Kirk Kirkorian

[shiner]

Kirk Kerkorian, father of the Las Vegas megaresort, dropped out of school in the eighth grade to become a professional boxer, flew suicide missions for the Royal Air Force, made a small fortune in surplus military airplanes, and a larger one in the airline business.

 

In Las Vegas, he built three hotels that were the largest in the world in their time, and proved that, contrary to the wisdom of the day, courting the convention and family travel markets could be profitable.

 

Today, Kerkorian is the 41st richest man in the country, worth about $5.7 billion. Kerkorian rarely attends board meetings and never gives speeches. He is shy, but a tough

negotiator. Those who know him describe him not as Hughesian hermit, but a gentle, gracious, normal guy. "I'm far from being reclusive," declares Kerkorian. "I have 30- or 40-year friendships that I prefer to meeting new people. I go to an occasional party, but just because I don't go to a lot of events, and I'm not out in public all the time doesn't mean I'm anti-social or a recluse. I'm at a restaurant three or four nights a week, here or in Las Vegas."

 

His dark, motionless eyes are set below thick salt-and-pepper eyebrows. The tanned, deeply

lined poker face reveals nothing. He may be amused, bored, or about to knock his interviewer through the second-story window of his Beverly Hills, Calif., office. He still looks capable of demonstrating why he was called "Rifle Right Kerkorian" in the

boxing ring.

 

Kerkor Kerkorian was born in Fresno, Calif., on June 6, 1917, youngest of Ahron and Lily

Kerkorian's four children. When the recession of 1921-22 wiped out the family, the Kerkorians moved to Los Angeles. "Our first language, although we were born here, was

Armenian," Kerkorian recalls. "We didn't learn the English language until we hit the streets." He sold newspapers and hustled odd jobs. "When you're a self-made man you start very early in life," he says. "In my case it was at 9 years old when I started bringing income into the family. You get a drive that's a little different, maybe a little

stronger, than somebody who inherited."

 

The Kerkorians moved often, and Kirk was always the new kid in school, obliged to prove himself. Big brother Nish, a pro boxer,

coached him. By junior high school, he had been transferred to a disciplinary campus where order was maintained with a metal-studded leather belt. There were more fights than ever. Kerkorian became the Pacific amateur welterweight champion and wanted to box professionally. He might have boxed himself into addled obscurity. Instead, he met Ted O'Flaherty.

 

In the autumn of 1939, Kerkorian was earning 45 cents an hour helping O'Flaherty install wall furnaces. Some days, Kerkorian would go with him to Alhambra Airport and watch him practice maneuvers in a Piper Cub. Originally

disinterested, Kerkorian consented one day to go aloft with O'Flaherty. As the plane rose, and the Southern California landscape became visible from the mountains to the ocean, Kerkorian experienced a defining moment. "He was sold on it right then," O'Flaherty later recalled. "He had never been up in a plane before. But I'm telling you, after that first flight he went right at it. The very next day, he was back out at the field to take his first flying lesson." With war clouds darkening Europe, he worried that he would be drafted into the infantry before he became a licensed pilot.

 

One day in 1940 Kerkorian showed up at the Happy Bottom Ranch in the Mojave Desert adjacent to Muroc Field, now Edwards Air Force Base. Owned by Florence "Pancho" Barnes, a pioneer female aviator, the ranch was a combination flight school and dairy farm. "I haven't got any money," Kerkorian told Barnes. "I haven't got any education. I want to learn to fly. I don't know how I can do it. Can you help me?" No college was needed, just the willingness to pull teats and shovel bovine backwash. Within six months, Kerkorian had a commercial pilot's

license, and a job as a flight instructor.

But teaching bored him. "I heard about the Royal Air Force flying out of Montreal, Canada, and I went up there and I got hired right away," he recalls. "They were paying money I couldn't believe, $1,000 a trip."

The mission of the RAF Air Transport Command was to fly Canadian-built Mosquito bombers from Labrador to Scotland. Only one in four made it.

 

The Mosquito's fuel tanks carried it 1,400 miles. It was 2,200 miles to Scotland. Pilots had only two possible routes, each worse than the other. The roundabout route was Montreal-Labrador-Greenland-Iceland-Scotland, but the planes' high-performance wings could be distorted by a paper-thin coating of ice,

causing it to fall out of the sky. "The snowfields and forests around that frozen perimeter were strewn with downed Mosquitos crushed like matchboxes," wrote Dial Torgerson in the 1974 biography "Kerkorian, An American Success Story." Or one could fly straight across the Atlantic, riding a west-to-east airflow called the "Iceland Wave." It blew Mosquitos toward Europe at jet speeds, but it wasn't constant. If it waned in midflight, plane and pilot were lost.

 

Kerkorian and his wing commander, J.D. Woolridge, rode the wave in May 1944, and broke the old crossing record. Woolridge got to Scotland in six hours, 46 minutes; Kerkorian, in seven hours, nine minutes. He came in second. He hated that. The following month, the Iceland Wave died halfway across. The sun set. The reserve tank ran empty, and Kerkorian prepared to ditch. His navigator begged Kerkorian to drop low just once. As they broke through the cloud, the lights of Prestwick, Scotland, twinkled ahead. Kerkorian made a perfect landing. In 2 1/2 years with the RAF, Kerkorian delivered 33 planes, logged thousands of hours, traveled to four continents and flew his first four-engine plane. He also saved most of his generous salary.

 

Kerkorian clearly recalls his first visit to Las Vegas in July 1945. His RAF service completed, he paid $5,000 for a single-engine Cessna in which to train pilots. "And I used that same plane to fly charters. That's what got me into the transportation end of the business."

 

Jerry Williams, a Los Angeles scrap iron dealer, hired Kerkorian's plane two or three times a week to fly to Las Vegas. "I was just overwhelmed at the level of excitement in this little town," he says. "The best times of my life were in Las Vegas." One morning, Kerkorian and Williams emerged into the dawn after a fruitless night at the tables. They had $5 between them, and Williams suggested they save it for breakfast. "What good's five dollars going to do?" asked Kerkorian, and headed back to the craps table, where he won $700. Kerkorian became well known as a high roller in Las Vegas during the1940s and 1950s, "the Perry Como of the craps table," for the unruffled way he could win, or more often lose, $50,000 to $80,000 per night. He

eventually quit gambling entirely.

 

Married twice, Kerkorian met his second wife in Las Vegas. She was Jean Maree Hardy, a former dancer at the Thunderbird. The marriage produced Kerkorian's two daughters, Tracy and Linda. Kerkorian named his personal holding company Tracinda Corp.

 

In 1947, Kerkorian purchased a tiny charter line, Los Angeles Air Service. He later changed the name to Trans International Airlines, and offered the first jet service on a nonscheduled airline.

 

In 1965, Kerkorian took TIA public. Armenian-Americans knew of Kerkorian and bought his stock. It rose from a low of $9.75 to a high of $32. "It brought the stock up to begin with, and then our earnings were great,

too, and it kept going up until we sold to TransAmerica," says Kerkorian. In that 1968 deal, Kerkorian received about $85 million worth of stock in the TransAmerica conglomerate, making him its biggest shareholder.

 

In 1962, Kerkorian pulled off what Fortune magazine called "one of the most successful land speculations in Las Vegas' history." He bought 80 acres across the Strip from the Flamingo for $960,000. The price was low even

then, and for good reason. A narrow band of property cut the 80 acres off from the Strip.

"It was landlocked," says Kerkorian, "We traded the owners four or five acres for all of this thin strip that they could never build on. Then I got a call from Jay Sarno, and that's how Caesars Palace got started."

Kerkorian collected $4 million in rent before selling the land to Caesars for another $5 million in 1968.

 

With the cash from the Caesars sale and his TransAmerica stock, Kerkorian was ready to build his first Las Vegas megaresort. In early 1967, he had bought 82 acres on Paradise Road for $5 million and hired Fred Benninger. "All I knew about Las Vegas came from the other side of the table -- the

contributing end," Benninger recalled years later. "I'm not a firm believer," says Kerkorian, "that you have to have 30 years of experience, if you've got good, common sense. I knew he could cut the mustard and he did. He helped, no, he built the International. He built the old MGM and he built this MGM. It was all Fred Benninger. "I can't take much credit except for seeing the big picture; the amount of rooms, what kind of showrooms, I'm into that part of it. But when you get the nitty-gritty, I don't have the education to really get in there and dissect it."

 

Benninger suggested that given the size of the International, they should buy an existing hotel, and use it to train staff. The Flamingo Hotel fit the bill. Benninger installed Sahara Hotel Vice President Alex Shoofey as Flamingo president. Shoofey then stole the cream of the Sahara's executives

-- a total of 33 -- including casino manager James Newman and veteran entertainment director Bill Miller. In February 1969, Kerkorian's International Leisure was given the go-ahead by the U.S. Securities and Exchange Commission to offer the public about 17 percent of the company's stock at $5 per share. This was not a routine approval, though. The Justice Department was investigating the Flamingo's previous owners.

Justice Department officials had identified Meyer Lansky, Bugsy Siegel's old partner in Murder Inc., as a hidden partner in the Flamingo. Skimming was suspected, and Kerkorian more or less proved it. "The reason, I think, that they allowed us to go public," says Kerkorian, "was that I don't think the Flamingo ever showed anything more than $300,000 or $400,000 in profits. In our first year, 1968, we showed about $3 million."

 

The location Kerkorian chose forthe International was criticized. It was off the Strip and, at 30 stories and 1,512 rooms, the biggest hotel in the world. Too big and too far out, they said. "We had the same doomsday people when we were building the MGM

Grand, same people, same doomsday," sighs Kerkorian. "You have to ask a lot of questions and listen to people,but eventually, you have to go by your own instincts."

 

The International had a "Youth Hostel," where kids could play and swim while their parents were doing grown-up stuff. The hostel organized field trips for the kids to Lake Mead, Mount Charleston and other local nongaming attractions. "And that was before anybody's time," reminds Kerkorian. "We opened that hotel with Barbra Streisand in the main showroom," says Kerkorian. "The rock musical 'Hair' was in the other showroom and the opening lounge act was Ike and Tina Turner. Elvis followed Barbra in the main showroom. I don't know of any hotel that went that big on entertainment."

 

One month before the hotel opened, International Leisure common stock, which had opened at $5 per share, was selling over the counter for $50. But Kerkorian had some expensive European loans to pay off. He was

confident he could retire them with a second offering of International Leisure stock. The SEC refused to allow the sale on the grounds that Kerkorian had failed to disclose financial information about the Flamingo's previous owners. Kerkorian's people believe this information was not important to the SEC, but to a Justice Department investigation. "They employed a form of economic blackmail to try and get information out of us," said a Kerkorian lawyer.

 

To pay off his debts, Kerkorian was forced to sell half of his own shares in International Leisure to Hilton Hotels. He got $16.5 million for stock worth $180 million only six months earlier. Despite this, Kerkorian said he was proud of what he and his people had created in Las Vegas, and had no regrets. He sold his Las Vegas home, his private plane and his yacht. Colleagues were amazed at his calm during this time. But he had learned to always "keep a back door open." To Kerkorian, that means it's acceptable to lose most of what you have, as long as you can raise seed money for another enterprise.

 

At the same time he was making his splash in Las Vegas, Kerkorian was studying the Hollywood film industry and, in 1969 began buying stock in ailing MGM studios. By the end of the year, he would have working control of MGM, which he would operate, reorganize, merge, sell and resell over the years. Most recently, he repurchased MGM/UA in 1996.

 

He was at the helm in 1971, less than a year after the sale of the International, when MGM announced it would "embark on a significant and far-reaching diversification into the leisure field by building ... the world's

largest resort hotel in Las Vegas." Now known as Bally's, it was originally known as the MGM Grand. Today's MGM Grand is a different property.

 

At its 1972 groundbreaking ceremony champagne flowed, celebrities mingled, and executives networked. In a corner, nursing a J&B Scotch and trying not to be noticed, was the man whose project was being celebrated. The new $107 million megaresort was named for a 1932 MGM film, "Grand Hotel." At 26 stories, the MGM Grand had 2,084 rooms, a 1,200-seat showroom and amenities like a shopping arcade, movie theater and jai alai fronton.

When it opened July 5, 1973, it was the largest hotel in the world -- just as the International had been. Some saw a pattern developing, but Kerkorian denies he has ever built a hotel just for the sake of size. His

hotels, he explains, are built on a grand scale to house a variety of diversions for guests.

 

The biggest hotel in Las Vegas was the site of the city's biggest disaster in November 1980, when a fire, ignited by an electrical problem, raged through the casino and upper floors of the MGM, killing 85 and injuring

hundreds.

 

The great poker face softens and the brown eyes lower when the catastrophe is mentioned.

"It's something I rarely ever talk about, because how do you talk about it?" he says quietly. "I was in New York in a meeting with people from Columbia Studios, and I had an emergency call telling me that the hotel was

on television, on fire, and in less than two hours I was at the airport and on my way to Las Vegas. "The two people I really felt for at the time were Fred Benninger and Al Benedict, because they were on the front lines through everything that happened." Benedict was hotel president. Benedict later told Review-Journal reporter Dave Palermo that when Kerkorian arrived a few hours after the blaze, his first question was, "Where do we start?" "I figured there was no way we could come out of this." said Benedict. "I

think the idea of walking away and forgetting about rebuilding the property was in the back of everybody's mind. That's what most people would have done."

 

But not Kerkorian. Eight months later, the MGM Grand re-opened. "How could I walk away while that whole team was out there, taking the brunt from everybody? I had to be a part of it, I couldn't walk away, I just couldn't." In 1986, he sold the Las Vegas and Reno MGMs to Bally Manufacturing Corp. for $594 million. The current MGM Grand, which opened in 1993, has 5,000 rooms, eight restaurants, a health club, a monorail, the 15,000-seat MGM Grand Garden and a theme park as big as Disneyland when it opened in 1955.

 

As for the health of the Las Vegas resort industry, Kerkorian remains as bullish as he was back in 1945. "Personally, I wouldn't say it's headed for a fall," says Kerkorian,

"except that there will be a leveling-out time, and the best hotels and the best operators are going to suffer less than the others."

[bellthecat]

Of course, a hundred years from now, when all the dust and spin has settled, posterity will remember him just as that barbarian who destroyed the famous MGM studios.

[MJ]

The Wizard of MGM

Kirk Kerkorian wants respect in Hollywood. Alex Yemenidjian is in charge of

earning it.

 

 

By Brett Pulley

Forbes Magazine, 05.28.01

 

For much of his career, Alex Yemenidjian was a certified public

accountant, toiling in the dry realm of tax planning. But in his

current role as head of Metro-Goldwyn-Mayer he has days like this one:

He and the saucy siren Sharon Stone meet privately in his office to

talk about the sequel to her hit thriller Basic Instinct. She suggests

the opening scene: Her character emerges from the shower, naked and

dripping wet, just as the cops arrive.

 

Running MGM is a tough job. No, really, it is. Chitchat with Sharon

Stone is one thing, but Yemenidjian also seeks to revive the glorious

motion-picture lion that once roared with masterpieces like The Wizard

of Oz and Gone with the Wind. MGM, formed in a three-way merger in

1924, was home to Clark Gable, Greta Garbo, Judy Garland and Spencer

Tracy.

 

These days publicly held MGM is 81% owned by financier Kirk Kerkorian,

who has bought or sold the studio five times in three decades. In that

time MGM has withered, reduced to a mere bit player among Hollywood's

film factories. It went 11 years without a profitable quarter, a slump

that ended as Kerkorian installed his longtime consigliere,

Yemenidjian, as chief executive of the studio in April 1999.

 

Now two years into the role created by Louis B. Mayer, Yemenidjian

just may be up to the task of resurrecting MGM. Far more experienced

chiefs have failed before him-Paramount alum Frank Mancuso, producer

Alan Ladd Jr. Yemenidjian is the antimogul. He shuns long lunches at

Spago, refuses to buy a studio jet and balks at excessive pay for

fading stars. He focuses more on profits than on creative vision.

 

Yet Yemenidjian, with help from Hollywood veteran Christopher McGurk,

is finding success at the box office. For the first time in six years

MGM just had two consecutive films open at number one. Hannibal, the

campy horror hit, debuted in February and has grossed $320 million

worldwide. Heartbreakers, with Sigourney Weaver, opened in March and

is nearing $40 million. And for the first time in more than a decade,

with four films, MGM has a full summer slate. The $55 million Martin

Lawrence comedy What's the Worst That Could Happen? opens in June,

and the $28 million erotic thriller Original Sin, starring Antonio

Banderas and Angelina Jolie, opens in August.

 

Yemenidjian, who proved himself the loyal Kerkorian deputy by running

the billionaire's separate MGM Grand casino-hotel business, has

overseen a six-quarter run in which MGM has had operating income (net

before depreciation, interest and taxes) of $220 million, versus

negative operating income of $100 million in the previous six

quarters. In the first three months of 2001 the studio's operating

income increased 9% to $28.6 million before the one-time effect of an

industrywide accounting change. In two years MGM's stock price has

climbed from $12 to $19. As Jack Valenti, chief of the Motion Picture

Association of America, observes: "They're really turning this company

around."

 

Such rebounds can be fleeting in show biz, and Yemenidjian could yet

blow it; all it would take is a nine-figure flop. But for Kirk

Kerkorian, a renewed MGM could bring vindication. Despite building a

fortune worth $7.8 billion by investing in everything from airlines to

Chrysler, Kerkorian has failed to find success in 30 years in

Hollywood. He bought MGM in 1969. He sold it in 1986, then repurchased

most of it months later. He sold it again in 1990-and bought it back

in 1996. All the while MGM's legend unraveled as poor management,

scandal and the sale of treasured assets turned it into a pip-squeak

in a town dominated by integrated entertainment companies like Sony

and Disney.

 

In the process Kerkorian never took a financial bath (see chart), but

his reputation took a beating. Hollywood dismissed him as a trader of

assets who didn't understand the art of the silver screen. Behind his

back people knew him as the guy who ran MGM into the ground. Now, at

age 83, Kerkorian finally may get a little respect.

 

That owes largely to Yemenidjian, 45, who had rarely ever set foot in

Hollywood. He has worked for Kerkorian since 1989, and they have

almost a father-son relationship. And like a loyal son, Yemenidjian is

determined to enhance Kerkorian's legacy. "Kirk has gotten a bum rap

in Hollywood," he says. "People think he just wants to buy and sell

assets. Kirk's not looking to sell MGM. He doesn't need the

money. Kirk wants to build MGM."

 

Now comes their biggest challenge. They aim to turn MGM into a global

entertainment company with broadcast outlets and cable and satellite

channels. MGM, they say, can be a leaner version of a Viacom or a

Disney, filling captive media outlets with films from one of the

richest libraries in the business. MGM already holds stakes in 14

foreign TV channels. In the U.S. it just paid $825 million for a 20%

stake in four cable channels, including Bravo and American Movie

Classics, owned by Rainbow Media, which is controlled by NBC and

Cablevision. Yemenidjian hopes to buy full control of the four

outlets. "It's the beginning of MGM's transformation," he says.

 

Of MGM's $1.2 billion in annual revenue, half now comes from new

films, 40% from licensing MGM's library, 7% from TV shows and 3% from

other items. In three to five years, Yemenidjian predicts, revenue

will be "several times" today's, with less than 25% coming from new

movies; the rest will come from advertising, cable and satellite fees,

and the library.

 

It sounds good, but plenty of other newcomers have fallen in love with

Hollywood, only to lose billions. For now, MGM is still a pygmy. To

play with the big boys like Viacom-whose revenue is 17 times that of

MGM's-Yemenidjian must boost the stock and use it for big

acquisitions. Kerkorian, for his part, will have to dig deep into his

own pockets. Kerkorian is maniacally low-profile and hasn't granted an

on-the-record interview since 1969. In written answers to some

questions, he says MGM "deserves to be a much larger and diversified

entertainment company. It's clearly headed in that direction, and I

fully support it."

 

Yemenidjian had idolized Kerkorian, a fellow Armenian, for years

before going to work for him. Though Yemenidjian's grandparents were

born in Armenia, he was born in Argentina, where his father was a

shoemaker. When he was 13, the family moved to Los Angeles, but his

heavy Spanish accent remains. He graduated from college in 1977 and

started his own accounting firm in 1981, getting an M.B.A. at night at

the University of Southern California, where he taught taxation. It

was perverse training for Hollywood, where 2+2 equals whatever a

studio chief wants it to equal. "Historically," he says, "some people

abused the system. I won't allow it to happen here."

 

Tall, lean and courtly, he wears scallop-collared shirts of his own

design. He's got 60 of them, and they are all white. His office

inside MGM's Santa Monica headquarters is stylish but antiseptic:

white furniture, white carpet, black-and-white photos of his wife and

two children.

 

He is such an outsider that most people in Hollywood are still

struggling to pronounce his name ("yemma-NEED-jee-an"). At the New

York premiere of Hannibal the film's star, Sir Anthony Hopkins, made a

speech to guests and stumbled miserably over the mouthful, failing to

get past the first syllable.

 

After joining Kerkorian's Los Angeles office as an accountant,

Yemenidjian went to MGM Grand in 1995 as the number two to Chairman

J. Terrence Lanni. Yemenidjian became known for preoccupying himself

with details. In remodeling the MGM Grand in Las Vegas "he obsessively

scrutinized everything," a former aide says. "If he didn't like the

way the light came down on the tile on the walkway, it had to be done

over until it was done right." Now named the MGM Mirage, the casino

company's market cap quadrupled in four years.

 

Hollywood is a tougher place to make money. For the first 17 years

after Kerkorian acquired MGM, he struggled to turn a profit. In 1981

he was smart enough to pay $380 million to acquire United Artists,

adding the Rocky and James Bond franchises to MGM's stash. But in 1986

he bailed out, selling MGM to Ted Turner for $1.5 billion in cash and

stock. Months later Turner was in debt trouble, and Kerkorian paid him

$780 million to buy back United Artists, the MGM name, the logo and

other assets. Turner kept the 2,200 MGM films made before 1986. He

used them to create Turner Classic Movies, a channel now worth an

estimated $1.2 billion.

 

In 1990 Kerkorian retreated once again, selling MGM to Pathe

Communications for $1.34 billion, 72% more than he had paid four years

earlier. But Pathe's owner, Giancarlo Paretti, had bribed bank

officials to raise the cash to buy the studio. He defaulted in 1992,

and bank Crédit Lyonnais took control. In 1996 Kerkorian took his

third shot at MGM, paying the bank $1.3 billion-a hefty price, given

MGM's travails.

 

With Kerkorian's blessing, then-chief Frank Mancuso loaded up on

content. MGM went public again in 1997, raising $180 million for 10%

of its stock. Months later MGM spent $573 million to purchase Orion

Pictures. In 1999 it put up $235 million for PolyGram's film

library. Kerkorian now had the industry's biggest modern library-more

than 4,100 theatrical releases, 75% of them made after 1960.

 

With the content in hand the priority shifted to building

distribution, but Mancuso, in his mid-60s, wanted to retire. In 1999

Kerkorian began looking for a successor, tapping Yemenidjian, who sat

on the MGM board, to help in the search. Then Kerkorian simply

installed Yemenidjian in the job.

 

The finance man lacked Hollywood shrewdness but had the owner's

trust. They talked two or three times a day and played tennis every

weekend. To hell with Hollywood experience. "This is the first time

since I took control of MGM in 1969 that I feel totally confident with

the management," Kerkorian says in his canned comments.

 

His first day in the new job Yemenidjian arrived at MGM at 8 a.m.,

worked until 8:30 that night, then drove to Universal Pictures. There

he negotiated to win the services of Chris McGurk, then Universal's

chief operating officer.

 

At 4 a.m. Yemenidjian went home, having signed McGurk and landed a

bonus: MGM would coproduce Hannibal, the sequel to The Silence of the

Lambs. MGM would split the $81 million cost of Hannibal and handle

the U.S. release; Universal would do overseas distribution, and the

two would split revenue down the middle. The film's opening weekend

was the third-largest ever in the U.S., taking in $58 million in three

days.

 

Arriving at work groggy the next morning, he phoned Kerkorian. "I just

worked 20 hours-do I get overtime?" he asked the boss. Kerkorian

cracked up.

 

At MGM Yemenidjian strikes a "delicate balance" of personal

involvement in all aspects of the studio. "I have a point of view

about the creative side and the marketing of pictures," he says, "and

I make my point of view known when I think it's important."

 

Last year, after a test screening of the Pierce Brosnan film The

Thomas Crown Affair, Yemenidjian stepped in. The character played by

Rene Russo needed to remain tough to the very end, he decided. Instead

of Russo and Brosnan kissing sweetly, the way the flick ended at

first, the final cut shows the kiss, and then Russo whispers in his

ear: "You pull a stunt like that again, I'll break both your arms."

Brosnan's take on Yemenidjian: "He knows how to crunch the numbers,

and he's got a good eye for character."

 

More recently, when eight MGM executives pitched him a project he

thought was too costly, he polled them:"Are you willing to stake your

bonus for the year on this film?" One at a time, each said yes. They

got the green light, but will he really hold them to the bonus bet?

"Absolutely," he says. "Otherwise, the next time I say it, it won't

have any meaning."

 

Yemenidjian has quickly grasped the social eccentricities and

byzantine arithmetic of the insular film industry. By striking

ventures with rivals, he plans to release 20 films this year-more than

twice the output in 2000, on only a 30% rise in the production budget,

to $450 million this year.

 

For Basic Instinct II, which awaits a male lead to joust with Sharon

Stone, MGM has offset the entire $55 million budget by selling foreign

rights to the film's producers. That approach cuts MGM's risk and

gives it a stake in many more films, but also forces the lion to split

the upside. Yemenidjian also has spent $225 million to end a contract

with AOL Time Warner's home video unit, which handled distribution for

a fee of 12% of sales. MGM now does it itself, at half the cost. That

saves $20 million a year and frees MGM to use video rights as a

bargaining chip in coproduction deals.

 

To improve foreign distribution, Yemenidjian last year withdrew from a

syndicate that required MGM to pay a fixed cost for overhead,

regardless of how few films it released. Now MGM pays News Corp.'s Fox

9% of its share of overseas sales to get MGM films into theaters, on a

per-picture basis.

 

In the past 18 months Yemenidjian also has raised $1.4 billion in a

rights offering to shareholders and in three private placements. He

used the cash to fund the film slate, reduce debt by $200 million to

$900 million and buy into the Rainbow channels. To reduce overhead he

has cut MGM's work force by 6% to 1,000. MGM's overhead, at $185

million last year, was 14% of revenue, down from 17% in 1999. Bucking

Hollywood's propensity for self-interest, Yemenidjian also has cut

back on long-term contracts and lavish bonuses. Six of MGM's 12

division heads have left since he took over. Instead of signing

five-year pacts with their replacements, he imposed three-year deals

with two-year options. This reduces severance packages.

 

"The richest people in town are those who've been fired a couple of

times," he says. "People who are talented don't worry about having a

long-term contract." He gives all employees stock, and ties bonuses

directly to operating profits. Most studios base bonuses on market

share and box-office gross.

 

Though the lease on MGM headquarters is about to expire, the company

will merely move into an office tower in Century City. He won't even

consider relocating to a studio lot, the ultimate status symbol. MGM

hasn't owned a lot since Kerkorian sold out to Ted Turner in

1986. Lots are expensive trophies with soundstages that sit empty half

the time and street sets that directors shun in favor of location

shots. "You could not give me a lot," Yemenidjian says disdainfully.

 

When the numbers look bad, the old accountant balks. A few months ago

he backed out of Dragonfly, arguing the fading star Kevin Costner was

overpriced at a guaranteed $15 million. Universal bought the rights

and has begun filming, Costner's deal intact. Still, Yemenidjian knows

when to pay up. Word is he is wooing Mike Meyers of Austin Powers

fame, trying to persuade the comic to assume the Peter Sellers role in

a planned Pink Panther film, the tenth in the series.

 

The glare of Tinseltown blinds many rookies, but MGM's chief seems

unfazed. Other moguls mingled with the stars at the Academy Awards in

March; Yemenidjian stayed home with his wife, watching on TV. The

Oscars, he says, "are not as glamorous as they seem." (Especially when

your studio isn't up for any.) As Kerkorian says: "Alex isn't seduced

by the trappings of the entertainment industry."

 

Many predict Kerkorian will soon sell out again, but Yemenidjian

insists the goal is to more than double MGM's market cap, then make a

large acquisition. His vice chairman, McGurk, is more blunt: "We are

not for sale."

 

But Yemenidjian admits suitors call frequently these

days. Cablevision, cozying up to MGM since Yemenidjian invested in its

Rainbow cable unit, could plausibly buy the studio in order to capture

its library. A fledgling TV outlet-Paxson Communications, for

one-could become an instant player by grabbing the MGM library.

 

And if MGM can land a few hits, the library's value grows. MGM hasn't

won a best picture Oscar since the 1988 film Rain Man. But hopes are

high this year for Windtalkers, starring Nicholas Cage and directed by

John Woo; it's scheduled for release in November. At $110 million, it

is the renewed MGM's biggest gamble. If it fails, MGM's comeback could

sputter. If it's a success and wins a nomination, Yemenidjian finally

may break the pattern and attend the Academy Awards-in one of those

weird shirts.

 

 

There's No Business Like Show Biz

Ian Zack, Forbes Magazine, 05.28.01

 

While MGM has spent three decades in an on-again, off-again dalliance

with Kirk Kerkorian, its Hollywood rivals have been fodder for

takeover by soft- drink sellers, electronics makers, billionaires and

media conglomerates.

 

Studio and founding: Columbia Pictures (1924). Stars and hallmark

films: Rita Hayworth, Jimmy Stewart; Lawrence of Arabia, Men in Black.

Owner legacy: Financial turmoil in the 1970s. Coca-Cola bought it

(1982) for $750 million. Sold to Sony Corp. (1989) for $3.4

billion. Sony took $3.2 billion writeoff of losses (1994).

 

Studio and founding: Paramount (1914). Stars and hallmark films: Bob

Hope, Gary Cooper; The Ten Commandments, The Godfather. Owner legacy:

Acquired by Gulf & Western (1966). Viacom gained control (1994) for

$10 billion after takeover war with former studio head Barry Diller.

 

Studio and founding: United Artists (1919). Stars and Hallmark films:

Charlie Chaplin, Sean Connery; Some Like It Hot, the James Bond

series. Owner legacy: Went public (1957), acquired by TransAmerica

Corp. (1967). Suffered $44 million loss on (1980) western Heaven's

Gate. Sold to MGM (1981) for $380 million.

 

Studio and founding: Universal (1912). Stars and hallmark films:

Rudolph Valentino, Abbott and Costello; All Quiet on the Western

Front, American Graffiti. Owner legacy: Decca Records gained control

(1950). Swallowed by MCA (1962). Matsushita bought MCA (1990) for

$6.6 billion. Kept $3 billion debt, but sold 80 percent to Seagram

(1995) for $5.7 billion. Last year, acquired by Vivendi for $34

billion.

 

Studio and founding: Warner Bros. (1923). Stars and hallmark films:

Humphrey Bogart, James Cagney; The Jazz Singer, Superman. Owner

legacy: Bought by Kinney National Service (1969). Acquired by Time

Inc. (1989) for $14 billion. Became AOL Time Warner in January merger.

 

Studio and founding: 20th Century Fox. (1935). Stars and hallmark

films: Marilyn Monroe, Gregory Peck; The Sound of Music, Titanic.

Owner legacy: Bought by oil billionaire Marvin Davis (1981) for $722

million. Acquired by Rupert Murdoch in two pieces (1985-86) for $575

million. Now part of Murdoch's News Corp.