The Sports Startup Being Sued For Nearly $500,000 By Its Former Employees

On September 13 of last year, Rob Petty, the CEO of Sport195, called a meeting with the entire staff, including all of its remote employees. A few website developers, at a conference in Colorado on Sport195's dime, called in from the back of a taxi.

"We're not going to get paychecks," Petty told the staff from their swank 30th floor office at 45th and Lexington in midtown Manhattan. Petty told everyone he "wasn't comfortable" informing them of this news, but he also didn't say why it was happening. Nevertheless, he insisted that it would "all be fixed" by the following Friday.

However, after months of stalling, misleading, and obfuscation, 38 of Sport195's employees listening in that day are now suing Petty, Sport195, and chief technology officer and co-founder Kevin Williams for almost $500,000 in unpaid wages and expenses--including intercontinental flights, hotels and, for those developers, the conference in Colorado.

You've never heard of Sport195, and there's a good reason for that. In an economic climate where pre-revenue companies can procure tens of millions in seed funding or even be acquired for billions, Sport195 managed to push this 21st century business conceit to a new level: Sport195 has no customers, no revenue, and no users. In fact, the company barely even has a business plan. When I asked several former Sport195 employees--who spoke to me under the condition of anonymity out of concern for future employment prospects--"What does Sport195 do?" the most common reaction was nervous chuckling.

The most remarkable thing about Sport195 isn't that the checks stopped coming, but that there were ever checks to begin with.

The checks that did clear were thanks to the small fortune Petty made co-founding Roo Group, a video distribution firm. In late 2007, the company's aspirations grew and Petty was replaced as CEO. In September of 2009, he founded Sport195 with several of his former Roo partners, including Aaron Earls and Kevin Williams. Sport195 was purportedly a reference to the number of countries recognized by the UN, of which there are currently 193. The company was originally named Sport 195, Inc., but in March of 2013, they filed with the SEC for a name change to Sport195, Inc., eliminating the space between "Sport" and "195."

Today, the Sport195 website boasts a team of over 500 employees with a culture that "mirrors that of great sports teams; embodying teamwork, dedication, hard work, sacrifice, playing for a greater cause, and overcoming obstacles that can impede success."

The company's marketing tagline, "a social networking site for sports," was vastly different than its actual business model. In the lawsuit against the company, Sport195 is described as an expensive version of Facebook fan pages: "it is an online business that allows fans, teams, leagues and family members to engage around amateur, club, collegiate, and professional sports." Despite the tagline, the company was never building a social network. Instead, they were building a website platform, a completely different back-end approach.

Sport195 turned into a website business of sorts, offering companies a pre-made site with content pulled automatically from RSS feeds and organized by sport or topic. That is, for the price of $20,000 per month, Sport195 offered to sell companies a website with no original content and the layout of a SquareSpace template.

The developers tried to warn their superiors that, even from a technical perspective, this plan wouldn't work. Most of the sites they built couldn't be found on Google because the search engine would kill its PageRank due to the algorithmically curated content lifted from other sites. Instead of dealing with this fundamental problem, management considered it an advantage. "They kept insisting this is our edge," one developer recalled. "But they obviously didn't know how the web works."

Even before the paychecks stopped coming, Petty and Sport195's leadership hardly revealed where the company's money came from, even to its own employees. Sport195 was funded by investors, including Claro, a major Latin American telecom company, who also happened to be their only consistent client, although that term is used loosely since they didn't pay anything for Sport195's services. "We all knew that nobody was using the site," another former employee told me. "We all knew that virtually all traffic was basically clickthroughs from spammers in Nigeria. We had no clients, there was no revenue." While management cited astronomical user statistics--sometimes referencing as many as 2 million active users--developers with access to the company's dashboard saw they only had around 70 users, total.

In the summer of 2014, even as the money drained from the corporate account, the company suffered delusions of its own grandeur. Sport195 hired at a furious pace, sometimes bringing in as many as 10 new employees a week. "We'd go downstairs [from the New York office] and run up a $500 bar tab and [Petty] would pick it up," recalled another former Sport195 employee. While his employees waited for a month's back pay, Petty compared the company's aspirations to Yahoo! and ESPN.

"He didn't seem on top of things," a former middle manager who had regular interactions with Petty told me. According to former employees, Petty's first language was business jargon and grand platitudes. If employees challenged him or asked for specifics, he would deflect with a non-response of meaningless cliches. When asked to describe Petty's business acumen, the former middle manager used the words "pretty dumb but buzzy," which accords with some of Petty's statements made in all-staff meetings like, "The good thing about strategic partners is they're strategic."

His inability to effectively communicate with staff only exacerbated the company's financial struggles. After the first missed paycheck, Petty began holding regular "all-hands" meetings with the entire company to update them on the situation, although he rarely said anything of value or even relative coherence. If the meeting lasted 20 minutes, 15 of them would be business buzzwords and corporate doublespeak.

As Petty informed the company during the all-hands meetings, he had two possible revenue sources lined up. One was a bridge loan--perpetually days or even hours from completion--that would lead to everyone getting paid in full. Petty would constantly lament logistic problems for the holdup, like waiting on documents or a failed attempt to hold a conference call.

Meanwhile, Petty simultaneously hedged his words immediately after dangling the bridge loan by cautioning, "I'm not promising anything, OK? I'm not going to promise, I'm not even going to suggest." On October 14, Petty told the entire staff they were about to raise a combined $6.5 million from various sources, including some sort of land swap involving an investor that was never mentioned again. "We're just waiting for the contracts to come back and then things should be fairly immediate," he assured everyone. "It happens very, very quickly."

About two weeks later, on October 27, after saying he could "only give you the facts as I've got them,"--a favorite refrain of his--Petty said he was expecting the documents for the bridge loan that evening. Three days later, during another all-hands meeting, Petty resorted to forcing an employee to read a text message from his phone aloud in a misguided attempt to prove he wasn't making everything up.

As the company grew more frustrated with and skeptical of Petty's claims, his answers devolved into total nonsense. After not being paid for almost two months, one employee pushed him on details about the bridge loan holdup. Petty replied, in front of the entire staff, "It's in God's hands."

Petty's other constant source of pending funds was a $45 million or $50 million raise--he would switch back and forth between the two amounts--on the company's stock. In the all-hands meetings, Petty would make it seem as if they just began pursuing this cash grab as an emergency option. But two former employees told me they were informed of this raise when they were hired over a year prior and it was "close to done" way back then.

While his employees defaulted on rent and went past due on their bills, Petty's greatest concern seemed to be scolding them for low morale and questioning his effort to raise the necessary funds. "It's no good moping around the office," he said in the October 14 meeting. By November, he seemed to have lost patience with the dissidents among the staff. In an astonishingly tone deaf monologue, Petty reprimanded the staff for talking about the company's financial problems and offered a caution that could have easily been interpreted as a veiled threat:

"There's elements where the negativity kicks in, questions kick in, all that sort of stuff. It solves no problems. Monday quarterbacking never helped anybody. I've never seen someone win a football game two days later. It doesn't do anything. I really want the whole company at the moment focusing on solutions and where people can help with the solution, help with the solution…we've really got to focus forward. It doesn't help anything. I cannot tell you that every single negative comment that's made internally or externally that only makes it harder to solve the problem. Only makes it harder to solve the problem. So you can be very frustrated. Please go and stand in the park, yell, scream, complain, anything you can do. But this getting out, this just hurts yourself."

A few days later, he blamed his lack of transparency on the most vocal staff members, a total inversion of the chain of events since Petty's lack of communication was one of the main sources of discontent. He even indirectly accused staff members of sabotaging the bridge loan and other investment deals:

"Unfortunately, we've been in a situation where that hasn't been the case and people are certainly acting in certain situations that are not in the team's best interests. So I'm very reluctant at the moment to disclose anything because before I know if that particular funder might get Twitter or emails this is a bad company and this, this, this, this and this, and this will jeopardize it for all of us. So I just want to be a bit careful…now, everyone should be mad. Everyone should be angry that we're in this situation. I totally understand that. People are hurting and hurting a lot, and all our focus is on fixing this, but I've just got to be careful that one person doesn't hurt us all so much. Afterwards, I'll write a book on it."

Petty, Williams, and Sport195 did not return requests for comment from VICE Sports.

On November 11, Petty issued his one and only comment in the company's internal chat, which had been a consistent source of grievance-airing among the employees, occasionally devolving into finger-pointing and childish name-calling. In his message, Petty claimed he always had the chat turned off, which is why he hadn't addressed it before. In his brief and useless statement that read like a particularly awful PR release, Petty wrote:

"As I have previously stressed negative actions towards the Company or actions in the public view such as posts will only potentially jeopardize our efforts to solve this problem and effect all of us including potentially your current of [sic] past co-workers."

This was the last time Petty addressed staff in the chat system.

This rubbed several people the wrong way, as the question and answer session at the next all-hands meeting was the most antagonistic yet. One remote employee pressed Petty for specifics on the bridge loan, multi-million dollar raise, and several other sources of funding Petty briefly mentioned over the past few months. As the employee built to a crescendo of professional frustration, Petty tried to cut him off: "Dave, Dave, Dave," he urged him. Several employees in the office jumped in to inform Petty that he had the employee's name wrong.

Despite not getting paid, the employees I spoke to chose to stay with Sport195 mostly for the benefits, particularly health care. Some of them have families, so giving up health insurance was a non-starter for them. The way they saw it, it was better to remain employed, technically speaking, with health insurance while looking for another job.

Naturally, Petty was asked repeatedly whether their health insurance would be cut off. On November 7, he told the staff, "We haven't heard anything on health insurance or anything like that." Less than a week later, on November 13, Petty sent a memo to the entire staff declaring that, effective immediately, their health insurance was cut off.

The memo read in full: "To Whom It May Concern, Sport195, Inc. Is no longer providing group health insurance to its employees effective November 13, 2014. Regards, Robert Petty, CEO."

While the company was apparently too poor to pay its employees, it managed to spend at least $33,000 on paid traffic through October. (Once the paid traffic ceased, Sport195's affiliated website traffic plummeted to almost zero.) It also managed to keep hiring people, bringing in new contractors and passing CVs along to management for potential hires. A few managers took it upon themselves to tell the recruiters to stop sending them resumes, deeming it unethical to hire someone knowing full well they wouldn't be paid.

Just days after the health insurance was cut off, Sport195 laid off almost its entire workforce, maintaining a skeleton crew to continue functioning on a contract basis. One of the former employees I spoke to told me he signed on to be a contractor, but was asked to leave a few days later when Petty found out he is part of the lawsuit. When I asked him why he would sign on to be a contractor for a company that hadn't paid him for two months and acted so unethically in the interim, the employee said he didn't want the red flag of unemployment on his resume. In a cruel twist, he ended up getting fired from a company that wasn't even paying him.

One of the former employees I spoke to said he'd been part of several failed startups prior to Sport195, but had never experienced anything like this. "The other companies were totally honest with us. They were like, hey, we're gonna lay everyone off, here's your severance. Best of luck. If you need references, feel free to call me."

Such an approach demands only a minimal amount of basic foresight: knowing you're almost out of money, assessing options, and making the determination that there is no likely way to recover. For his part, Petty offered a vague and contradictory account of the months leading up to the nonexistent paychecks. On the one hand, he said to staff, "We know exactly, down to the cent, how much we are spending and where we are spending and what we're paying…don't think for a moment at any stage we woke up one morning and said, oh wow how did we spend that money? Or, wow, the bank account hasn't got anything in it." When someone challenged that answer, essentially asking him how they could possibly be in such a situation if they had clarity on their financial picture, Petty cryptically replied, "Because it doesn't matter…it doesn't matter."

The former employee who had been through several failed companies found this approach reprehensible. "You know, shit happens," he told me. "Most companies do end up failing. And there's a very graceful way to go about ending it. Whereas these guys, you have somebody lying to you, somebody refusing to tell you when your health care will end. So that I found was really, really horrible. They wouldn't give us a straight answer."

As far as the lawsuit goes, it seems likely the plaintiffs will get a positive verdict. The complaint alleges that "[Petty, Williams, and Sport195] failed to pay Plaintiffs any wages, although Defendants required and/or instructed them to work and continue to perform their job duties." Marcia McCormick, director of the William C. Wefel Center for Employment Law at the University of Washington in St. Louis, told me "the plaintiffs just have to prove it was more likely than not that the allegations in the complaint are true."

In addition to back pay, the Fair Labor Standards Act (FLSA) also allows for liquidated damages, which McCormick told me is "essentially double the amount of pay owed if the violation was willful." To prove this, the former Sport195 employees have to show, in McCormick's words, "the defendants knew they had to pay these wages but didn't do so--this wasn't an accounting error, oversight, or a reasonable misunderstanding that the employees were not covered by the FLSA for some reason."

It's unclear how soon the case will be heard or whether the former employees will ever see any money. But if Petty is true to his own words, then they'll have nothing to worry about.

"We plan on honoring every single cent owed to everybody," Petty told Sport195 employees a few days before cutting off their health insurance. "Plus, when the money comes in, [we'll provide] some sort of incentive and thank you."