Ovitz’s Disney Payout Revealed

For the last eight years, one of the more tantalizing questions in Hollywood has been exactly how much money Michael Ovitz pocketed when he was fired as Walt Disney Co.’s president.

Now there’s an answer: $109.3 million.

But there’s also a new question: Why would one of the entertainment industry’s savviest deal makers leave at least that much on the table in additional stock profit he potentially could have reaped?

Information on his severance was compiled in connection with a Delaware shareholder lawsuit accusing Disney of squandering funds in its buyout of Ovitz. The Burbank-based company, its board and Ovitz all have argued that they acted appropriately and that the lawsuit is without merit.

One of the biggest payouts ever to a fired executive, the amount had been a secret because Ovitz never revealed how many of his 9 million stock options he had exercised.

Figures provided to The Times on Wednesday show that Ovitz reaped $70.4 million in profit by exercising options on 4.1 million shares in seven transactions during 1999 and 2000. That came atop the $38.9-million cash payout Ovitz received when he left Disney in December 1996.

Ovitz also took a costly gamble by holding on to an additional 4.9 million shares that, at their peak value, were worth more than $120 million.

Those options declined sharply in value as Disney’s stock began to tumble in late 2000. The drop was so steep that by the time the options expired two years later, they were worthless.

“He probably thought the stock was going to turn around, but he got hosed,” said executive pay consultant Graef Crystal, a former advisor on compensation to Disney directors.

Stock options allow an investor to buy shares at a specified price, giving the investor a profit when the stock rises above that mark.

In Ovitz’s case, his severance package called for 3 million options that gave him the right to buy Disney stock at $57 a share. Those numbers later became 9 million shares exercisable at $19 each after a 3-for-1 Disney stock split.

Neither Ovitz nor his lawyer could be reached for comment. But in a deposition last November, Ovitz blamed his personal financial team.

“I had hired the bank and had them work with my financial advisors on exercising these options,” Ovitz said in the deposition. “And they didn’t do a very good job.”

Once regarded as Hollywood’s most powerful figure when he ran the Creative Artists Agency, Ovitz was tapped by Disney Chief Executive Michael Eisner in 1995 to be his second in command, a partnership that had its bitter, rocky ending just 14 months later.

Shareholder lawyers argue that the actual money Ovitz received is irrelevant, adding that the long-term value of the options on the day he left Disney was $110 million, based on widely used formulas that value the securities over time. That would put Ovitz’s entire package at $148.9 million, they argue.

“You can’t make the benefit subject to the decisions he made after he received it,” said plaintiff’s lawyer Steven G. Schulman of the New York-based Milberg Weiss Bershad & Schulman.