania are reported as “related party sales,” about which we’ll have more to say.

So who does the actual work of creating the juice and the bottle and the packaging for all the Parlux perfumes? Here’s what the company says in its most recent annual report:

We design and create fragrances using our own staff and independent contractors. We supervise the design of our packaging by independent contractors to create products appealing to the intended customer base. The creation and marketing of each product line is closely linked with the applicable brand name, its positioning and market trends for the prestige fragrance industry. This development process usually takes twelve to eighteen months to complete.

Stars don’t just wander off the street and into the company’s offices. How does Parlux secure the rights to a celebrity’s scent? Their people talk to the celeb’s people, and ultimately a deal is struck between Parlux and the celebrity’s corporate entity. For example, Paris Hilton Entertainment Inc. grants Parlux an exclusive license to develop, manufacture, and distribute prestige fragrances under the Paris Hilton name. The original license deal ran from 2004 to 2009 and spawned Paris Hilton (2005), Paris Hilton for Man (2005), Just Me (2005), Heiress (2006), Heir (2006), Just Me for Man (2006), Can Can (2007), Fairy Dust (2008), and Siren (2009). The deal was renewed for another five years and runs through June 30, 2014.

Parlux also has licensing agreements with VCJS, LLC (Jessica Simpson), Queen Latifah Inc. (Queen Latifah), Ecko Complex LLC (Marc Ecko), J.N. Concepts, Inc. (Josie Natori), and Kobra International, Ltd. (Nicole Miller). A deal signed with tennis star Andy Roddick in 2004 resulted in a single fragrance in 2008; Parlux opted to let the deal expire in March, 2010. Not every celebuscent hits the jackpot.
As if often the case with Parlux, there are unusual twists to the standard business model. Take the Rihanna and Kanye West deals, for example. Both artists licensed their worldwide fragrance rights to a company called Artistic Brands Development, LLC—as did entertainment mogul Shawn “Jay-Z” Carter. Artistic Brands, in turn, sublicensed these fragrance rights to Parlux. Who is behind Artistic Brands? None other than Jay-Z himself. The other principal in the company is a fellow named Rene Garcia. And thereby hangs a tale.

Rene Garcia, owns approximately 9.1% of Perfumania Holdings, Inc., which in turns owns Perfumania, Inc., the chain of retail outlets. Along with various family trusts and investment vehicles identified in S.E.C. documents as The Garcia Group, Rene Garcia’s interests include about 14.7% of the outstanding shares of Parlux. In December, 2009, Parlux issued warrants to Artistic Brands Development for the purchase of up to 8 million Parlux shares at a $5 exercise price, in return for sublicenses to the Rihanna and Kanye West fragrances. (The stock has traded in the $1.50 to $2.50 range for the past year; it will require quite a rise in price for those warrants to be worth anything.) The Artistic Brands deal makes Jay-Z more than a rapper willing to lend his name to a cologne—it makes him a player in the world of fragrance licensing. This is the sharp business acumen that has made him worth an estimated $450 million, according to the Wall Street Journal.

But back to Rene Garcia. He gets some Parlux warrants as Jay-Z’s development partner in exchange for fragrance rights to Rihanna and Kanye. Parlux—in which Garcia is a major shareholder—will produce these perfumes and sell them in large part to Perfumania, a company in which Garcia is also a major shareholder. Mr. Garcia has an uncanny ability to manifest himself simultaneously on several levels of the Astral Plane. He’s involved in the brokerage of celebrity perfume rights, in the manufacture of the actual perfumes, and in the retail sale of same. All that’s missing is a stake in a bottle-making company.

How solid is Parlux’s celebrity fragrance business? We know its business depends heavily on sales to Macy’s and on related party sales to Perfumania. It also gets the majority of its gross sales from the Paris Hilton brand products.

If Paris Hilton’s appeal as a celebrity were to diminish it could result in a material reduction in our sales of licensed Paris Hilton brand products, adversely affecting our results of operations and operating cash flows.

Hmmm. Her summer drug busts in South Africa, France, and Las Vegas, and the resulting headlines (“Scandal-plagued socialite Paris Hilton has been voted the worst celebrity role model in a new online poll”) must be giving the Parlux folks some serious agita.

Celebrity fragrances are only as attractive as the persona they are built around. Kanye West continues to stir the pot following his infamous interruption of Taylor Swift at the 2009 VMAs, recently by trashing Lindsay Lohan’s fashion line. Is he out of control or cunningly good at keeping himself in the news? Either way, is this a persona that Parlux can build a franchise on?

Speaking of personalities, there’s a highly entertaining book to be written about the characters who hold the financial fortunes of Parlux in their hands. There is the cryptic and awesomely unGoogle-able Rene Garcia Group of south Florida. There is Frederick E. Purches, the founder and once-and-current CEO of Parlux. There is former CEO Ilea Lekach, dubbed “worst CEO of the year” in 2006 by MarketWatch. And best of all, there are brothers Glenn and Stephen Nussdorf who, along with their sister Arlene Nussdorf, control about 74% of Perfumania Holdings, Inc. They wrenched control of Parlux away from Lekach a few years ago in a proxy battle so overwrought it deserves to be told in the form of a graphic novel.