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History of the Mego Corporation

By Edited Jun 28, 2016 1 0

If you grew up in the 60s or early 70s, you probably had one or more of the figures created by a little known company at the time.

The Mego Corporation was founded in the early 1950s by David Abrams and had a reputation before the 70s of producing cheap, dollar store type toys. However, the corporation went from being an unknown toy importer to a top 10 toy manufacturer by the mid-70s by purchasing licensing rights to many popular Marvel and DC Comic action heroes, as well as movies such as Planet of the Apes and the Wizard of Oz and television shows such as Sonny and Cher, Buck Rogers and Dallas.

In 1976, Business Week described Mego's strategy as paying cash advances and 5% royalties to

Mego Collection
secure the exclusive rights to the action figures from the various sources.[1]

Thus they would be the exclusive producer for all of the action figures from all of the popular movies and television shows during the 70s.

As an added benefit, by producing all of the figures for some of the most popular shows and movies during that era, they got a lot of free publicity from all of the celebrity endorsements for the products.

One key factor in the success of the action figures was the decision to make the bodies of the figures interchangeable so when the excitement of one character from a certain movie or television show began to fade, the manufacturers could simply replace the head with another using the same body at a minimal cost.

As a child, this did not escape my notice either as Superman looked exactly like Batman and Aquaman, except for the head and interchangeable uniforms.

By the end of 1976, the company had grown to approximately 1,400 employees.[1]

So where did it all go wrong?

The successful formula stopped working when Mego secured the exclusive rights to what would become a series of

Thor Mego Action Figure
flops and those failures exacerbated other bad financial decisions that management was taking.

After the popular Cher and Happy Days figures, Mego struggled to find the next big hit. They guessed wrong by acquiring the rights to and sinking production costs into figures for Buck Rogers, the Disney movie The Black Hole, the television series The Love Boat and CHiPs, and Star Trek: The Motion Picture.[2]

At the same time, they guessed wrong on huge television successes such as The Dukes of Hazzard by passing on those rights. About the only success the company had in the late 70s was acquring the rights to the television show Dallas, a huge  rating hit, but the show’s appeal did not translate into the toy market so it turned into another bad gamble.

While the loses continued to mount from these miscalculations, Mego introduced a new line of hand-held electronic games in the early 80s. However, the games were another flop and the company fell further into debt.[1]

The company’s fortunes worsened in 1981 when the President of Mego International  was indicted on federal wire fraud charges. The indictment also named Mego’s General Counsel and Vice-President, along with several other former Mego executives. Federal prosecutors alleged that executives made cash sales off the books of damaged and clearance merchandise. Since Mego had no inventory tracking system to record merchandise returned by stores, the items could easily be sold for cash to street vendors. The prosecution alleged that the company officials used the money to bribe buyers from toy companies, payoffs to labor unions and for their own personal gain.

After four days of deliberation, the jury found both the President and General Counsel of Mego guilty on 15 counts of wire fraud and one count of tax fraud and each spent seven months in prison.

Green Arrow Mego Action Figure
[1]

On appeal, the Appeals Court rejected their argument that they did not harm Mego or shareholders and that all of the money was used for the benefit of the corporation, and upheld the jury’s verdict. Additionally they found that both men used the cash in part for private benefit and that they could not account for all of the money in the fund.

For Mego Corporation, sales continued to fall and in June 1982, Mego filed for Chapter 11 bankruptcy.[1]

The company hoped to reorganize its finances as part of the reorganization plan. Part of the planned agreed upon with the bankruptcy court altered Mego’s business model and forced them to stop manufacturing toys and instead, sell and distribute toys for other manufacturers.

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The Aftermath

After the lawsuits, Mego’s reputation was so tarnished that other toy makers had the leverage to offer ‘take it or leave it’ deals which were not advantageous to Mego.

Aquaman Mego Action Figure
A company named 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 1983.

Mego's entire future depended on this agreement because the company was now only a shell of the powerhouse  it had once been. By early 1983, the company was a shell of its former self with an active payroll of about 30 people.

By mid 1983, Mego was in another court battle, this time because Pac Packing Corporation  terminated their agreement with Mego claiming that sales goals had not been met.

After another costly legal setback, Mego could not pay secured creditors and was forced back into bankruptcy protection again to try to secure financing from new investors. With the additional investors, they created a new plan to satisfy their creditors and the company emerged from bankruptcy by the end of 1983 after merging with a subsidiary.

However, by this time the damage was done and Mego was officially out of the toy business.

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Mego Retro Action Figures

Final Thoughts

The downfall of Mego demonstrates  the difficult challenges facing companies in the volatile and finicky toy industry. Although the company failed, their products continue to be sought after by collectors, particularly on auction sites like Ebay.

Additionally, replacement parts and reproductions of Mego bodies, heads, and accessories are still being made in China by a company called Dr. Mego for collectors of the golden age of toy products that want to repair their broken or incomplete 70s era action figures.[2]

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Bibliography

  1. "Mego Corporation." Wikipedia. 25/01/2015 <Web >
  2. "Mego Past and Present." Mego Museum. 25/01/2015 <Web >

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