Worst in Show How Key3Media, the company behind the big tech trade show Comdex, went bankrupt.
By Brian Caulfield Additional Reporting By Jonathan Thaw

(Business 2.0) – Microsoft was there. Cisco Systems, Hewlett-Packard, and Sun Microsystems were all there. So were companies like Egghead.com, Foodvision. com, and DigiScents. Just three years ago, it didn't matter whether you were a giant of the tech world or a startup prepping your road show: If you were in tech, you had to book a trip every November to Comdex in Las Vegas--and to do that, you had to do business with Key3Media, the company that ran it. With nearly $300 million in sales in 2000, and with a brand--Comdex--that had such power, Key3 looked far better prepared to weather the coming tech bust than the many startups and dot-bombs that threw money at it during the boom.

But in February, the once-hot show organizer followed its former exhibitors into the protective custody of Chapter 11. Comdex is no longer king of the trade shows. Key3, just out of bankruptcy and freshly renamed MediaLive, is hustling to line up exhibitors for a dramatically smaller show this fall. Even the annual Chili for Children Cook-Off, a popular charity event that has been held at Comdex since 1991, recently packed up and moved to Dallas.

The humbling of Comdex and Key3 is a tale of management excess and rotten timing, and an object lesson in how swiftly that combination can drive a lucrative operation into the ground. In 1997, Comdex Fall in Las Vegas had profit margins in the 80 percent range, says Bill Sell, former manager of the show. It sold more than 1.35 million square feet of booth space at roughly $45 per square foot. Its sales force often extracted hefty down payments 11 months in advance from over 1,750 exhibitors desperate to get in front of its more than 200,000 attendees. In short, Comdex was a cash cow.

More than that, it played a significant role in shaping the industry's growth. Comdex was to tech what investment banker Herb Allen's storied annual Sun Valley gathering of moguls is to the media industry--the place where the most important people in the biz get together to cook up deals, share (or snoop on) technological insights, and generally make their mark. Legends abound. Michael Dell used his dad's credit card to buy Dell Computer's first Comdex booth. Linus Torvalds celebrated his daughter's birthday at a Las Vegas Thai restaurant after a Comdex appearance. A skinny young Bill Gates, then CEO of a little startup called Microsoft, gave his first big speech at Comdex in 1983. (His dad ran the projector.) Gates and his company have been regulars at the show ever since.

All this made it possible to look beyond the trade show and see the foundation of an empire. Maybe that's what Fred Rosen saw. A brash former lawyer, Rosen is a protege of the late billionaire conglomerator Jay Pritzker, who helped install him as CEO at Ticketmaster in 1982. Ticketmaster was tiny then; Rosen transformed it into a several-hundred-million-dollar business by the time it was sold to Barry Diller in 1998. Rosen was smarter, tougher, and more imaginative than anyone in the trade show business. When he took over as CEO at Key3 in 2000, he could have spent all the free cash thrown off by the Comdex-type shows to expand beyond the tech show niche. He even looked into acquiring House of Blues, a national chain of night clubs.

But much like the Nasdaq, Comdex had already grown too big, too fast for its own good. Only those closest to the show knew how serious the problems were. Every year Comdex staffers pressured vendors to buy bigger booths at higher prices: Take it or leave it. (IBM, famously, left it in 1997.) Comdex was therefore a magnet for dumb money. Seemingly every year some unknown company would buy a booth on the main floor of the show. The next year it would be gone--not just from the show but from the business. Attendees, an elite group of a few thousand tech buyers when the show started in 1979, increasingly included herds of sloshed junketeers, cheap tchotchke hunters, and slack-jawed booth-babe gawkers.

The formation of Key3 in 2000 didn't help. Comdex had originally been purchased by Softbank in 1995 and, with two other big tech events--the networking show Networld+Interop and the publishing technology show Seybold--folded into a unit of its magazine publisher Ziff-Davis. In 2000, Ziff-Davis, still mostly owned by Softbank, spun off the shows in a deal that would be financed with roughly $400 million in debt. Rosen took charge as CEO. The deal was complicated, but the result was not. Key3 was a public company, deeply in debt, and focused on only one line of business: producing technology events. The young company would either grow fast or die.

Rosen ran Key3 more like a billion-dollar company than the nearly $300 million business it actually was in 2000. The firm established a new headquarters on Wilshire Boulevard in Los Angeles, near Rosen's home (Merv Griffin's former mansion). Rosen and his top lieutenants were paid lavishly; Rosen's salary was $1.5 million in 2001. He used a private jet to travel around the country, an accessory more appropriate for the head of a Fortune 500 company than a scrappy show organizer.

Rosen's confrontational management style didn't always work either. His in-your-face attitude may have helped him build Ticketmaster almost from scratch, but at Key3 it irked some of the most experienced employees, many of whom had been running the biggest trade shows in the world for several years. If something annoyed Rosen, these managers could expect a call from his assistant. "Hold for Fred," the assistant would instruct the manager. Rosen then, according to several former managers, typically would scream into his speakerphone at them. Many of the trade show industry's most seasoned veterans began heading for the door.

Still, for a while it looked as though Rosen's approach might fly. Key3 booked $8.6 million in net income in 2000. Comdex sold more than 1 million square feet of floor space and attracted more than 210,000 attendees. Though the Nasdaq had peaked that March and was starting its long descent, only the weakest of the dotcoms were then biting the dust.

But Rosen and Key3 were soon to run out of luck. Corporate finance scandals and bankruptcies at Enron, WorldCom, and Adelphia, as well as the wide-scale dotcom collapse, shattered confidence in the technology, media, and telecommunications companies that were the bedrock of the big trade shows. Rosen put together roughly $100 million in acquisitions of mostly smaller shows to bolster Key3. He was due to announce the deals on Sept. 11, 2001.

The terror attacks stopped many people from traveling to trade shows or anywhere else, rocking Key3. In late September, Sell, the veteran general manager of Comdex Las Vegas, got an angry call from Rosen after he publicly described security at the upcoming show as Olympics-like, alluding to the preparations under way for the Winter Games in Utah. Sell had just wanted to reassure customers, but Rosen had insisted that his managers keep completely quiet on security, Sell says. (That, according to Sell, was the last time he and Rosen spoke. Sell says he quit in February 2002. Key3 has filed a suit against Sell alleging that he violated a noncompete agreement.)

Rosen declined to respond to comments from former employees in any detail. He says Key3's entire strategy was doomed by the tech collapse, 9/11, and other factors he couldn't control. "No one could have anticipated the events of 9/11," he says, "and the recession was much greater and deeper than anyone thought." He's dismissive of criticism from former employees: "You can't fix the problem with the people who created it. That's my response."

In any event, Key3 soon went into free fall. Its stock, which peaked at $13.31 a share in the first quarter of 2001, was down to pennies by July 2002, when the New York Stock Exchange delisted it. In September, Key3 announced it wouldn't be producing five shows--Comdex Chicago, Comdex Montreal, Comdex/NetWorld+Interop Atlanta, Comdex Vancouver, and Seybold Seminars New York. The company also shut its office in Needham, Mass. It was all too little, too late, however. That year's Comdex Las Vegas was haunted by talk of bankruptcy, and a number of major technology companies, including Cisco, Gateway, Intel, and Sony, didn't buy booth space. Many wondered whether they might be seeing the last of Comdex.

The doubts weren't eased by Key3's final numbers for 2002: It lost a staggering $795.9 million--including $363 million in write-downs on Comdex and other shows--on revenue of $151.5 million, a 47 percent dive from 2000. Meanwhile, Thomas Weisel Capital Partners, a private equity fund, was quietly buying up Key3's debt, positioning itself to take control. When Key3 filed for bankruptcy protection in February, the process was quick--it had to be if Comdex was to keep the confidence of its customers.

By June the company had emerged from bankruptcy and taken its new name. As MediaLive, it's controlled by Weisel and run by many from Rosen's old management team. Robert Priest-Heck, who had been Rosen's COO, took over as CEO. Rosen himself will remain on the board of directors. "They've got the right ideas, but not all of the management was changed, and some of the problem is still there," Sell says.

The reorganized company faces ferocious competitors, many of which are led by the pros who once ran the shows that Priest-Heck is counting on. Sell, for example, is working with a German trade show giant on its CeBIT show in New York. Other former Comdex veterans are crafting smaller, more focused shows that promise to further undercut the megashow model. Under Priest-Heck, Comdex itself is being slimmed down to compete in a postboom economy. Priest-Heck preaches the gospel of "content, customers, and the team" to anyone who will listen. He's even turned away would-be exhibitors that don't attract the elite techies he needs to retain in order to survive. So far this year, MediaLive has refunded $45,000 to would-be exhibitors that don't meet Priest-Heck's standards.

The question is whether the new approach will be enough to reboot Comdex. For now, there will be at least one more show, scheduled for November in Las Vegas. Comdex has announced that Gates will return to the show on the 20th anniversary of his first appearance, which alone guarantees Comdex another shot--something a lot of the companies that Key3 followed down the tubes never got. --BRIAN CAULFIELD (ADDITIONAL REPORTING BY JONATHAN THAW)