As Spender, Ovitz Was $6-Million Man

By Michael Cieply and James Bates

Feb. 28, 2004 12 AM PT

Times Staff Writers

Just five weeks after hiring Hollywood power agent Michael Ovitz as president of Walt Disney Co. in 1995, Chairman Michael Eisner believed his friend should be fired.

But he hesitated out of fear that Ovitz would commit suicide.

That version of events is contained in hundreds of pages of newly unsealed court documents detailing the stormy partnership between two of the most influential figures in Hollywood over the last 20 years.

The documents, filed in connection with a Delaware shareholder suit against Disney’s board of directors, provide a particularly unflattering view of Ovitz, whose stratospheric spending was extravagant even by Hollywood standards. During the 15 months he worked at Disney, Ovitz burned through $6 million on personal expenses, according to the records.

But it’s Eisner who stands to lose the most from the release of the documents.

Their emergence comes at a particularly inopportune time for the Disney chairman, who next week faces a challenge by some shareholders to force him from the board. In recent days, a number of state employee pension funds and two influential shareholder advisory firms have recommended against voting for Eisner’s reelection as a director. On Friday, pension funds from Ohio and North Carolina joined the list.

Although Eisner’s election is assured because he is running unopposed, a significant protest vote at the company’s annual meeting on Wednesday could weaken him to the point where the board would feel compelled to push him aside. Company officials are privately predicting that Eisner may fail to win as much as 30% of the vote.

The documents in Delaware Chancery Court resurrect issues now being used to criticize Eisner’s judgment and leadership. Shareholder advisory firm Glass Lewis & Co., for one, cited the legal papers in concluding that Eisner “failed to respect fully the separation of the company’s interests from his own and those of his friends and personal business partners.”

The release of the court papers was coincidental and not timed to influence the shareholder vote. Indeed, two of the defendants -- former directors Roy E. Disney and Stanley P. Gold -- are now spearheading the anti-Eisner campaign.

Ovitz did not respond to a request for comment. A Disney spokesman declined to comment. But in a legal challenge filed Friday, lawyers for Disney directors attacked as “one-sided” and “seriously flawed” one key filing: a report by Deborah A. DeMott, a Duke University law professor retained as an expert witness by the shareholders, who are contesting the circumstances surrounding Ovitz’s hiring and firing.

In her report, DeMott said Eisner decided to hire Ovitz as Disney president before consulting the company’s board of directors. The two men decided during an August 1995 hike in Aspen, Colo., that Ovitz should join Disney. Before board approval, DeMott said, remodeling began on Ovitz’s future office and appraisals were sought for his corporate jet. The board signed off in late September.

Ovitz rose to overriding power in Hollywood during the 1980s, when he and his Creative Artists Agency dominated the film business with a roster of top stars and directors. After brokering such high-profile corporate deals as the sale of MCA Inc. to Matsushita, he abandoned the agency and became Eisner’s understudy at Disney.

But the partnership between the two strong-willed men went downhill quickly, leading to a controversial cash-and-stock severance package valued at nearly $100 million when Ovitz left. The package soon rose in value to as much as $140 million as Disney’s stock price increased but later dropped as the shares tumbled.

A specially commissioned review of Ovitz’s expenses was quietly carried out after his departure. Dubbed “Project MSO” -- for Ovitz’s initials -- it uncovered a level of spending that infuriated Disney executives.

Ovitz, according to the study by an independent accountant, spent more than $2 million to remodel his office. At one point, he and his decorator proposed changes to the woodwork. The tab: $150,000.

It wasn’t his only capital improvement. Disney also spent $48,305 on Ovitz’s home screening room and $14,055 on his home office. To ensure that Ovitz motored in style, the company plunked down $99,135 to buy his BMW from his former employer.

Disney also spent nearly $80,000 on hundreds of gifts given by Ovitz to Hollywood players and others. Among the goodies: a $946 “firearm” for director Robert Zemeckis and a $200 cigar cutter for producer Al Ruddy.

The multimillionaire sought reimbursement for even small gifts: $53 in Disney baby apparel for actor Tom Cruise; $65 for Disney clothing and a pen for Oprah Winfrey; $85 in Disney items for Madonna; and $68 in videos for David Letterman’s birthday.

A good many of Ovitz’s expenses were compiled while he entertained at his home, according to the accountant’s report. The bill was $348,445, with most of the charges exceeding company guidelines. Those charges included $179 for flowers for a breakfast with Variety Editor Peter Bart.

But Ovitz seemed to live large outside too. He billed Disney $97,868 for Los Angeles Laker basketball tickets and $33,172 at restaurants such as Matsuhisa and Chez Panisse with the likes of Cruise, Steven Spielberg and DreamWorks co-founder Jeffrey Katzenberg. At the time, Katzenberg was engaged in a legal fight with Disney over money he said he was owed.

Questions about Ovitz’s emotional stability are a central point in the report. Based on a deposition from Disney investor Sid Bass, DeMott wrote that Eisner considered firing Ovitz after five weeks. But he didn’t “because he believed being fired would be devastating emotionally to Mr. Ovitz. Instead, he decided he should wait twelve months before bringing Mr. Ovitz’s employment to an end.”

The report continued: “More specifically, Mr. Eisner believed that, if fired, Mr. Ovitz would commit suicide.”

DeMott said Bass opposed Ovitz’s hiring. Eisner supposedly told Bass he also “harbored doubts” about Ovitz’s suitability from the beginning. A key issue, according to DeMott, was the agent’s “veracity.” The law professor said Bass testified in the deposition that Ovitz had made a false statement to him “the first time they met.”

Eisner, the document said, also became concerned that Ovitz wasn’t complying with company policy governing the reporting of gifts and other matters. Eisner asked Irwin Russell, a director and his personal lawyer, to keep track of Ovitz.

In a note dated June 24, nine months into Ovitz’s stint as president, Eisner told Russell: “(1) Michael is obviously not reporting gifts. (2) He told me some of his stock pickers are buying Disney. Please put on your list.”

Eisner upbraided Ovitz in a letter for meddling with a Variety story. Ovitz claimed he had been sent an advance copy for “corrections and tone and editing.”

On Friday, Bart said he had let Ovitz look at one of his Variety columns but only after it had gone to the printer.

“I’m keenly aware that Ovitz always liked to boast of the degree to which he could manipulate the press,” Bart said.

Eisner apparently tired of what he too regarded as manipulation.

“You played the angles too much, exaggerated the truth too far, manipulated me and others too much,” he wrote in a November 1996 letter suggesting that Ovitz resign.

Around that time, Eisner and Ovitz had a final encounter in New York to work out Ovitz’s exit, according to DeMott’s report. On Dec. 27, 1996, Disney officially declared Ovitz gone.

(BEGIN TEXT OF INFOBOX)

Power spender

A document unveiled in a Delaware court this week said Michael Ovitz cost Disney $6.3 million in expenses during his brief tenure in the mid-1990s. Here’s where some of the money went, according to an independent accountant’s report.

Limousine, rental cars ...$76,413

Security services ...$149,391

Office supplies... $34,743

Aircraft usage... $654,200

Home X-ray machine... $6,100

Home screening room... $48,305

55 Lichtenstein prints... $23,650

Office remodeling... $2,061,237

Dinner with Janet Jackson... $2,139

Dinner with Sen. John F. Kerry... $137

Breakfast with the Rev. Jesse Jackson...$812

Videos for Billy Crystal...$22