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Gaffes without laughs: big-biz boo-boos

THE “STAR WARS” PREQUEL, still 11 weeks away, casts such a shadow over the movie landscape that it’s hard to comprehend the perilous birth pangs of the original movie. The fact that George Lucas’ “Star Wars” got made in 1977 stemmed from arguably one of the worst business decisions of that generation — namely, Fox’s surrender of the merchandising and sequel rights.

This billion-dollar gaffe has always fascinated me, since I am something of a collector of bad business decisions. The attorneys and business affairs specialists who surround us go about their work with such gravity and self-assurance as to convey a sense of invincibility. But dealmakers make their share of mistakes like anyone else, even though they may be more adept in covering them up.

In some instances, their lapses involve major miscalculations, pure and simple; in others, they stem from misunderstandings which today may seem absurd, but at the time were reasonable.

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My collection of business boo-boos falls into several categories, but as pure studio dealmaking, “Star Wars” is still the winner. Universal was in first negotiating position for “Star Wars,” which initially consisted of a tiny development deal, but that studio passed because it hated “American Graffiti,” which Lucas had just completed. The deal was then set up at Fox because Alan Ladd Jr., then studio chief, sparked to the idea.

After “Graffiti” became a surprise hit, Jeffrey Berg, Lucas’ youthful agent, decided on the standard ploy of improving his original deal. His effort hit a brick wall with Ladd and his business affairs chief, Bill Immerman, until they finally decided to “give” on what seemed like two esoteric deal points — sequels and merchandising. Lucas wouldn’t get any more money to direct his sci-fi film, but at least he would have the dubious distinction of re-capturing those rights.

And that came to represent a multibillion-dollar concession.

SOME OF HISTORY’S biggest business gaffes, to be sure, consisted of studios passing on projects that they should have warmly embraced. Warner Bros. was angry because the budget of “Home Alone” went $2 million higher than anticipated (small relative to other studio overages), so it generously awarded Joe Roth a luscious welcoming gift when he arrived at Fox. The movie did $286 million in the U.S. alone.

Steven Spielberg’s “E.T.” was happily ensconced at Columbia, but Frank Price’s crew donated that billion-dollar prize to Universal, thus making a hero of Sid Sheinberg. Along the way, of course, the alien got magically transformed from a bad guy, as in the first draft, into history’s most cuddly and lovable space traveler.

Other business boo-boos represented a more complex decision-making process, however.

Superstar deals:

  • The lawyers and agents who put their stars into Planet Hollywood were counting on its soaring stock to produce windfall profits. When the chain couldn’t deliver earnings, however, its shares fell to a low of $2 and it took a $160 million pretax charge for its fiscal fourth quarter. One star found his “gains” plummeting from $25 million to under $3 million.

Talent deals:

  • On a much smaller scale, what was TriStar thinking when it ended up paying Bruce Willis roughly $9 million an hour for two hours work in providing his “voice” to “Look Who’s Talking”? Though the movie was testing badly at first, “Look Who’s Talking” ultimately turned out to be a major hit, grossing $140 million in the U.S. For two hours’ work, split over two nights, Willis was paid $350,000 up front and somewhere between 6% and 10% of the gross, depending on who you ask. The result was a $18 million pay day — surely Willis’ happiest.

Corporate acquisitions:

  • Years earlier, what could Arthur Krim have been thinking when he decided to sell his cherished United Artists to the straight-laced suits who controlled Transamerica, an insurance conglomerate? The managements of the two companies detested each other from day one. UA, once a great company, was brought to its knees, and Krim and his entire team took the unprecedented step of exiting en masse to form Orion, leaving the insurance men with a label and no management.

To be sure, it’s extraordinarily difficult to analyze deals on the spot because they are predicated on information that few insiders may possess. Such was the case when the Bronfman family sold its 24.2% of Dupont in order to facilitate the acquisition of MCA. Or when Edgar Bronfman Jr. spun off most of Universal’s cable and domestic TV assets, including the USA cable network, to Barry Diller.

WILL HISTORY ULTIMATELY define these deals as astute or ill-conceived? Though some may have strong opinions on the subject, most of the town’s second-guessers seem willing to wait a few years before passing judgment.

But sometimes the waiting period isn’t that long. As evidence, one need look no further than an earlier deal involving Universal. Of all the town’s dealmakers, none was more venerated than Lew Wasserman. Yet only a matter of months after selling MCA to Matsushita, he realized he had made a terrible mistake and was candid in admitting it publicly.

If for that candor alone, he thereby retained his place at the head of his class.

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