SPEND IT AND SAVE IT, TOO : ‘Celebrities Are Earning Big Money, but Not Spending as Much as Stars in the ‘20s

Hollywood insiders love to observe that boom times could suddenly end.

Television networks are tightening up on payments. The syndication market is soft. Videocassette recorder sales aren’t climbing the way they used to. And studios, with or without accounting hocus-pocus, really can’t turn a profit on movies that cost an average of $18 million to make and another $10 million or more to market.

Entertainment stock offerings “peaked in July, 1986, and have been (going) straight downhill ever since,” said Peter Dekom, an attorney whose firm represents Sylvester Stallone and other industry figures. In a sure measure of investor pessimism, many of the new stocks are trading far below their highs of last year. They include Carolco Pictures, MGM/UA Communications, De Laurentiis Entertainment Group and Aaron Spelling Productions.

“There’s always a point where things are going to have to snap back to reality. I think we’re fairly close,” said producer Richard Zanuck, who helped to revive 20th Century Fox Film Corp. after the studio’s near collapse in the 1960s, thanks to “Cleopatra,” a budget-buster that cost $35 million to make.

If nothing else, the gnawing suspicion that good times can’t last has made Hollywood almost as cautious in guarding personal wealth as it is carefree when spending company dollars.

“There’s tremendous insecurity about investments,” said Bram Goldsmith, City National Bank chairman. “Even though (entertainment people) are earning big money, they’re not spending nearly as much as stars were in the ‘20s when they were under contract to the studios. Most of the big talent are squirreling money away. They’re careful because they don’t know if they’re still going to make it next year.”

According to Goldsmith and others, many of the entertainment industry’s newly rich, acutely risk-averse, have rushed in the last few years to secure the services of the more conservative business managers--principally Breslauer Jacobson Rutman or Gelfand Rennert & Feldman.

Each is a relatively small, “Tiffany” management firm based in Century City. Discreet in the extreme, both concerns declined to discuss their clients or policies. But sources close to each say they manage a rapidly growing sum of money for producers Steven Spielberg, Don Simpson and Jerry Bruckheimer; rock star Bruce Springsteen; actress-singer Barbra Streisand; music entrepreneur David Geffen, and a small but powerful corps of the richest movie and TV executives.

One client maintains that the Breslauer firm controls a whopping $500 million in cash and cash equivalents, and that sum supposedly represents just a fraction of its investments. Both are said generally to have avoided stocks, junk bonds, movie partnerships and (until recent tax law changes made them obsolete) the riskier tax shelters. Instead, they have favored investment-grade corporate bonds and participations in first-class real estate projects overseen by solid developers.

Clients usually pay their business managers 5% of the gross return on their investments, although some bigger customers have been put on smaller monthly retainers as their fortunes piled up and the fat percentage fees became an embarrassment. In return, the Hollywood investor gets some assurance that he or she will comfortably survive any personal cold streak or severe downturn in the industry.

The books of one studio officer, for instance, show real estate investments with steady cash flow of about $200,000 a month. Of his more than two dozen manager-supervised partnerships, in which the executive participates with the likes of Barry Diller and Streisand, more than 93% have made money. “The rest broke even on tax advantages,” the officer explains.

In keeping with the conservative mood, hearth and home have become another favorite Hollywood investment of the moment--partly because new tax laws, while closing other loopholes, still give interest deductions for a family home, and even a luxury second home, “no matter how big,” according to Century City accountant Arnold Bernstein.

Luxury housing prices in the Golden Triangle--Brentwood, Bel-Air, Beverly Hills--languished when interest rates peaked in 1981 and 1982. They are now surging more wildly than ever, with some prices doubling in less than two years, as the new rich scramble for quarters to match their growing wealth.

Aaron Spelling owns a large house near Sunset Boulevard worth $4 million or so. But he has also bought the old Bing Crosby estate for a reported $10.5 million, and according to sources familiar with the clubby world of Westside real estate, is spending about $15 million to rebuild. (Contrary to industry gossip, says a Spelling spokesman, the new house won’t include a zoo or an indoor ice skating rink. “But it does have a bowling alley,” he said.)

Another ambitious entertainment executive, no longer happy with a “below Sunset” home purchased some years ago for $1.75 million, recently paid $6.2 million for a roomier place just a bit up the hill. But his old house never even went on the market, because a movie director was standing in line with a $2.8-million offer--and the executive is already thinking about moving up again, according to one housing broker.

Meanwhile, a real estate agent tells of selling his own Beverly Hills home to another director for $650,000 in January, 1986. The director planned to remodel, but tore the house down instead as decorating costs threatened to climb over $300,000. Then the director got a movie windfall and decided to buy something still bigger. So he sold the now-empty lot for $1 million.

All of which unsettles some real estate professionals. “I would rather have the market appreciate at a more normal rate,” said Jeffrey Hyland, president of Alvarez, Hyland & Young, one of Beverly Hills’ premier housing brokers. “When it goes as crazy as it is, sooner or later, you’ve got to pay the price.”

For the moment, however, Hollywood buyers seem less concerned with runaway prices than with the proper size for a master bedroom suite (it should be 25% of the building to suit current tastes) or the quality of in-home exercise facilities (the latest preference being for matching his-and-hers mini-gyms attached to the main bathrooms).

Insecurities aside, moreover, movie and TV people aren’t shy about spending personal or company money for what they regard as essential pleasures. By some accounts, the car of the hour in Hollywood is the Jaguar luxury-equipped XJ6, which sells for $45,000, or 32% more than the $34,000 many executives were paying for Porsche 911s when they were especially hot among studio types four years ago.

Before pushing fancy cars out the door, some Beverly Hills dealerships make sure to have them outfitted with magazine-loading compact disc players, glass-sensor equipped alarm systems and deluxe cellular telephones. “Ten grand is almost commonplace” for such makeovers, said Howard Becker, owner of the Electronic Entertainment stereo and telephone store on La Cienega Boulevard. “Dealers want to show you something proper for the L.A. environment.”

The Hollywood boom has also peppered West Los Angeles with luxury restaurants that often look like private clubs for “the industry.” As recently as the late 1970s, entertainment people did business only at Chasen’s, Perino’s and a few more hangouts that seem a bit formal by today’s standards. Now a wealthier, more chicly casual TV and movie crowd keeps Spago, the Ivy, Morton’s and perhaps 30 additional first-class lunch and dinner houses full to the brim.

Julie Stone, co-manager, with movie director Tony Bill, of 72 Market Street in Venice, estimates that 50% of her 3-year-old restaurant’s patronage comes from the entertainment community. “It doesn’t hurt that we have a lot of show-business backers,” said Stone, who counts TV writer Bruce Paltrow and actress Liza Minnelli among the restaurant’s 23 investors.

“The willingness to spend is up. Big ticket items like brandies that cost $50 just go out the door,” said Bruce Marder, owner-chef of Rebecca’s and the West Beach Cafe. Both Venice restaurants, Marder said, are backed by entertainment-industry figures such as actor Lee Majors and producer Paul Witt.

Growing by leaps and bounds, Hollywood money has begun at least occasionally to make a deeper mark on California’s philanthropic community as well. “The stars used to be very visible in supporting causes, but left their checkbooks at home. I think that’s changing,” said Jack Shakeley, chairman of the California Community Foundation.

Richard Koshalek, director of the Museum of Contemporary Art, said the support of entertainment figures, including agent Michael Ovitz and Spelling Productions Vice President Douglas Cramer, was crucial in raising the $70 million it took to build the museum and its collection. “They were very important donors, particularly in the early stages,” said Koshalek.

And yet Los Angeles County Museum of Art Director Earl A. (Rusty) Powell III, echoing a traditional complaint about entertainment giving, said the Hollywood rich were only a secondary force in supporting his museum’s recent $34-million expansion. In Powell’s words: “We still haven’t seen real, major philanthropy from the entertainment community. There’s a lot more interest. But if you’re asking if we’ve seen a lot more support in terms of money or donations of art--not yet.”

The Permanent Charities Committee of the Entertainment Industry, a payroll-deduction charity that is Hollywood’s answer to the United Way, last year took in just $2.3 million--less than 10% of the cost of making and marketing the average studio film. Should contributions be higher, given the hike in executive and star salaries? “You bet they should. From your mouth to God’s ear,” says Irv Kaplan, the committee’s vice president.

Yet the Hollywood rich have given heavily to pop charities like Hands Across America and Live Aid. And Lillian B. Disney, mistress of a fortune that has grown dramatically as Walt Disney Co. stock rose in the last two years, recently agreed to give $50 million, personally and through her foundation, to build a new home for the Los Angeles Philharmonic orchestra.

The Lillian B. Disney gift, as much as the overgrown mansions with a VCR in every room, may finally stand as a monument to the new wealth.

By some assessments, moreover, better times rather than worse may still lie ahead for most people in “the business.” Michael Eisner, board chairman and chief executive officer of Disney, predicts that any short-term shake-up caused by greed or runaway costs will be far outweighed by the world’s long-term demand for Hollywood’s magic.

“Maybe some windfall money that you see sitting around tables at the Palm or Morton’s is going to go away,” said Eisner, whose own company has been among the entertainment industry’s best performers of late.

“But the business is going to stay strong,” he said. “I believe that, if only because some great writer in Columbus, Ohio, is struggling right now to get carfare to Hollywood, and he’s going to keep it that way.”