By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
With Hollywood becoming the electoral-season punching bag, how comforting to see that the entertainment biz is a boffo hit in Delaware Chancery Court. It’s got big domestic: The New York Times dubs the Eisner-Ovitz-Disney shareholders’ trial "grimly entertaining sport." It’s got huge foreign: The Timesof London calls it "perhaps the most entertaining corporate trial in American history." Even the judge, William B. Chandler III, praised Disney board member Sidney Poitier’s testimony as "marvelously entertaining.’’
Since the show is almost over — the witness parade will end by Christmas, closing arguments will take place in January, and a court decision will come sometime after that — it’s time for our review. But we’ll be magnanimous and not factor in the ugly ticket price — spending $600 a week for the online video access to the court proceedings, or staying in Georgetown, Delaware, where the town square is straight out of Back to the Future, and the lone place to stay, the Comfort Inn, doesn’t offer room service or Pratesi sheets (instead, there are mean little mattresses and donuts in the morning), and the only place to eat, Smith’s Family Restaurant, isn’t low-fat-friendly (diners can’t even sub out the fries for veggies).
First, the good news. The performance of the stars didn’t disappoint. Up close and personal with the crazed Michael Ovitz and a cowed Michael Eisner — can it get better than this, folks? Two Blind Mikes were even better than we’d hoped and breathtaking in their capacity for conceit and deceit. And the character actors — Disney board members and ex-Disney executives — gave us priceless moments of hilarity, like when retired chairman and CEO of Capital Cities/ABC Inc. Tom Murphy last week claimed Ovitz, while Disney president, "was like a cancer in the organization." His words brought tears to our eyes (because we couldn’t stop laughing). And there’s been a wonderful cameo by the hapless AIG insurance agent, who’s been sitting through the whole trial and who’s going to have to pay the bill if the Disney shareholders prevail against Ovitz, Eisner and the Disney board.
Now the bad news. Like most major productions, this one had serious third-act problems. We can’t blame the director because the court chancellor has done everything humanly possibly to keep the trial moving along sprightly without sacrificing quality. Instead, the failure must be laid at the feet of the screenwriters, who in this case are the well-heeled lawyers from New York and Los Angeles. Everyone knows that "schmucks with Underwoods" was how legendary studio boss Jack Warner once described screenwriters, but in this case we’re watching schmucks with fancy law degrees. Heck, Vincent Gambini could do a better job (even without Mona Lisa Vito by his side).
Exactly how these shysters on both sides of the lawsuit should have won this case isn’t brain surgery, but simply a matter of Hollywood intelligence. Sheesh, even the lowliest mailroom clerk at Warner Bros. or the maitre d’ at the Palm know more about the entertainment industry than these $700-an-hour know-nuttin’s. As Ovitz admonished in testimony, "I don’t set the rules in the entertainment business. It’s been this way forever. It’s an insane business." For the lawyers to understand what’s sane from insane, they should have spent a few months studying how the Industry operates. But nooooooooooooo. As an exasperated Sandy Litvak, Eisner’s ex-right-hand man, said to shareholder lawyer Steve Schulman, "If you think that’s cause to terminate, we’re on different planets." Exactly: One is Planet Hollywood and the other is Planet Earth.
For weeks now, the shareholders’lawyers have focused their argument on the money, from Ovitz’s outlandish severance pay to his outrageous expense reports, but anyone who knows anything about Hollywood knows that these are symptoms, not the disease. What they should have focused on was why Eisner was so feverish to award Ovitz that outsized employment contract in the first place at a time when Ovitz’s value was akin to the $1 bin at Blockbuster. Because when Ovitz was hired in August 1995, the CAA chieftain was in such a difficult and delicate position it just didn’t make sense. But in light of Ovitz’s lucrative relationship with Eisner through the years, it certainly made dollars and cents.
In turn, Eisner's lawyers should be arguing that, by hiring Ovitz, Eisner single-handedly saved show biz. That, at the time, if Ovitz had continued as CAA's chairman with something to prove after losing the MCA CEO job, an Ovitzian reign of terror costing Disney and other infotainment companies billions of dollars might have been unleashed on Hollywood. So Ovitz's contract, when viewed with the benefit of 20/20 hindsight, was a bargain.
First, let's all go back to the summer of 1995. What goes up must come down, and a lot of balls were suddenly dropping for Ovitz after years of successful juggling. His role behind the scenes in Edgar Bronfman Jr.’s secret buying of Time Warner stock had created a great deal of mistrust among people he did business with in Hollywood. His consulting work for companies like Coke, Nike and Crédit Lyonnais was riddled with conflicts of interest. The government was investigating complaints about his agency’s pension-fund schemes. His hoped-for deal with Microsoft had gone south while his just-started Tele-TV venture was going nowhere. The anti-Ovitz forces were gathering in numbers, and his rivals were growing in strength.
In order to evaluate Ovitz’s worth back then, the shareholders’ lawyers should have known some of the agency’s biggest actors and directors were beginning to have flops. His most important client, Steven Spielberg, formed a company with two of Ovitz’s biggest enemies, and Ovitz not only didn’t know about it, he had nothing to do with it. Some CAA clients were learning that not everyone paid 10 percent commission. And that infamous clique of five young agents, known as the young Turks, was making noises about leaving.
For two years in a row, Ovitz had not been No. 1 on Premiere magazine’s annual power list. And as Hollywood’s studios were changing hands and merging, becoming huge entertainment octopuses with tentacles reaching into television, cable, film, music, interactive media and even computer software, Ovitz felt a growing panic that he had missed the boat. If he was going to make a move to a Big Media company, he had to make it soon, verysoon.
The plaintiffs’ attorneys could have pointed out that no one knew better than Eisner that only a few jobs left in Hollywood were appropriate to Ovitz’s perceived stature, and every one was occupied. The problem now was that Ovitz had become a prisoner of his own mythology. That is why, to others around him, including Eisner, Ovitz began to appear worried, paralyzed, indecisive, even weak. The man who had always claimed to know everything now didn’t know what to do about himself. As strange as it seemed, Michael Ovitz was genuinely fearful of the future. It was the first sign of weakness for which nearly all of Hollywood had been holding its breath.
When you’ve been called the "Most Powerful Man in Hollywood" since 1986 and embraced that appellation, you’d have to be convinced another job was the best and the brightest available to any entertainment executive ever. A year earlier he’d turned down Eisner’s surprise offer to become, pre-ABC purchase, Disney’s heir apparent. Now, Ovitz was in the thick of talks to head MCA because it was the last real chance he had for a big job with a major studio. But negotiations with new owner Edgar Bronfman Jr. were not going well at all. Why should anyone care about this recent ancient history? The shareholders’ lawyers should because this is the crux of what’s wrong with how Ovitz was overcompensated at Disney. That Disney contract was based on Ovitz’s valuation during the MCA bargaining. One problem: Ovitz was still worth something then, but he wouldn’t be by the time Eisner saved his sorry ass to the tune of a seven-figure salary, millions of stock options and the usual kingly bonuses and perks.
Ovitz was demanding that Seagram pay him for his share in his partnership in CAA. He put that value at $240 million. But that was only part of the problem. The CAA partners had a buy-sell agreement that stipulated all the partners had to be compensated should the partnership be dissolved. Ovitz needed enough not only for himself, but enough to pay off CAA partners Ron Meyer and Bill Haber and then settle up with the people who were left to run CAA.
But to Bronfman’s dismay, the compensation for CAA was just the opening salvo. Ovitz next had problems with the formula of how his compensation was to be paid in stock and cash and equity, leading to yet more weeks of negotiations. Then Ovitz had problems with the tax consequences. To Bronfman’s frustration and amazement, the CAA chieftain continued to make more demands. No matter was seemingly too big, or too small and petty, to negotiate. One minute it was more money, the next it was more autonomy, then more company planes, more drivers, a limousine at his disposal 24 hours a day.
What kept driving Ovitz for more? Was it greed? Absolutely. Was it power? Absolutely. Bronfman, on the advice of his family, ultimately walked away. The collapse of the MCA negotiation was a disaster for Ovitz, like getting rear-ended is to the value of a Mercedes. The plaintiffs’ lawyers should have jumped on this passage in Ovitz’s story and painted a picture of a man with an empty hand, not one holding all the cards. Ovitz’s first worry was how it would look to the outside world. It was the lowest point of his life. Everything he had worked for two decades to build up had been pulled out from under him. He had lied. His credibility was shot with the press, with Hollywood and with his own clients and his own agency. He had shown he wanted out of the agency business. And he had betrayed his own employees by not telling them the truth and not taking care of them. All the work he had done over the years to build up his persona had all gone out the window. He was staring into the abyss, and he didn’t know what to do. Depression set in.
At investment confab Camp Allen a few weeks later, people walking down the pathways didn’t recognize the man with his head down, his eyes lowered, his shoulders slumped. Ovitz was a shadow of his former self. For the first time, the 48-year-old looked his age.
Not only did Ovitz’s No. 2, Ronnie Meyer, wind up taking the MCA job, but Ovitz was trying to regain control at CAA. All through August, Ovitz had met with the top dozen or so agents within his agency trying to dole out power and money. Now more than ever, Ovitz wanted to cash out and continue his career somewhere else.
Enter Eisner. The Disney chairman had to know about all of the above. So why did he pay so much?
ONE REASON, THE SHAREHOLDERS’ ATTORNEYS could have claimed, was the long and lucrative financial relationship Ovitz and Eisner shared. Since 1975, Eisner again and again put himself in the position of throwing money at Ovitz to help the agent professionally and personally. They had met when both were fledglings in the TV biz. Even Eisner loved to tell the story how just after CAA was formed by five young television agents from the William Morris Agency, he helped put the agency on solid financial footing. Then head of prime-time entertainment programming at ABC and thinking William Morris too powerful, Eisner ordered all of his people to "go out and create a new piece of business" with CAA.
Later, when Eisner was promoted to president of Paramount Pictures, Ovitz almost immediately pressed Eisner to hire TV writers Rick Eustis and Michael Elias to pen a feature script. The Paramount president agreed, but when he suggested it at a Paramount meeting, his executives rebelled. "Television people can’t write movies; it’s a different thought process," his exasperated production executive Don Simpson complained. "You’re just being prejudiced against television," Eisner replied. "You better believe it," Simpson replied smugly. "It’s a different world."
Eisner backed down. But if he couldn’t throw Ovitz business, as he had at ABC, then he would make sure his people at least met the CAA president. "We were welcomed with open arms at Paramount," recalls then–CAA literary honcho Tony Ludwig. "They always read our scripts, always took our meetings. They always helped us, even though we had nothing to help them." But soon, CAA and Paramount were deep in business together on several John Belushi projects. So important was his connection to Eisner that Ovitz even took Eisner’s side against the comic.
After Eisner took over as chairman and CEO of Disney, there were even more deals between the two men (The Color of Money; Good Morning, Vietnam) and eventually too many to count. Eisner even helped out Ovitz by hiring his brother Mark. In 1986, when then Wall Street Journal reporter Michael Cieply (now movie editor at The New York Times) was preparing a front-page profile on Ovitz that first outed him as "the most powerful individual in Hollywood," the CAA chieftain tried to scare Cieply off the story, fearing it would make him too much of a target. At one point, Ovitz even enlisted the help of Eisner, who warned Cieply, "If you write this story, it won’t be good for you." And in 1989, when a distraught Ovitz begged Eisner to defend him against accusations that he threatened screenwriter Joe Eszterhas with career annihilation for wanting to leave the agency, the Disney chairman took the unusual step of calling members of the media and proclaiming Ovitz’s innocence. Eisner’s wholehearted defense got the press off Ovitz’s back and single-handedly saved Ovitz’s bacon.
Now, as far as the defense goes, Eisner's spinners should have spun that he deserves an award for hiring Ovitz, not a trial. How, with one move, Eisner removed a hugely destructive thorn from Disney's and Hollywood's collective side. Hollywood might have been faced with financial ruin since Ovitz would have jacked up the prices of stars and directors even higher in movie and TV deals. Instead, Ovitz's departure from CAA leveled the playing field in Hollywood overnight, affecting not only the future fortunes of other talent agencies and studios and networks, but also everything entertainment-related. Why, Eisner probably saved Disney in the short term 10 times the $140 million pact given to Ovitz and billionsin the long run.
Let’s also not forget, the defense lawyers should be telling the court, that after Disney's purchase of ABC, Eisner needed to shore up Wall Street’s shaken confidence in his health by immediately hiring a helper to run the newly gargantuan enterprise. As to why Eisner didn’t know in advance that Ovitz wouldn’t be a good fit at Disney, the obvious fact that they’d been friends for over 25 years, that their wives were nearly inseparable, that their families always spent vacations together in Aspen, Hawaii or the Mediterranean, may have camouflaged the reality that these two men hadn’t faced off on a business deal mano a mano in at least a decade. Sure, their surrogates had been butting heads deep in the trenches of everyday agency-studio warfare (with Eisner coaching Katzenberg behind the scenes to "Do it more!"). But though the two men knew each other intimately, they had lost touch professionally after becoming gods on Mount Hollywood.
With much of the testimony focusing on the $4.8 million in expenses that an outside auditor said Ovitz charged the company, Eisner’s lawyers should stop and say, "So what?" The report ultimately identified only $140,000 out of that sum which Ovitz owed the company. Pennies compared to the fraud at Enron, Global Crossings, Adelphia et al. Heck, Hollywood only makesmovies about toga parties; it doesn’t live them like Dennis Kozlowski at Tyco. The defense lawyers should read into the record pages from Christopher Byron’s recent tales of CEOs gone wild, Testosterone Inc. The stuff about former CEOs Jack Welch (the adulterer from General Electric), Ron Perelman (the bully of Revlon) and Al Dunlap (the dictator of Sunbeam) is like a vial of Viagra for corporate-malfeasance junkies and makes Ovitz’s pettiness, even sexed up by the plaintiffs’ lawyers, look like limp-dick talk. In fact, maybe there’s a new genre for this kind of courtroom sideshow: corporate porn.
Now that’s entertainment.
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