Late Sunday night, the entertainment business world was stunned by the news that the Disney Board of Directors had summarily fired CEO Bob Chapek. In the same announcement, the Board continued shocking the world with the revelation that it had successfully convinced former CEO Bob Iger to return to the Magic Kingdom's throne. Disney Stock, which is down 40% year-to-date, rose 6% on the news.
Bob Chapek became CEO of Disney in February 2020. That's a term of 2 years, and 9 months. Roughly 1,023 days. For his services, Chapek will walk away with a compensation package worth around $20 million.
And while it must be nice to get paid $20 million after being fired from a job you held for less than three years, hopefully Bob Chapek doesn't know the story of Michael Ovitz's tenure at Disney back in the 1990s.
Mike Ovitz worked at Disney for a little over a year in the late 1990s. After adjusting for inflation, Disney paid Ovitz a little over…
To go away. After a year. A year and three months to be exact…
Creative Arts Agency
Michael Ovitz's first job in the entertainment industry was as a part-time tour guide for Universal Studios while he was still in college. After graduating from UCLA in 1968 with a degree in theater, film, and television, Ovitz joined William Morris Agency, working in the mailroom. He eventually worked his way up the ladder at William Morris, becoming a successful TV agent.
However, Ovitz soon grew frustrated with his pay and a lack of promotion opportunities. After months of planning, he and four colleagues William Morris decided to form their own agency. William Morris found out about the plan before they could get off the ground and quit, and fired the group in January 1975. In the aftermath, the partners launched what they called Creative Artists Agency (CAA) that same year.
Ovitz reportedly had already sold three film packaging deals within CAA's first week as a company. By its fourth year of existence, CAA was the third-largest Hollywood agency, earning $90.2 million in annual bookings. Ovitz played a major role in the agency's success, becoming president and later chairman of the board. He worked as a talent agent for major stars and directors like Tom Cruise, Dustin Hoffman, Kevin Costner, Barbra Streisand, and Steven Spielberg.
Additionally, Ovitz also helped negotiate major mergers and deals, such as Sony's acquisition of Columbia Pictures and his own company signing Coca-Cola as a client. He also assisted with network moves and was instrumental in David Letterman's transition from NBC to CBS.
Bottom line: In the late 1980s and early 1990s, CAA was the most powerful agency in Hollywood and Mike Ovitz was arguably the most powerful person in the entire entertainment industry. He was equal parts idolized, envied, feared and respected. He made many enemies both inside and outside his own agency. He also found himself overseeing a machine that required his acute attention all day, every day, 365 days a year. Clients were needy. Studios were greedy and cheap. Young partners at CAA wanted their own shot and saw Ovitz as blocking them.
By 1995, Ovitz was ready to do something else. He wanted to leave the agency world and take a fat corporate job where he would fly around on a corporate jet earning huge sums of money from stock options. He wanted a position where he controlled the purse strings, instead of trying to convince someone else to open their checkbook for a client.
In what must have seemed like perfect timing, one of Ovitz's longtime friends, Disney chairman Michael Eisner, came calling with an extremely attractive offer. Eisner made it clear that he wanted Ovitz to come be his heir-apparent at Disney. Eisner intimated that Ovitz would spend a year or two learning the ropes then take over as CEO when rode off into the sunset.
Michael Ovitz was announced as Disney's new Executive President in October 1995.
Before agreeing to the job, Disney and Ovitz worked out a compensation package that would later be the subject of a years-long court battle because of what happened next.
When Ovitz left CAA, he walked away from $200 million worth of guaranteed future fees. To make him whole, Disney and Eisner offered him a no-fault golden parachute if the position did not work out for any reason. So that was that.
Unfortunately, as a second-in-command, Ovitz soon found that he could not deliver the same levels of success for Disney as he could as the head of CAA. He found himself with a lack of clarity around his job duties and didn't have as much power as he did in his previous role. He was supposed to serve as Eisner's right-hand man, but that's not what happened in practice. Furthermore, the two executives clashed at every turn and, worst of all, Ovitz quickly discovered that Eisner had no intention of leaving the CEO post any time soon, and he was certainly not the presumed heir-apparent. Eisner would not step down as CEO until September 2005, a full decade after Ovitz was first convinced to join. Eisner was succeeded as CEO by a talented young executive named… Bob Iger.
After months of bitter in-fighting, in January 1997 Michael Eisner fired Michael Ovitz. In total, Ovitz worked at Disney for 1 year and 3 months.
Ovitz was succeeded as Executive President by a talented young executive named… Bob Iger.
Massive Exit Package
Upon being terminated, Disney paid Ovitz $138 million. The payment consisted of $38 million in cash and $100 million in Disney stock. That worked out to around $300,000 per day of employment. And actually, if you only include Monday – Friday workdays, Ovitz essentially earned $445,000 every single day he worked at Disney. And remember, this was back in 1996. Making $445,000 per day in 1996 is the same as making around $850,000 per day today.
After adjusting for inflation, Ovitz was paid the modern equivalent of $256 million for a year of work.
Perhaps understandably, when his package became publicly known, Disney shareholders were outraged. A group of shareholders sued Eisner and Disney's Board of Directors for what they thought was an exorbitant severance package. But here's the key:
It wasn't a severance package. This massive payday was used by Disney to entice Ovitz to the job. It was to compensate him for leaving CAA and giving up enormous future commissions.
That distinction is what a Delaware court ultimately pointed to when it cleared both Eisner and the Disney Board of any wrongdoing. The court's 175-page decision, which did not come down until 2005, included the following swipe at Eisner:
"Despite all the legitimate criticisms that may be leveled at Eisner, especially at having enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom, I nonetheless conclude, after carefully considering and weighing all the evidence, that Eisner's actions were taken in good faith."
Did Disney wish it could have used Eisner's services for longer than a year? Obviously. But that didn't matter. The contract was clear and the check was deposited.
FYI: If Michael had held on to those $100 million shares, by late 2021 they would have been worth nearly $1 billion with dividend reinvestment. Imagine making $1 billion from a job you held for a year…