Battle Over Pooh’s Money Pot

There appears to be more money than honey in the pot of Winnie the Pooh.

Think, think, think . . . billions.

A family-owned company that receives royalties from the sale of Pooh merchandise claimed Tuesday that Walt Disney Co. has cheated it out of $35 million by failing to report at least $3 billion in Pooh-related revenue since 1983.

Although the case has been entangled in Los Angeles County Superior Court for a decade, Tuesday was the first time a dollar amount was attached to the claims of Stephen Slesinger Inc., which bought the rights to merchandise featuring the silly ol’ bear in 1929.

“It’s an enormous amount of money, and you also have to calculate the going-forward value,” said Bertram Fields, who represents Slesinger’s heirs, who live in Tampa, Fla. “We are talking hundreds of millions of dollars” in future royalties.

Under its agreement with Disney, Slesinger Inc. receives an average of 1.2 cents of every dollar of Pooh merchandise Disney sells. Disney sold $4.5 billion in Pooh merchandise last year, according to Slesinger’s attorneys, which would have generated about $4 million in royalties.

However, Slesinger’s widow and daughter say Disney owes them millions more from the sale of computer software, videocassettes and DVDs that feature Pooh and his friends from the Hundred Acre Wood. Disney contends sales of that merchandise weren’t covered in previous agreements.

This week’s hearing was to determine whether forensic accountants fairly calculated disputed revenue during two six-month periods in 1988 and 1994.

The case is expected to go to trial early next year.

A court-appointed forensic accountant from Encino testified Tuesday that Slesinger’s $3-billion figure seemed inflated.

“It’s quite a startling number,” said Michael T. Miskei, whose former firm spent an estimated 5,000 hours scouring Disney financial records. “I don’t know how I could have missed it, or how anyone could have missed that amount.”

Daniel Petrocelli, Disney’s lead attorney, dismissed the Slesinger group’s claims that it was shut out of the auditing process and short-changed millions of dollars.

“The last two days have confirmed what the auditors found. [They] have come up completely empty-handed,” Petrocelli said. “Disney has paid tens of millions to these participants. They have become enormously wealthy because of Disney’s ability to fully exploit this property of Winnie the Pooh.”

Instead, Petrocelli said, auditors found that Disney owed the family about $11,000 for the two six-month periods in 1988 and 1994.

Fields had sought to call Disney Chief Executive Michael Eisner as a witness at the hearing, but Superior Court Judge Ernest M. Hiroshige refused the request.

Hiroshige must decide whether a formula used by Miskei to calculate unreported Pooh revenue was too generous to Disney, as alleged by the Slesinger group. At issue is whether Miskei should have included $2.4 million in unreported revenue from 1988 to calculate the error rate. In 1991, after the family filed suit, Disney made a “catch-up payment” to cover royalties for most of that amount. Fields argued the figure should have been included because it was unreported revenue.

Last year, Hiroshige sanctioned Disney for deliberately destroying 40 boxes of documents that could have been relevant to the case, including a file marked “Winnie the Pooh-legal problems.”

In March, Disney bought the future Pooh royalty stream from the A.A. Milne Trust for $350 million. Milne was the author of the children’s classics. Disney initially bought the rights to Pooh characters in 1961, at the time dividing royalties between Slesinger and the Milne Trust.