Diamond Distributors Asks Bankruptcy Court For Ownership of Publishers' Consignment Inventory [UPDATED]

Jimmy Dick · Jul 2, 2025

This is not good for the small publishers at all, nor is it good for anyone. At this point, stores should cease to do any business with Ad Populum forever. Also, if I'm a company selling products, I would push more and more for direct distribution to the stores and cut out the middlemen. If I was running a store, I would be trying to eliminate as many middlemen as possible because all they do is increase the costs to the stores and consumers. The middlemen are parasites on our industry.

robertsconley · Jul 2, 2025

Umbran said:
From the link you provided:
"The UCC-1 publicizes the creditor's legal right to seize collateral if the borrower fails to make payments on a loan. It also establishes the creditor's priority over other creditors for that collateral."

So, it sounds to me like the UCC-1 is exactly that - the way for the publishers to claim the goods in the bankruptcy.

I did some digging and found several articles similar to this.

Yeah, About That Consignment Agreement … How You Can Lose Your Goods in a Retail Bankruptcy [Alert]

Allen Guon and Robert Fishman discuss the Uniform Commercial Code and the steps necessary to perfect your consignment under it.

www.cozen.com

It appears that if you are going to commit a high value amount of inventory for consignment, there are some steps you should take before doing this beyond the basic contract.

There are a number of steps a seller must take to protect its interests in consigned goods under the UCC. First, a consignor must have a written consignment agreement with the consignee that grants the consignor a purchase money security interest (PMSI) in the consigned goods. The consignment agreement should also provide that title to and ownership of the consigned goods remain with the consignor until the goods are sold, but the risk of loss remains with the consignee. To protect the value of the consignor’s interests, the consignment agreement should also address other material terms such as inventory controls, sales and inventory reporting, insurance requirements, and payment terms. Second, the consignor must take a few additional actions to perfect its security interest in the consigned goods prior to their delivery to the consignee. These steps include: (1) filing a UCC-1 financing statement in the appropriate jurisdiction describing the consigned goods and (2) sending a written notice to all other parties with a liens in the consignee’s inventory that describes the consignment arrangement (including the fact that you will take a PMSI security interest in the consigned goods), describes the consigned goods, and indicates when you will begin delivery of the consigned goods. Third, every five years, the consignor must also file a continuation UCC financing statement and provide new notices to each party with a lien in the consignee’s inventory. Each of these steps is critical because the failure of the consignor to properly perfect its security interest prior to the bankruptcy filing may relegate the consignor to the status of a general unsecured creditor with no ownership interest in the consigned goods.

If a game company is sending books or games out on consignment, say to a distributor or retailer, they should be sure they file a UCC-1 financing statement in the state where the consignee is incorporated. This usually costs around $10–$30, and lasts five years (and it can be renewed if needed). What it does is give public notice that those boxes of books aren't theirs, they're still yours.

Why does this matter? Because in the U.S., when a company goes bankrupt, the court prioritizes secured debts, those that are on public record, over private contracts. That consignment agreement you signed? Doesn’t mean much if you didn’t file a UCC-1. Without that filing, your inventory can be treated like it belongs to the bankrupt company.

The system is built to reward people who follow the public notice rules, like a UCC-1.

Well, that is something I didn't know before that will get added to the to-do list if I ever get to that point, publishing-wise.

Morrus · Jul 2, 2025

Jimmy Dick said:
Also, if I'm a company selling products, I would push more and more for direct distribution to the stores and cut out the middlemen.

Unfortunately, that’s not really an option. Most publishers do offer that option, but it’s only a tiny percentage of their retail sales. The stores aren’t interested in managing their inventory on a per-publisher ordering basis. They just want a single point of contact to put periodical orders in. That’s a distributor.

kenmarable · Jul 2, 2025

robertsconley said:
I did some digging and found several articles similar to this.

Thanks for the additional information! I can see the law working that way, but also, if I am understanding that correctly, the proper procedure is all 128 of those companies should have filed UCC-1's in Maryland AND notified all 127 other companies in writing (or at least as many that have filed prior to them, so first in the door doesn't have to let anyone else know other than the Maryland public, but last person to file has to contact all 127) and refiled that paperwork (likely now with all 127 other lien-holders) every 5 years.

So that onerous law may be on Diamond's side, but also, if this is the case, they have been operating as a multi-million dollar consignment shop for decades that kept quiet about the proper paperwork (from small shops all the way up to Marvel) until it benefited them. Typical US business law of "may be legal, but shady as..."

Wofano Wotanto · Jul 2, 2025

Morrus said:
Unfortunately, that’s not really an option. Most publishers do offer that option, but it’s only a tiny percentage of their retail sales. The stores aren’t interested in managing their inventory on a per-publisher ordering basis. They just want a single point of contact to put periodical orders in. That’s a distributor.

That's partially because distribution generally offers order thresholds where shipping receives a discount or simply becomes free. It's easy (relatively) to reach those thresholds when you're ordering from scores of companies all at once through a distributor. When it's just one company, they may not eve offer free/discounted shipping, and if they do it's hard to scrape up a big enough order to qualify. Stores don't want to pay shipping, and the added hassle of dealing with multiple businesses is just another nail in the coffin of the "direct-to-retail" dream.

Which you know full well, but not everyone grasps why it doesn't work so it bears repeating.

Von Ether · Jul 2, 2025

If GAMA offers seminars or education on UCC-1s and other paperwork, they should be saying something. It's so frustrating how almost each individual has to learn how to run a publishing/gaming business from scratch in this industry.

JLowder · Jul 2, 2025

Jd Smith1 said:
The real damage, IMO, is the sudden flood of 'priced-to-move' product onto the market. You are going to see smaller companies competing for sales with their own goods. This could create a very bad year for these companies.

The damage is far more direct. The publishers all paid for these specific products to be printed, and the money that went into printing and shipping and warehousing the copies held hostage is possibly lost, with no hope of recovery. They are also directly losing out on money to be made when these specific products sell. If Diamond blows out these products to a remainder house, they will then be available at discount rates and will undermine sales of other copies of the work (if the publisher does not have all their stock held hostage at Diamond). The same if the publisher is tempted to go back to print (a very expensive proposition) in hopes of recovering some of the money they invested in creating the products in the first place. The discount products will undermine those new sales, too.

This direct damage will spread throughout the publishing ecosystem. For products where the creators receive royalties for sales, for example, they will likely receive nothing, since contracts generally specify payment is only owed after money is received for the sales. The publisher gets stiffed, they may not owe anything to the creators. Even if they want to pay creators, they may not have the funds to do so.

This also chokes off cash flow the publishers are counting on to pay for the next books they have on the schedule. Those projects may be delayed or cancelled, and freelancer rates lowered, and on and on.

Between the debt accrued by old Diamond and the smash-and-grab being run by new Diamond, I expect some publishers to close shop. The mid-tier places are the most vulnerable, as they have larger print runs and tend to invest more in creators when making their products. Tabletop has seen this before when other distributors in the market (Wizards Attic, Osseum, etc) failed. The tabletop market has been hollowing out in the middle for decades, and this will only accelerate that change.

Morrus · Jul 2, 2025

UPDATE -- Paizo Publishing has announced that its upcoming releases will not be available at major bookstores or at Amazon because the company has stopped shipping products to Diamond. This includes 12 August releases and 10 September releases, such as Starfinder Player Core, Starfinder GM Core, Pathfinder Battlecry, and more.

overgeeked · Jul 2, 2025

Cordwainer Fish said:
I guess theft is legal now.

Always has been. You just have to be the ones writing the laws or enforcing them.

Diamond Distributors Asks Bankruptcy Court For Ownership of Publishers' Consignment Inventory [UPDATED]

el-remmen

Moderator Emeritus

Jimmy Dick

Adventurer

robertsconley

Hero

Yeah, About That Consignment Agreement … How You Can Lose Your Goods in a Retail Bankruptcy [Alert]

Morrus

Well, that was fun

kenmarable

Hero

Wofano Wotanto

Hero

Von Ether

Legend

JLowder

Hero

Morrus

Well, that was fun

overgeeked

Open-World Sandbox

Similar Threads

Pets & Sidekicks

Related Articles

Pets & Sidekicks