Rivals in a lather over CAA’s bank relationship

NEWS OF THE RECENT LINK between CAA and giant Credit Lyonnais has predictably escalated the level of fear and loathing in the agency business.

While CAA, with its customary steely calm, insists this is a perfectly straightforward arrangement with no cosmic implications, its competitors are holding urgent, closed-door meetings with high-powered attorneys shuttling between offices. The issues involved are highly technical, but they nonetheless strike a gut-level response in the community.

Triggering all this was the decision by the French bankers that they could use some advice from Hollywood in guiding their $ 3 billion loan portfolio in the entertainment business.

Though CL’s loans encompass everything from cable to cellular phones, its movie investments — including a 98.5% ownership of MGM — have attracted by far the most attention. A week ago the French bank acknowledged that it had a net loss of a staggering $ 139 million last year, much of it stemming from disastrous investments in the film business.

In the past, the French bankers have been rather cavalier about their Hollywood moves. They’ve never had a representative on site, and most of their lending has been targeted at foreign-based fringe players like Cannon, Hemdale or Dino De Laurentiis.

In view of this sorry record, it seemed a logical step to summon up some local expertise.

Enter CAA, which besides being a talent agency has also blossomed of late in the field of investment banking, as a creator of ad campaigns and as a sort of Oracle-at-Large in Hollywood.

Good idea, right? Well, talk to the folks at ICM, the William Morris office and other such places and you get some irate challenges tossed at you. Such as:

  • How does CAA’s role square with the Screen Actors Guild agreement, which bans agents from being compensated by studios? Since CL essentially owns MGM, isn’t MGM in effect paying CAA?

  • Would CAA’s competitors find themselves victims of unfair competition? Their prime rival would theoretically be able to tell prospective clients that they could deliver deals or financing packages.

I HAVE THIS NIGHTMARE IMAGE,” says the president of a major CAA competitor. “I wake up one morning to find out that a major deal I’ve set up at MGM has blown away, but someone from CAA then informs my client that he can make it fly again.”

Says Jeff Berg, ICM’s honcho: “The association ofthe bank with CAA creates the appearance of an imbalance in the marketplace.” It’s perfectly appropriate for a talent agency to strike up a consulting relationship with a bank, Berg says, but not if that bank effectively owns a studio. Berg has put some of the top lawyers in the field on the case.

On one level, all this can be dismissed as a quarrel between agencies, but in Hollywood, agents and lawyers are at the core of the dealmaking machinery. Confidence already has been shaken this year by a flurry of high-profile suits regarding alleged conflicts of interest involving some top law firms. The firms have disputed the charges, but there were tacit admissions that some of the legal eagles had been less than candid in informing clients about potential conflicts.

Given this atmosphere, announcement of CAA’s new role inevitably has stirred up new intrigue — a fact the CAA soldiers find acutely frustrating. Indeed, no sooner did the French bank make its announcement than CAA’s emissaries contacted the key guilds to explain the realities of the situation. Officers of ICM and the Morris office, among others, were invited to meet with CAA toppers for briefings. Reports the head of one guild: “Mike Ovitz and John Ptak (of CAA) are very smart and very cautious. They have gone to great lengths to get out their message and calm the waters.”

The key CAA message: The agency has no intention of managing MGM or dictating its production decisions. Instead, the agency would function more as an investment banker, as it did in orchestrating the MCA-Matsushita deal. CAA’s recommendations to the bank will deal with its overall portfolio of loans — consolidating some loans, striking out in entirely new directions with others.

How will the link between the bank and CAA impact on MGM? Buried in an MGM press release this week was the acknowledgement that the French bank had made a major new loan commitment to the studio, which would permit a resuscitated production program. On the other hand, knowledgeable sources speculate that some major changes may be at hand.

NO ONE WOULD BE SURPRISED, for example, if the French bank now made a renewed effort to sharply reduce its stake in the studio. No one would be surprised to see long-dormant United Artists spun off under separate ownership. Nor would eyebrows be lifted if the 5-year-old team put together by Alan Ladd Jr. was augmented or modified.

All this is speculation, to be sure. In the short term, MGM would appear to be a significant beneficiary of CAA’s new involvement. Indeed, from the standpoint of CAA, everyone in Hollywood would stand to benefit. Says one CAA veteran: “Competitors may knock us, but look at the massive amounts of capital that CAA has brought into the community through dealings with Matsushita, Sony and other corporations. With all the rhetoric about the Coca-Cola commercials, some damn good ads were devised, and 400 jobs were created that didn’t exist before.”

Skeptics would quickly point out that CAA likes to take the high ground on matters such as these. “Ask Mike Ovitz a practical question about conflict of interest, and he’ll make you feel as though you’re a petty bureaucrat who doesn’t understand the Olympian issues which he is masterminding,” observes a competitor.

If Ovitz can be Olympian, he can also be immensely practical. In the case of Crdit Lyonnais, he sees an extraordinary business opportunity that can span not only the film business but the futuristic multimedia domain with which he is also obsessed. And those who try to summon up legalistic obstacles to inhibit his actions had better be ready to combat some Olympian responses.

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