Ryan Kavanaugh Relativity Bankruptcy
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Relativity Media employees cite various moments when, for them, the entertainment company reached rock bottom. Some people point to the days when movie release dates came and went, unfulfilled. For others, it was the bankruptcy filing in July 2015. The departure of key employees — notably the October resignation of president Tucker Tooley — cut others to the core.

But a few note, as an unsettling new low, the arrival at corporate headquarters of yet another media offshoot: the raunchy, flesh-fixated website Egotastic. To them, the proximity of the online T&A emporium was the surest sign that Relativity would never be resurrected as a mainstream entertainment concern.

Beginning in mid-2016, Egotastic set up housekeeping alongside regular Relativity employees. According to witnesses, on at least a few occasions, photographers and scantily clad models would traipse through the office. Some employees found it embarrassing that the site, featuring unvarnished discussion of the anatomies of multiple actresses, was being run out of a company that worked with some of those same stars.

“I walked through the office with an administrator and said, ‘What are we going to do about this — it’s inappropriate,’ ” says one former Relativity employee. “And the response was, ‘Let’s put up a curtain, and nobody will be affected.’ It was ridiculous.”

While there was nothing illegal about the photo shoots, two former employees say they were another sign of Relativity’s inability to maintain professional standards, as it lurched out of bankruptcy and into a new incarnation of multiple promises but little real progress.

Insiders believed that the website was purchased by Kavanaugh’s family investment company, Knight Global. But a Relativity statement says Egotastic was bought by Relativity itself in a deal arranged by a former marketing executive and structured by a now-alienated Relativity investor. The company had no comment on employees’ discomfort with the website.

Now, Relativity hovers in what doctors might call a persistent vegetative state. Founder Ryan Kavanaugh has not been seen around the company since well before reports of his departure as CEO floated at year’s end. An outside firm doing public relations for Relativity says it has no updates on Kavanaugh’s status.

Similarly, Dana Brunetti, the successful producer of “House of Cards” and “Fifty Shades of Grey,” has reportedly left his post as Relativity president. He moved out of his office the first week of January.

Before the holidays, a statement from Relativity’s spokesperson left the status of the two leaders up in the air. It said that Brunetti maintained a production deal with the studio and that Kavanaugh and Brunetti would continue “working closely together going forward,” along with a newly named president of production, Brett Dahl.

Those promises were all made before more bad news arrived in the new year. Relativity’s distribution joint venture with EuropaCorp, known as RED, is falling apart, with as many as 40 employees laid off last week. And insiders at Relativity say the studio is down to a handful of employees, after as many as 30 workers, who had been furloughed over the holiday break, were told they would remain off the payroll indefinitely.

Reports of new investment in Relativity have been floated — as much as $200 million to produce a slate of films with Storyoscopic, and another $50 million minimum investment from Singapore-based YuuZoo. But those reported investments have not slowed the company’s shrinkage. New cash infusions promised in the past have often fallen short.

What’s left is a company with few employees and two movies that have missed multiple release dates: the Halle Barry thriller “Kidnap” and the horror pic “Before I Wake,” directed by Mike Flanagan.

Creditors are still out tens of millions, and even the bankruptcy lawyers who helped piece Relativity back together have unpaid bills of $15 million or more. As those debts go unpaid, it’s possible one of the creditors will push for a Chapter 7 liquidation of the company, according to bankruptcy expert Brian Davidoff, a partner in Greenberg Glusker. None of the parties in the case has so far made that move.

During the protracted bankruptcy, lawyers for producer Neal Moritz called the reorganization a “charade” that was propping up Relativity long enough “for Ryan Kavanaugh to find another unwitting investor” to buy into his company. That, in turn, would allow previous hedge-fund investors to mark down their Relativity holdings as if they still maintained some value, the legal filing alleged. Relativity creditors did not want to acknowledge their losses in the company, and therefore created this “vapor paper” — inflated reports of the studio’s ongoing value — the Moritz filing asserted.

The claims on behalf of Moritz eventually led to a settlement, with the producer saying the dispute amounted to one big “misunderstanding.” Yet there was not an entirely a happy ending for Relativity, as too often has been the case. The studio did not come up with an $8 million “guarantee payment” and gave up its deal to distribute Moritz’s film, the submarine thriller “Hunter Killer,” starring Gerard Butler.

And though Moritz’s public statement disavowed the claims in his bankruptcy filing, much of what the legal papers contained now sounds prophetic. The filing concluded: “There is nothing in the record that shows that the lack of demand for, or interest in, Relativity’s film business will change.”

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