Death Row sitting atop charts, but problems mount

Death Row Records dominated the nation’s pop chart this week with Tupac Shakur’s posthumous album, and based on sales projections of its fourth-quarter release schedule, the company stands poised to rule the rap market during the lucrative Christmas rush.

But even as the company generates millions of dollars in revenue and is regarded as the most successful rap label in the country, Death Row’s future is in jeopardy. Marion “Suge” Knight, the shrewd, driven founder of the company, sits in County Jail and faces a probation violation hearing today that could send him to prison for nine years.

“Death Row will go right down the tubes without Suge running it,” said one senior executive familiar with Death Row’s operations. “Whatever you might think about Suge, the man is a relentless workaholic with amazing communication skills. There is nobody working at his company who could replace him.”

If Knight is incarcerated, state law would forbid him from running his company.

Even if the judge allows Knight to walk free, the company is struggling with a series of other problems. Sources say the company hasn’t been paying some bills, has split with its longtime accounting firm and was driven from its primary recording studio because of complaints from neighbors.

Another ominous legal showdown also may loom on the horizon for the rap mogul. The federal government has been investigating Death Row for months to determine whether the company is being run as a criminal enterprise.

“Death Row is one of the biggest success stories in the history of black music,” said one competing executive. “This company rose up so fast it blew everybody away. From the looks of it though, it may fall even faster.”

Knight, 31, who founded Death Row in 1992 and built it into the nation’s top rap label, has been in jail since Oct. 22 for possible probation violations--among them an allegation that he was involved in an assault at a Las Vegas hotel. He pleaded no contest to attacking two aspiring rappers at a Hollywood recording studio in 1992.

In court last week, one of the rap mogul’s attorneys urged the judge to release Knight on bail, noting that production at the company has been in danger since the day he was remanded to jail.

Knight, who is the sole owner of Death Row, controls all business dealings at the company. But he also is intimately involved in overseeing the production and mastering of its recordings. Even Knight’s critics credit him with the company’s transformation from an unknown start-up label into a thriving enterprise generating more than $100 million in revenue annually.

If the judge were to revoke Knight’s probation today and ship him off to prison, the rap mogul could no longer call the shots at Death Row. According to California law, Knight would not even be allowed to make a phone call to discuss Death Row’s business.

“The law is very clear on this matter,” said Christine May, a spokeswoman for the California Department of Corrections. “It is illegal for any prison inmate to actively engage in running a business.”

California law, however, does allow an inmate to “assign authority for the operation of a business” to others in the community. Knight was unavailable for comment, but his chief defense lawyer, David Kenner, said he had no idea who would take over the company if Knight got sent to prison.

Since October, Death Row has been run by two of his relatives, neither of whom has much experience in the music business. The company, which lists 22 acts on its artist roster, is operated by a 12-person staff and supports scores of musicians, producers and independent contractors on its payroll.

It is unclear what would happen to the acts on Death Row should Knight be sent to prison. One entertainment attorney said that Knight could sell the artists’ contracts to a rival company. Another lawyer suggested that the artists could say that Knight’s absence destabilized the company and declare their contracts invalid.

Despite its remarkable, albeit brief, track record on the sales charts, entertainment industry analysts doubt the label has turned a profit.

A start-up record label can cost millions to get off the ground; the company has to pay all the costs of recruiting talent, recording costs and setting up a company infrastructure before any revenue comes in. In Death Row’s case, millions of dollars were advanced by its distributor, Westwood-based Interscope Records, which is now half-owned by MCA Inc. Interscope is likely to recoup its advances from Shakur’s album and other upcoming releases.

Even before Knight was sent to jail last month, Death Row had fallen behind in meeting deadlines to deliver five albums scheduled to be released in the fourth quarter, the most profitable time of the year for record companies.

Knight completed recordings by Shakur and Snoop Doggy Dogg before the judge ordered him into custody. Failure to deliver the additional three albums--by singer Nate Dogg, a greatest hits collection, and a compilation titled “Christmas on Death Row”--in a timely fashion could cost Death Row millions of dollars in advances.

Due to cash flow problems, Death Row already owes money to a variety of creditors, sources said. The company is also saddled with expanding overhead costs related to its purchase of the old Carolco building at 8200 Wilshire Blvd.

In addition, Knight’s arsenal of six top defense attorneys are racking up a stack of unpaid legal bills. It is unlikely that those bills will diminish any time in the near future.

Adding to its complications, Death Row was asked last month to move out of its primary recording studio in Tarzana after complaints from neighbors to police about noise and alleged gang-related activities. Local authorities have made several arrests in recent months outside the studio and are cooperating with federal officials in the probe.

Sources said that the Justice Department is attempting to build a racketeering case against Death Row based on the company’s alleged links to street gangs, weapons, violent acts, drug trafficking and money laundering. Indeed, phones have been tapped at the multimillion-dollar rap company and witnesses have been subpoenaed to give testimony before a federal grand jury now in session in Los Angeles, sources said.

Staff writer Jim Newton contributed to this report.

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