Honeymoon Is Over in Alliance of Ovitz, Burkle

By MICHAEL HILTZIK

Sept. 19, 2000 12 AM PT

Funny how a little thing like a battle to get an NFL team back in L.A. can drive a wedge into a match made in Hollywood heaven.

That’s what has happened to the business partnership between entertainment impresario Michael Ovitz and supermarket tycoon Ron Burkle.

It was scarcely a year ago that their relationship seemed made of sterling stuff. Ovitz is the onetime super-agent and former president of Walt Disney Co. who has been remaking himself as a talent manager and producer. His Artists Television Group scored a huge success this year by landing seven new programs on the broadcast networks’ fall schedules.

Ron Burkle doesn’t command Ovitz’s stature as a household name in L.A., but his money may pack even more backstage clout. The billion-dollar fortune he built as the owner of Ralphs, Food4Less, and other supermarket chains before selling them last year to Kroger Co. has given him peerless contacts in Democratic politics, where he has been a big contributor to candidates, including Bill Clinton.

For the public record, they’re still friends. Ovitz said he likes Burkle personally and spoke appreciatively of Burkle’s participation in the campaign to raise $300 million for UCLA Medical Center, Ovitz’s personal philanthropic cause, to which he has pledged $25 million of his own fortune.

“Ron has been a good business partner and a good friend,” Ovitz said.

The sugared talk aside, people close to both men describe their relationship as dysfunctional. The two men are barely on speaking terms, sources say.

Ovitz and Burkle have not done a deal together since the demise last year of their NFL bid (lost to Houston). Last year’s bravura talk that they were poised to assemble a significant e-commerce portfolio is a thing of the past, having yielded modest joint investments in only three companies.

Getting Ovitz and Burkle together for a meeting at a company on whose board both served, sources say, has been so difficult that a bimonthly schedule of conference calls was established. Even that did not work.

“We’d call Michael, and he’d ask, ‘Where’s Ron?’ When we told him Ron wasn’t on the line, he’d say, ‘I’m hanging up, call me when he’s on.’ Then Ron would get on the line and ask, ‘Where’s Michael?’ When we told him Michael wasn’t on the line he’d say, ‘I’m hanging up, call me when he’s on.’ They succeeded one time out of six.”

By all accounts it was the NFL project that shredded the relationship. Burkle’s money was what lent financial credibility to the bid, whereas Ovitz remained front man and cheerleader. Neither was happy with the other’s role. Sources say Ovitz found Burkle entirely too mercurial a partner, failing to pull his weight behind the scenes and distancing himself from the project at various points when his explicit support was most needed, especially when the league was sitting down to weigh its options.

Burkle, for his part, often groused about his discomfort under the spotlight that, guess what, comes with prospective ownership of a major league sports franchise in the nation’s second-biggest market. “I’m not having fun,” he told The Times last November as the battle over the franchise came to a climax. “I don’t like to read about myself in the newspaper, and I don’t like going through some of the politics of a deal like this.”

Their predilection for working at cross purposes soon spilled over into their other ventures. Take the fiasco involving Scour Inc., a music and video swap Web site founded by five UCLA kids who had dropped out of school to go into business. Ovitz and Burkle jointly invested $4 million early last year; a mere six months later Scour received a buyout offer from RealNetworks, whose RealPlayer is the most popular software for playing music and video clips on personal computers.

It was a deal that Ovitz had helped craft and Burkle scuttled.

RealNetworks executives were sure they had a final deal at $55 million, a price that would have represented a nearly fourteen-fold return for the two investors.

But the five founders balked, complaining that they had not been consulted until the RealNetworks talks were nearly final. Filled with the characteristic brashness of young Web entrepreneurs, they thought Scour could still be successful on its own and that Real’s $55 million was a low-ball bid.

At that point, Burkle intervened in the negotiations. In a phone call that is still the talk of RealNetworks headquarters, he informed the company that the price for Scour was now $100 million. Sources say that describing his wealth in terms of the houses he owns and the life he leads as a jet-setting business magnate, he added that Scour represented an insignificant part of his portfolio, that he was simply looking out for its youthful founders, and that if RealNetworks didn’t like the terms they were welcome to walk.

Burkle’s call stunned and infuriated executives at Real, who thought they had closed a deal at the lower price.

But Ari Swiller, a spokesman for Burkle’s Yucaipa Management Co., says Burkle was simply trying to stress how unusual it was for him to take a direct role in deals of such a small size. “He may have said, ‘I live a good life, this isn’t significant to me, it’s these guys’ deal,’ ” Swiller said, referring to the founders. “[Burkle] thought he needed to get involved because [the negotiation] was upsetting these young kids.”

In any event, Real rejected the higher price. And despite subsequent efforts by Ovitz to resurrect the deal, it has stayed dead.

The irony is that Scour today may be worth close to zero. Scour is facing a copyright-infringement lawsuit from eight Hollywood studios and 16 record labels--similar to those leveled at Napster and MP3.com--that could mean its extinction. (The lawsuit is pending.) Meanwhile, its business, which gives consumers a way to exchange copyrighted music and video files over the Web, is an embarrassment to Ovitz, many of whose clients are the owners of such copyrights, and to Burkle, who has a much larger investment in Alliance Entertainment, a company that distributes such material legally.

Another troubled venture in which both Ovitz and Burkle have an interest is Checkout.com, an e-commerce site that hoped to benefit from synergies with Burkle’s supermarket chains.

Headed by Richard Wolpert, a former Disney Online executive who Ovitz introduced to Burkle, Checkout’s strategy was to build its customer base via its access to thousands of frequent-shopper cardholders at his supermarkets and to use the supermarkets as pick-up centers for customers who ordered music and videos from Checkout--thus averting high postage and handling costs.

The synergies never developed, sources say, in part because Burkle sold the grocery business to Kroger. Although Burkle is Kroger’s largest single shareholder, he exerts little real influence at the company and Kroger management has been reluctant to follow up on the Checkout arrangement. But even before that, Checkout executives reportedly complained that Burkle was not doing enough to bring his chains into the program.

Checkout later sold a 49% interest to Wherehouse Music, the music retailer. Wolpert has reportedly withdrawn from day-to-day management of the merged company, and sources say Burkle’s Yucaipa, which functions today as an investment vehicle for Burkle, is looking for an investor to buy out its own remaining 51% stake in the site.

Swiller declined to comment on any such plans. But he said that Burkle never promised to force his operating executives to participate in any program if they did not want to.

For that matter, he said, Burkle still believes that using supermarkets, which customers typically visit two or three times a week, as distribution points for merchandise ordered online, is an idea that makes sense “and that it will happen.”

As to who will make it happen, that’s an open question.

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Hollywood Rift

The partnership between Ron Burkle and Michael Ovitz soured over football, throwing into disarray several joint investments. People close to both men describe their relationship as dysfunctional. Their plans for assembling a portfolio of high-tech companies has resulted in just three ventures: Scour.com, Checkout.com and GameSpy.

* Michael S. Ovitz

Age: 53

Education: UCLA

Family: Married, 3 children

Residence: Brentwood

Wealth: $100 million (estimated)

Current business: Founder, Artists Management Group; partner, Lynx Technology Group

Best known business associations: Co-founder of Creative Artists Agency; president of Walt Disney Co.

Representative tech investment: Play Industries (developer of high-end computer video and graphics technologies)

Ronald W. Burkle

Age: 47

Education: High School