2006 was a massive transitional period for 4Kids. Pokemon was out the door. Yu-Gi-Oh!’s initial run was ending. Several titles they had either dubbed or gotten the broadcast rights to were already either over or canceled. 4Kids had become heavily reliant on having at least two or three big titles to serve as their main sources of income. Losing one and having another start to walk off into the sunset was certainly a massive problem for 4Kids. They needed a new big hit, and they needed it fast if they wanted a chance at staying alive, let alone staying as a top contender in the world of children’s media.
In an effort to cast a wider net in the marketing and advertising world, 4Kids formed three new subsidiaries – TC Digital Games, LLC, TC Websites, LLC and 4Sight Licensing Solutions, LLC. We’ll talk about 4Sight a little later since their main hopes rested with TC Digital Games and TC Websites as they would be crafted specifically for a franchise that 4Kids hoped would be its newest biggest hit – one that it would produce in-house and own a majority of the rights to – Chaotic.
TC Digital Games, LLC was formed to be their trading card game company. Because of the massive and continued success of Pokemon and Yu-Gi-Oh!’s TCGs, 4Kids invested millions in making an entire section of their company dedicated to creating trading card games. Their flagship game would be the aforementioned Chaotic.
Chaotic was made from an existing Danish TCG called Chaotic: Now or Never!, which was created in 2001 and was based on another card game called Grolls & Gorks that was released in 2000, which itself was based from a toy line called Dracco Heads. Chaotic: Now or Never! was unique in that they had codes on them which could be redeemed for online versions of the same cards and used in online play. The innovative card game had garnered quite a bit of popularity over time.
In 2003, former Upper Deck executive credited with helping make the Yu-Gi-Oh! TCG a success in the west, Bryan Gannon, created the US-based Chaotic company, Chaotic USA Entertainment Group, to help bring the franchise overseas. The owners of Chaotic, Dracco Company Ltd. and Apex Marketing, sold the worldwide licensing rights for Chaotic to 4Kids on May 11, 2005. In December 11, 2006, the agreement between 4Kids and Chaotic USA was solidified to help make Chaotic exclusively an American franchise. The contract gave 4Kids the merchandise licensing rights through December 31, 2016.
Chaotic: Now or Never! would cease production in lieu of 4Kids and CUSA making their own sets of cards. The card game would experience numerous changes as a result of this shift. Not only would designs, names, card types and mechanics change, but so would the overall lore and storyline.
One thing that wouldn’t change, however, was the innovative online game integration. In addition to the TCG, 4Kids and CUSA also gained the rights to the patent for the game’s unique structure of having codes on the cards that could be redeemed online for digital copies of the cards that could be used in 4Kids’ and CUSA’s own American version of the online game.
TC Websites, LLC was made to help support this aspect of Chaotic. While there was some talk of TC Websites doing other things besides just managing the Chaotic online game, nothing else really came of it as far as I researched. In 4Kids’ financial documents, they also mentioned hopefully managing more TCGs in the future with TC Digital Games, but, again, nothing came of that either.
The most prominent report I found was that TC Digital Games and TC Websites had acquired the licensing rights to the NFL in October of 2009 and were planning on basically making an NFL version of Chaotic where they would produce football trading cards with codes that could be redeemed online for use in some online game they would develop, but there are very few articles about this, and all of them merely announce that the deal happened. No updates on development, nothing about when such a thing would be released, no mentions of it in any financial report or official document I read, no speculation – nothing. I can only assume 4Kids or the NFL must have backed out of the deal or it otherwise fell through.
4Kids’ partnership with CUSA granted them co-ownership of the two subsidiaries. TC Digital Games would be majority owned by 4Kids with 53% ownership later upped to 55% in 2007 while CUSA owned 47% later reduced to 45%. Unlike with TC Digital Games, the ownership of TC Websites would be a 50/50 split with CUSA, however, this would also change to a 55/45 split in favor of 4Kids in 2007. With this partnership and co-ownership, and now owning 32% of CUSA (with his Vice President, John Milito, owning another 32%) and 60% of the outstanding capital stock in Apex, Bryan Gannon would be made CEO of TC Digital Games and TC Websites – effectively making him the helmsman of the entire Chaotic franchise.
In addition to the TCG and online game, which would launch on October 24, 2007, 4Kids and CUSA would also work together with Bardel Entertainment and Dong Woo Animation to produce and distribute a new cartoon series based on the title that would premiere on October 7, 2006. The TV show, TCG and the online game were all interwoven. While the TCG codes allowed players to create their real-life decks in the game, the TV series would implement real strategies that would help players get better at the game.
The DVD situation with Chaotic is a little confusing. I can find several volumes of Chaotic DVDs, but most of them are just in French. From what I can find, it seems that Canada got a series DVD release in French, but not the US in English, which is extremely odd. The first two volumes claim they’re in English, but according to reviews it’s actually only in French, which is, I assume, why the Amazon and eBay star ratings are so low. I also found one box set in Portuguese.
I did find one full DVD box set available in English on Retroanimation.com, but I’m very wary of its legitimacy, mostly because the only other place I’ve found it is backtothe80sDVDs.com – a place that seems…..less than legal? Their bread and butter is selling DVD collections of old commercials, but they also sell a ton of DVDs of retro TV shows and movies, most of which either being cartoons or live-action kids’ media. I can’t remember for which show it was, but the last time I visited this site searching for DVDs of a show, it was clear they were just selling the TV rips to the show in a DVD format as the official DVDs didn’t exist. Skulking around a bit more, it seems that’s quite common of them to do that since the preview videos for House of Mouse and Dave the Barbarian (which never got a DVD releases) have the Disney Channel logos on them. From the preview videos of Chaotic, it seems like it’s legitimate because there aren’t any TV station logos, but they could have just taken the DVD footage from foreign DVDs and put the English TV audio tracks on them.
The other thing that makes me very wary about this box set is that, on the backtothe80sDVDs set listing, it says the box set comes with four hours of 1990s commercials….which….uhm…why? If this was legitimate, they wouldn’t include four hours of retro commercials as a bonus feature – commercials I’m also quite certain they’re not legally authorized to sell.
4Kids was extremely ambitious about Chaotic. They even publicly stated they planned on having the animated series last at least seven years.
Make no mistake, however. 4Kids and CUSA were both taking huge gambles with this outing. In the financial report for 2006, 4Kids outlines in detail the various risks associated with this venture, claiming that, should Chaotic fail, they would lose massive investments. According to the documents for that year, they had invested $10,000,000 in TC Digital Games and $20,000,000 in TC Websites out the gate. In addition, while Chaotic was still largely an American property now, their agreement with Dracco and Apex included a 10% net income fee annually.
Luckily for them, for all intents and purposes, Chaotic was shaping up to be a good success in its first year. It looked like it would become the life preserver 4Kids desperately needed when its future was looking grim. At its peak, Chaotic enjoyed the number three spot on the top TCGs on the market at the time, beating out Magic: The Gathering, but never quite beating out Pokemon and Yu-Gi-Oh!. Chaotic also won out over Magic online with 1.25 million registered players on chaoticgame.com as opposed to Magic’s 150,000 players.
The show didn’t receive the same success initially. The animated series had a rough outing with the first season, but fans responded more positively to seasons two and three, which had a bump in production quality (moving from Flash to traditional animation and changing animation studios) and better writing. Still, the show wasn’t a huge hit or anything. According to as many ratings reports from Cynopsis Media that I could find between the years 2006 and 2010, it frequently lost out in ratings to TMNT 2003, Sonic X and Yu-Gi-Oh!, sometimes even Viva Pinata and Dinosaur King, and never once dominated the block.
When it was run later in the day in syndication on Cartoon Network, the situation was about the same – it did okay numbers at best, but never really broke out into big popularity. The show managed to get three seasons, airing primarily on 4Kids TV with season three moved to The CW4Kids, and reruns airing on a variety of networks and blocks such as Canada’s Teletoon and Jetix.
For about two years. Chaotic continued to be a decent success, but then, in 2010, Chaotic was canceled. The TCG ceased production. The online game went offline. And Chaotic as a franchise faded into obscurity with a moderately small but very loyal fanbase still keeping what was left of the game alive.
Many fans wondered exactly what happened. And when I started writing this article, I didn’t think much of it. Chaotic probably suffered the same problems every other canceled franchise or show did – it wasn’t making enough money. Little did I know of the massive rabbit hole I would wander into…..
Everywhere I looked, fans asserted that Chaotic was doing wonderfully around the time it was shut down. The show was doing fantastic, the TCG was selling well, the online game was doing well, they even had some console and handheld video game releases. In their eyes, it made no sense whatsoever that Chaotic died.
Some time after Chaotic ended, someone claimed that the reason for Chaotic’s downfall was a “series of lawsuits” in which 4Kids was trying to acquire the full rights to Chaotic from CUSA to maximize their profits from the property. 4Kids supposedly claimed that they somehow felt entitled to 100% of the rights because they had 55% majority ownership, which makes absolutely no sense. Basically, 4Kids was being greedy and trying to bully the franchise away from its original owners. However, this move blew up in 4Kids’ face spectacularly.
Not only did they not gain the full rights to the series, but at the start of the trial, the judge allegedly put a hold on the entire property – no Chaotic merchandise could be made or sold as long as the trial was going on, and, according to the rumors, the trial went on for about four years. No TV show, TCG, online transactions or other merchandise sold for a franchise for years would easily mean its doom. And, according to the rumor, it was.
According to the rumor…
I typically like to have at least some sources when I make any claims, even if the best sources I can get still aren’t entirely concrete. But so many people were parroting this story and asserting it as absolute fact that I went and wrote nearly three pages about this whole ordeal and how it was 4Kids at their lowest, proving them to be one of the scummiest licensing companies in existence without any actual evidence besides the words of the Chaotic fans. When I got to the editing portion, I decided I definitely needed some actual sources for this because it was too harsh of a claim for me to feel comfortable acting as if it was fact, even if this is 4Kids we’re dealing with.
However, no matter where I looked, no matter how many documents I scanned, I couldn’t find a single, solitary sliver of evidence that this lawsuit ever existed. I even asked the Chaotic Reddit community for literally any source for this claim, no matter how small, and all I got was someone telling me to watch the interviews with Bryan Gannon on Youtube.
There are three interviews with Bryan Gannon on Youtube, all of which I had watched in full before I went to Reddit, and none of which contained any mention of a lawsuit by 4Kids. The only interview that even mentioned 4Kids was just talking about how it took several years for Bryan Gannon and CUSA to get the rights back from 4Kids (then 4Licensing) after Chaotic died – only managing to finally get full rights back in 2014.
Someone else mentioned that most of the details about the lawsuit would probably be under an NDA, which makes some degree of sense, but you guys need to understand something here. My search engine skills are pretty damn strong. I am annoyingly curious, and I hate when I can’t find something, so I typically look for a very long time until I at least find some nuggets to work with. I can find some of the most obscure shit, and during the course of this deep dive I most certainly have, whether it was useful and interesting or not, and yet, somehow, I haven’t been able to find a trace of this lawsuit even existing. Forget getting details about it – I can’t find proof that this supposedly four year long lawsuit existed.
I even silently joined the Chaotic Discord server and looked for any post involving “4Kids” or “Lawsuit” or words of that nature, and all I got was people talking about the 4Kids lawsuit, but no sources for it, not even anyone explaining who told them the rumor in the first place. I had found two Youtube videos that stated this rumor as the reason Chaotic died, one of which may have been the source of the rumor in the first place, but all they said in the video was that it was something someone told them.
One of the reasons I decided to note the various lawsuits 4Kids has been involved in throughout the years at the end of each section has been to act as a demonstration of the level of detail the financial reports provide. 4Kids needed to note each and every bit of litigation they went through, no matter how minor, no matter if it was just their subsidiary going through it and not technically their main company, because these were official financial reports. They needed to be registered in legally official channels, and they needed to be presented to shareholders, who have a right to know about any major financial impacts currently going in the company they’re investing in, like, say, a multi-year long lawsuit that could literally make or break them and wound up allegedly destroying a big franchise that they helped create. NDAs, as far as I know, would never restrict them from merely reporting that the lawsuit existed. And it would be stupid on the part of 4Kids because that would mean they’d probably be withholding reports of massive expenses, which could land them in legal trouble with the IRS.
Even if I wanted to put on the biggest tin foil hat and say 4Kids, for some reason, was keeping this the biggest secret they could, there still would have been official legal reports of the lawsuit kept in legal archives available to the public. I looked in as many places as I could from publicly owned legal archive websites to official government archives and found absolutely nothing, even though I did find documents for all of the other lawsuits 4Kids and CUSA had been involved in separately or together, never against each other.
Stepping away from lawsuit talk for a minute, let’s discuss how Chaotic was objectively doing out in the wilds of the marketplace. In its first several months after release, Chaotic was doing alright and was staying near the top, it just wasn’t the huge hit 4Kids was hoping it would be. It was on a steady track of meeting revenue expectations, but not exceeding them. It wasn’t the next Pokemon or even Yu-Gi-Oh!, but it was holding its own. Even when Kahn would admit to being anxious about the massive undertaking of Chaotic, as late as February 2009, the LA Times responded by claiming that Chaotic was doing so well that Kahn’s “initial worries [were] proven to be unfounded.”
I have to wonder how Al Kahn responded when he read that article, if he did, because that article was released just one month before Q4 of 2008 reports would be released – Q4 2008 being the biggest hit Chaotic and 4Kids would ever take.
The Great Recession of 2007-2009 was hitting them hard. They were losing money across the board for any merchandise sales on any property they had left – and they were losing it to shocking degrees. 4Kids began laying people off and reducing operating costs to help offset the losses. 4Kids was already on wobbly ground when it came to their revenue, but they were getting by. 4Kids was clearly putting almost all of their eggs into Chaotic’s basket, because, truth be told, it was one of the last baskets they really had. Several times over 2008, their earnings were touted as being boosted by Chaotic sales, which were only going up. They needed Q4 to be particularly good in order to be as stable as possible.
I can’t stress enough how important Q4 is to companies that focus on children’s media/toys/merchandise etc. This is the holiday season, meaning what is typically expected to be a huge boost in sales that most any company needs, but especially 4Kids. However, instead, the fourth quarter of the year was abysmal.
Due to the financial crisis, stores were canceling orders for merchandise and even returning merchandise they had acquired in order to reduce overhead and save money. Particularly, many stores were reducing the amount of seemingly superfluous items like trading cards, video games and toys. Speculation from the way 4Kids words their reports also indicates that Chaotic’s lower popularity compared to other TCGs and shows/franchises contributed to Chaotic having higher levels of returned merchandise than competing properties.
Chaotic had trainwrecked. In Q3, they had $7.3mil in revenue for Chaotic, a number they hoped would jump up quite a bit in Q4 to help them meet projected earnings of at least a year-end total of $20-30mil. In Q4, they only managed $500,000 in trading card revenue from Chaotic. In addition, their net losses were up from $16,486,000 in Q4 of 2007 to $19,613,000 in Q4 2008, making their year-end earnings for Chaotic $15,276,000 – $5mil short of their lowest project earnings target. Overall for the year 2008, they wound up with a net loss of $36,819,000 compared to the net loss in 2007 of $23,326,000.
“The sharp economic downturn and associated severe deterioration of consumer confidence starting in September 2008 deeply impacted our licensing revenue and trading card game sales in the fourth quarter. Our results were also impacted by declining licensing revenue throughout the year from some of our more established properties. While we are extremely disappointed by our results for 2008, we implemented significant cost cutting initiatives in the fourth quarter of 2008 and the first quarter of 2009 that we expect to reduce our operating costs by $25 million in 2009 as compared with 2008.”
“This decline in sales is primarily due to retailers and distributors reducing, canceling or returning orders in an effort to reduce their inventory as they respond to the rapid, steep economic decline. In addition to impacting sales, it also triggered an increase in our reserve for returns and allowances and a $3 million write-down of our trading card inventory.”
Even in the shadow of this this sharp decline, Kahn still remained optimistic.
“Despite the fourth quarter sales numbers, Chaotic finished the year as the number three selling trading card game in the U.S. behind Pokémon and Yu-Gi-Oh!,”
“Looking forward, we believe Chaotic still offers a tremendous opportunity for 4Kids in the future as we roll out the Chaotic trading cards in the UK, France and Germany during the first half of 2009. Chaotic will also be bolstered by the revised and improved Chaoticgame.com website that went live on March 3 and is now available in English, French, German, Spanish and Italian. We also expect additional Chaotic licensed products to be available from our master toy licensee, Spin Master, and our videogame partner, Activision Publishing, which is scheduled to release a Chaotic video game on the Wii™, Nintendo DS™, Xbox 360®, and PLAYSTATION®3 platforms in fall 2009.”
2009, however, would have its own set of problems. Chaotic’s sales were reportedly very unreliable as noted in 2009 because, according to Kahn, the conversion to “pay on scan” was making it so Chaotic wasn’t selling much at all on their reports. In Q2 of 2009, they mentioned during their earnings call to shareholders that they shipped $2.6mil of Chaotic merchandise, but it couldn’t be reported back as actual sales until it sold in retail outlets and their sales were reported back to 4Kids.
There’s something else you need to keep in mind about Chaotic. Since 4Kids was footing most of the bill for the production of the cards and the upkeep of the online game, their production costs were up quite a bit from previous years. Their trading card production costs were usually either the highest bill they had or at least in the top three.
In Q4 2009, 4Kids reported taking a $20,195,000 impairment charge related to Chaotic merchandise. Declining interest in the property had forced 4Kids to allow for drastic markdowns of merchandise already in stores, the returned merchandise was basically just collecting dust as retailers were not increasing their orders once they were reduced, and they were also taking losses on the TV show in regards to production costs versus returns.
I want to remind everyone that 4Kids expected Chaotic would have between $20-30mil in revenue in its first year – a number that was expected to grow as time went on.
We know it didn’t reach the first year projected goal. What of 2009?
Only $2,603,000 in revenue to offset that staggering $20.6mil loss that was added onto the $12,947,000 in losses for the trading card and game division in 2008.
In 2010, the year production would cease on Chaotic, TC Digital Games and TC Websites would report a mere $247,000 in revenue with $6,736,000 in losses.
As 4Kids reported, due to “continued lack of profitability,” TC Digital Games, TC Websites and, as a result, Chaotic, would all shut down production on September 30, 2010. Support for the website and trading card game would cease on October 1, 2010.
For some unknown reason, 4Kids would still latch onto their majority share of the rights for another four years, supposedly preventing the franchise from attempts at revival by CUSA and Bryan Gannon. However, the rights are back with them now.
Bryan Gannon stated a bunch of optimistic things about Chaotic’s future, including bringing the TV show back – not rebooting it, but continuing on in the storyline it left off – bringing the TCG back, bringing the online game back, though focusing more on a mobile app version, and creating Chaotic for a new generation of players and fans while also honoring and catering to loyal fans. Obviously, COVID has put a dent in these plans, but from everything I’ve heard they’re still plugging away.
I think that’s great, and I’m glad that, despite not being a Chaotic fan myself as a kid (Although, I was aware of both the show and the TCG) that the franchise will hopefully rise again and enjoy new life. Bryan Gannon seems legitimately passionate about the franchise, the fans appear to be even more passionate and excited, and I wish him, the fans and Chaotic all the best in the future.
I’d be one of the first to jump on a ‘4Kids bad’ bandwagon, but from all of the facts I’ve gone through, they didn’t do anything wrong in this circumstance. They just took a gamble and it failed because of factors mostly out of their control. They didn’t try to steal Chaotic from CUSA or Bryan Gannon just to eat up all the money they could from a franchise that was on life support. They didn’t allow the franchise to stagnate for years and eventually die while wasting god knows how much money on their legal team for a clearly fruitless venture instead of just dropping the supposed lawsuit as soon as the pointlessness was made apparent.
It just died.
Had the financial crisis not happened, Chaotic could have lived a more prosperous life, but let’s not fool ourselves. It wasn’t ever going to be a big juggernaut in children’s entertainment, it wasn’t going to break new ground, and it likely wouldn’t have saved 4Kids from the bankruptcy they’d soon suffer along with its inevitable death four years later.
As for why this rumor about a bunch of lawsuits came to pass, I have a theory. The Yu-Gi-Oh! lawsuit was coming up around the same time they shut the doors on Chaotic. I believe someone just either mistook the Yu-Gi-Oh! lawsuit for one involving Chaotic or they purposefully bent the truth to stoke a ‘4Kids bad’ fire.
This would be more of a stretch if it wasn’t for the fact that the judge in the Yu-Gi-Oh! lawsuit put a hold on the rights until the lawsuit was over. In the case of Yu-Gi-Oh!, 4Kids had brought up concerns about TV Tokyo and NAS selling the rights to Yu-Gi-Oh! when they were in the middle of preparing to release Yu-Gi-Oh! ZEXAL. No matter the outcome of the lawsuit, if the rights were sold while the lawsuit was going down, they’d suffer a massive loss of income. In turn, the judge ordered a hold on the Yu-Gi-Oh! license until everything was cleared up. To be specific, this was just a hold on the licensing rights – not on any productions involving Yu-Gi-Oh!. However, that particular similarity felt like too much of a coincidence.
In all honesty, I can’t imagine any judge ordering that a company stop producing a product altogether just because a lawsuit over full rights is ongoing, at least in the circumstance of a supposed lawsuit over Chaotic. 4Kids would own the rights either way. If they won, they’d own 100%. If they lost, they’d go back to owning 55%. There’s absolutely no reason a judge would order a full production hold. That’s needlessly massively harmful to both companies in question and makes absolutely no sense.
In summary, always check your sources. The most important aspect of that being always make sure you have a source in the first place. I absolutely don’t blame the Chaotic community for spreading this rumor as there was no real announcement about the cancellation or the closing of TC Digital Games or TC Websites to work from, and that is on 4Kids’ shoulders. I sincerely doubt anyone in their situation is going to dig through long, boring and sometimes difficult as hell to read financial reports and earnings calls transcripts for crumbs of information regarding the cancellation of a trading card game and cartoon – that’s a bit unreasonable. The only reason I dug that much is because my brain doesn’t like not being neurotic for five seconds.
Rumors like that can spread like wildfire very quickly, especially if the people who seemingly started the rumors are trusted people in the community. It’s just a little disheartening that this rumor is still taken as fact by so many people. I know my blog doesn’t have that many readers, but I hope some individuals from the Chaotic community read this and help clear this matter up. To what end, I don’t know. It’s not like 4Kids is around anymore or it’s some massive wrong that needs to be righted, but maybe it’ll do something positive for someone.
If I am truly wrong and someone can actually provide me with concrete evidence of any kind that the lawsuit did happen, then I will gladly post a retraction to all of this and offer a sincere apology, but I legitimately worked my ass off for weeks trying to find anything that would actually be valid proof and I just couldn’t. It was all word of mouth from within the fandom.
As a final note, I do concede that it was still awful of 4Kids/4Licensing to latch onto the majority rights for four more years when they weren’t getting anything from it. I have no way of knowing why they did that, but it seems very petty of them. Legally, they were actually in the right here as their contract said their rights agreement would go until 2017, but they weren’t doing anything with the license, it was making them absolutely no money, and at least they might be able to get some income by selling the rights back. I guess we’ll never know the answer to that one for sure.
Previous – Part 14: (The Time Has Come)
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