The Rise and Fall of a Toy Giant
The days of lavish success for the Mego Corporation are gone, but the action figures they produced during their heyday are testimony to the company's dedication to quality.
By Kevin Caringer
This article originally appeared in the January 1996 edition of White's Guide to Collecting Figures (Volume 2, Number 1). This article is reprinted on this site with permission.
Reproduction in whole or in part without the prior written permission of Collecting Concepts, Inc. and Ernie White is strictly prohibited.
In the 1970s, Mego Corporation produced many popular action figures, including Batman, Captain Kirk, O.J. Simpson, and Cher. Mego's selection of popular television and celebrity toys captured the attention of children as well as toy collectors for nearly a decade.
As collectors acquire these action figures, they often begin looking - in vain - for exciting new products from Mego. Unfortunately, Mego filed for bankruptcy and stopped manufacturing toys in 1982.
How could an industry powerhouse like Mego fail?
Mego International and its subsidiary, Mego Corporation, rocketed to success under the direction of Martin B. Abrams. In 1971, Abrams became president of the family business at age 28. The company went from being an unknown toy importer to a top-10 toy manufacturer by 1976. During this period, Abrams captured the limelight with lavish parties at the annual Toy Fair in New York. These expensive parties impressed buyers and generated free publicity for Mego. In 1975, Abrams introduced the Wizard of Oz dolls at a gala attended by every surviving star of the movie. The following year approximately 1,000 people attended the party that featured Sonny and Cher introducing their new fashion dolls.
In its March 8, 1976 issue, Business Week profiled Mego's successful strategy: The company paid cash advances along with 5% royalties to secure the exclusive rights to the action figures. Abrams reasoned that although it’s expensive to acquire the rights for a celebrity toy, the figures cannot be imitated by competitors and the celebrity endorsements create enormous excitement for the products. Further, the bodies of the figures were interchangeable so when the excitement of one character dimmed, the head popped off and could be replaced with a new one at a minimal cost. This same recycling strategy is still widely used today to eliminate excess inventory.
So what went wrong? Why isn't Mego licensing the celebrities of today? The successful formula stopped working when Mego secured the exclusive rights to a series of flops. After the top-selling Cher, and then Fonzie from Happy Days, Mego struggled to provide exciting new figures.
Mego failed with Buck Rogers, The Black Hole, The Love Boat, and Star Trek: The Motion Picture. In 1981, The Dukes of Hazzard figures became a solid success as the television series raced to the top of the ratings. Unfortunately, other television related toys - such as CHiPs - were less successful. The company acquired the rights to the enormously popular Dallas, but J.R. Ewing’s appeal to the prime time viewing audience did not translate into the toy market.
While action figure losses began to mount, Mego also introduced a new line of hand-held electronic games in 1980. Company executives hoped the games would provide a more stable source of income and reduce the company’s dependence on action figures. Sadly, this strategy only created more debt for Mego. The company struggled to sell the games.
Already saddled with enormous debt, Mego’s problems worsened when Abrams, president and chairman of Mego International, was indicted on federal wire fraud charges. The grand jury issued an indictment in January 1982, charging Abrams with defrauding the company of more than $100,000 over a nine-year period. The indictment also named Mego’s general counsel and vice president, Leonard S. Siegel, and three other current and former Mego executives.
Federal prosecutors proved that the executives made unrecorded cash sales of damaged and clearance merchandise. Mego had no system to track merchandise returned by stores, so the items were easily sold for cash to street vendors. During the seven-week trial, which began in July 1982, the jury heard testimony that the money was used to bribe toy company buyers and to payoff labor union officials. Prosecutors also argued that part of the money was used for their own benefit. After four days of deliberation, the jury found both Abrams and Siegel guilty on 15 counts of wire fraud and one count of tax fraud. The other three defendants were found not guilty. Abrams received a four-month sentence for each count and Siegel received three months on each count. The judge ordered the punishment on each count to run concurrently for a total of seven months imprisonment.
On appeal, Abrams and Siegel argued that they did not harm Mego or shareholders and that all of the money was used for the benefit of the corporation. They also argued that $100,000 over nine years was an insignificant sum compared to the multi-million dollar sales recorded every year by the company. The Second Circuit Court of Appeals rejected their argument and found, according to court records, that "the jury was entitled to find that Siegel and Abrams, top executives in Mego, generated a secret fund of over $100,000 in cash sales of company assets without disclosing their activities to the stockholders, that they used the cash in part for private benefit... and that they did not account for any sum that may have remained in the fund."
Faced with weak sales figures, ballooning debt and the chairman under indictment by a federal grand jury, Mego filed for protection under Chapter 11 bankruptcy on June 14, 1982. The company hoped to reorganize its finances and overcome all of the difficulties. As part of the reorganization plan, Mego stopped manufacturing toys. Instead of making toys, Mego planned to sell and distribute toys for other manufacturers.
At this point, Mego’s weak toy line and tarnished reputation were not very attractive to other toy makers, which forced Mego to accept the only offer it received. Pac Packing Corp. purchased some of Mego’s toy licenses and molds and entered into an agreement with Mego to market and distribute the toys in January 1983. Mego’s future depended on this agreement because the company was now only a shadow of the giant it had once been. In 1976, the company had grown to approximately 1,400 employees. By the beginning of 1983, a fresh round of layoffs and the resignation of Chairman Abrams reduced the payroll to about 30.
Mego fought and lost a bitter court battle when Pac terminated the agreement claiming sales goals had not been met. After this setback, Mego could not pay secured creditors. New investors helped Mego to develop a plan to satisfy these creditors, and the company emerged from bankruptcy by the end of 1983 after merging with a subsidiary. This satisfied some of the creditors and stockholders, but not collectors. Mego was out of the toy business.
The history of Mego illustrates the difficult challenges facing companies in the volatile toy industry. Toys that are popular one month can be forgotten the next. Licensing strategies that are enormously profitable one year cannot always be repeated. Although the company ultimately failed as a toy maker, the death of Mego has not dampened the value of the toys. Collectors love the larger action figures with cloth costumes regularly produced. These larger figures contrast sharply with today’s standard of smaller, molded plastic figures. Mego figures will continue to provide value and enjoyment to every collector.
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