Magazine article Variety

The Perils of Ryan's Flight Plan

Magazine article Variety

The Perils of Ryan's Flight Plan

Article excerpt

How-to guides can be useful. But so can a good cautionary tale. No misfire dominated Hollywood headlines in 2015 like the unraveling and eventual bankruptcy of Relativity Media.

The 11-year-old creation of entrepreneur Ryan Kavanaugh flailed for months to try to find investors to remain afloat, before staggering into Chapter 11 on July 30, with nearly $1.2 billion in liabilities and assets with a book value of about $560 million.

For years observers had been predicting the demise of Kavanaugh's venture, though the Relativity CEO continues to work through bankruptcy to assemble a capital structure so his company can emerge to make another round of films. On Nov. 18, the company filed a reorganization plan in U.S. Bankruptcy Court in Manhattan, saying it was in search of $100 million in new equity investment.

While Relativity's failures and foibles might appear unique, others striving to make their own Hollywood deals could take away more than one lesson learned. Among them:

History matters. While it forever will be portrayed as the land of reinvention, Hollywood is also the place that doesn't forget. Kavanaugh, now 40, fashioned himself as the smart young man who created film slate deals with the studios. But some would never overlook the fact that his first big venture had been an investment fund that ran into the ground in 2002, after failed investments in private companies. An arbitrator overseeing a lawsuit found Kavanaugh "clearly negligent" in the way he managed one client's funds.

Friendship and business don't always mesh. Kavanaugh felt so dose to Jason Beckman and Jason Colodne that he asked the pair to sign the ketubah (Jewish marriage contract) at his wedding. After Relativity collapsed, Kavanaugh accused the duo, who run Colbeck Capital, of trying to steal his company by putting together their own financing package. The partners countered over the summer that the Relativity board and Kavanaugh had "fully authorized" their efforts. The investors and Kavanaugh split. More recently, a source close to Colbeck hinted the partners may be in forgiveness mode, saying: "They realize that Ryan's comments at the time were based on emotion rather than fact and they're rooting for him to be successful in his new venture."

Stick to what you know. Relativity appeared to be on an upward trajectory in its early years, when the firm was arranging financing for film slates at the big studios. But in 2010, Relativity began to make its own films. While Kavanaugh said he only needed to hit "singles" and "doubles" to make money, the studio never found enough consistent winners to give it a financial cushion. …

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