The public got a behind the scenes look at how the deals made on reality television shows "Shark Tank" and "Dragon's Den" really take place though Robert Herjavec's family law case with ex-wife Diane Plese. The lengthy decision Justice Mesbur looked at how the "investments" Mr. Herjavec made on the shows are valued in relation to his Net Family Property.
In 2003 Mr. Herjavec established a company called the Herjavec Group ("THG") and during his appearances on the Shark Tank and Dragon's Den, Mr. Herjavec caused THG to invest in some of the companies that were "pitched" during the episodes. The independent business valuators were tasked with determining the value of the Shark Tank and Dragon's Den investments in order to value THG.
There were two approaches: Mr. Herjavec's valuators Duff & Phelps simply looked at the investment's book value and Ms. Plese's expert, Mr. Beaton predicted that at least one of the investments would turn a profit and made an "implied investment" calculation.
However, Justice Mesbur found that the deals made on the reality shows are for entertainment purposes primarily and there is no real value or potential value of these investments besides the upfront amount already invested. Though there is a bidding process, offers made and final handshakes on the episodes, there are no binding contracts made between the Sharks/Dragons and the entrepreneurs.
The usual due diligence takes place after the cameras finish rolling and the Sharks/Dragons then decide whether or not they still want to finance these companies. Oftentimes, the terms of the deal made while filming change drastically after this process.
Justice Mesbur found there is no expectation of profit from any of these investments, therefore no expectation that they will increase THG's value. In the end, the approach taken by Duff & Phelps to use the book value was accepted instead of the inflated value of their "potential growth".
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