A Hollywood agency with star power

CAA, Hollywood's dominant agency, is after fresh territory. But in the talent business, is bigger always better?

(Fortune Magazine) -- On a muggy Friday evening in September, photographers and fans lined the red carpet outside the Design Exchange in downtown Toronto. They were waiting for George Clooney, the guest of honor at the afterparty celebrating the premiere of "Michael Clayton," the hottest ticket at this year's Toronto Film Festival. Inside the cavernous room, Reese Witherspoon and Jake Gyllenhaal, Hollywood's undercover It Couple, quietly danced. A tipsy blond knocked over an ice sculpture.

It was just past midnight when Clooney arrived, with a look on his face as if to say, "It's been a long night." He smiled, greeted the partygoers - and beelined his way to a corner in the back where a tall, fit, bald man with a smile that rivals Bill Clinton's quietly held court. Clooney gave him a bear hug.

Richard Lovett (left) and Bryan Lourd run the show at CAA.
The "Death Star" CAA's new Century City headquarters was built for about $35 million after the agency nearly doubled in size.

The man was Bryan Lourd, one of the faceless partners of the Creative Artists Agency, the Hollywood talent outfit so secretive and powerful that its office building is nicknamed the "Death Star."

Lourd had just flown in from the Venice Film Festival via Los Angeles to tend to the likes of Brad Pitt, Naomi Watts, and, of course, the man before him. He's often called the most charming man in Hollywood, and he's also considered one of the most intimidating. That's because he is one of the six controlling partners of the entertainment industry's most influential organization. These days it's hard to find a movie, television show, musical act, or sports team that isn't somehow touched by CAA.

Just think about the movies you saw this summer. The director, writer, and star of "Spider-Man 3" were CAA clients. So were the director, writer, producer, and many of the stars of "Pirates of the Caribbean: At World's End;" the writers and actors of "Transformers;" and most of the major performers in "Ocean's Thirteen," "Live Free or Die Hard," and "Shrek the Third."

On television, eight of the ten top-rated scripted TV shows, including "CSI," "Cold Case," and "Lost," were put together by the agency. If you caught one of the summer concerts by John Mayer, Tim McGraw, or Tony Bennett, you were watching a tour organized by CAA. If you saw Derek Jeter play baseball, you were watching an agency man. Football's Peyton Manning, basketball's LeBron James, hockey's Sidney Crosby, and soccer's David Beckham are CAA clients too.

"They have put themselves in a place where they just have so much control over the business," says Peter Chernin, president and chief operating officer of News Corp. (Charts, Fortune 500), which owns Fox Studios and is thus a major consumer of CAA's wares. "Of course, that's not always to the good of companies like mine, but certainly as an outside admirer you have to admire their strategic thinking."

CAA has long been the market leader among the so-called Big Five talent agencies, but in the past five years, as Hollywood's revenue streams have been in flux, it has embarked on a costly and unproven new strategy. First, it set out to corner the market on bankable movie stars. Second, if a competitor had a profit center, CAA copied, destroyed, or stole it. Finally, it launched new divisions like sports management and corporate marketing in an effort to expand its reach (and hopefully grow revenue).

"It's a very, very bad time to be expanding in the agency business," says another prominent studio head. "No matter how good-looking their new headquarters is, no matter how big that client list is, and no matter how charming and full of shit those guys are, they're in a business that's severely challenged."

The most powerful man in Hollywood

It's been a long time since we've heard from CAA, the Hollywood talent agency made famous by its co-founder, Michael Ovitz. In the 1980s and '90s, it was the company behind everything from Tom Hanks to Coca-Cola's polar bear commercials to the merger of MCA and Matsushita. It deployed a well-paid, motivated, disciplined cadre of agents so effectively that it tilted the balance of power in the entertainment business. Suddenly agents, not studios, were calling the shots. Ovitz became widely referred to as the most powerful man in Hollywood - the man studio executives feared most.

But when Ovitz abruptly departed the agency in 1995 for his ill-fated stint as president of Walt Disney Co., (Charts, Fortune 500) a free-for-all ensued. Competitors poached some of CAA's most important clients. Studio executives reclaimed much of their power. And the new leaders of the company largely went underground.

To a degree, the firm has remained in the shadows. Ironically, its public relations people spend much of their time trying to keep its activities out of the media. But quietly, steadily, a new team has rebuilt CAA into a diversified firm that may now wield even more clout than it did in the Ovitz era.

In the past few years CAA has assembled a near monopoly of A-list actors, writers, and directors. It has started to represent athletes. It arranges financing for movies. When Tom Cruise was fired by Paramount, it was CAA that helped install him and his producing partner as heads of United Artists.

How could one small, private company have amassed this much influence? It's partly sheer aggressiveness. It's partly pack-like loyalty. It's partly dogged intelligence gathering. It all makes CAA the scariest topic for an entertainment executive to talk about publicly. "I value my wife and kids," one studio chief whispered to me, only half joking. "And I value my relationship to CAA. If they don't like this article and I'm quoted, there goes my first look at the best projects."

"I wish we could talk you out of writing this story," CAA president Richard Lovett told me the first time we met. He was sitting at a large marble table in one of the many identical, almost sterile conference rooms at the company's new office building near Beverly Hills. Next to him was Lourd. They were wearing matching blue shirts and skinny black ties. "We don't want any publicity," Lovett continued. "We are behind-the-scenes players. We are uninteresting and are meant to be, as everything we do is for and about the clients."

CAA has six nominally equal partners: Lovett, Lourd, Kevin Huvane, Rick Nicita, David "Doc" O'Connor, and Rob Light. But it is Lovett and Lourd who really run the show. The soft-spoken, railthin Lovett distinguished himself early in his career by poaching Tom Hanks from rival agency William Morris. A Wisconsin native, he is one of those guys you can tell is always making lists in his head: clients to call, executives to e-mail, yoga moves to master. When we met, he scribbled constantly in a brown leather notebook.

Lourd is his chief lieutenant. Mostly bald with short, fuzzy gray patches, he's the agent you send in to sign the big star or to put out flare-ups. With his slight faint Louisiana accent and understated charm, he has the ability to make almost anyone feel special. "He has managed to make more people feel they have a privileged relationship with him than any person I have ever met," says a studio head.

When Ovitz departed for Disney in 1995, he hastily tried to establish a succession plan. It left the agency in the hands of nine equal partners. Confusion broke out as a power struggle erupted between older and younger agents.

Hollywood loved it. Rival agencies like William Morris and International Creative Management stole stars including Kevin Costner, Sylvester Stallone, Barbra Streisand, Steven Seagal, Winona Ryder, and Alec Baldwin. Studio executives declared their freedom from Ovitz's strong-arm tactics. The media wrote CAA's obituary again and again.

It took some time for the agency to settle down. Lovett was named president later that year - no one else really wanted the job. The partners, who had believed they were at risk of losing a third of their clients, somehow managed to keep most of their big stars, thanks to their own skills and, arguably, the ineptness of rivals.

The next battle came in 1999, after Ovitz, recently fired from his job at Disney, decided to get into the talent-management business. In Hollywood, managers are not the same as agents - they are prohibited by law from negotiating contracts, for instance - but the duties of the two can overlap.

The week before the Golden Globe awards, the talk of the town was that Ovitz was trying to become the manager for some of CAA's top clients. A hot rumor was that partner Rick Nicita was going to leave CAA and join Ovitz's new firm - possibly taking Tom Cruise with him. The Monday after the awards ceremony, Lovett and his colleagues threw down the gauntlet: CAA would not represent any client managed by their former boss.

That move eventually asphyxiated Ovitz's company, which collapsed three years later. And the unpleasant publicity surrounding the Oedipal drama caused the CAA partners to go underground.

Business gets bad

By then the world of entertainment was beginning to change. The boomboom 1980s and '90s had been good to the agency business. The studios cranked out big-budget films, the TV business expanded at breakneck speed, and salaries for the A-list talent - movie stars, directors, and writers - reached record levels. At CAA, an average agent could earn well over $1 million including bonus. The best were making three or four times that; the partners were raking in close to $10 million a year.

But as the economy slowed after 2001, show business cooled down as well. Studios began to balk at big-budget films, paying top dollar only for well-established sequels or action flicks with big stars. They also built up their "independent" divisions, which buy low-budget films that have the potential for major paydays. Studios also began resisting oversized star salaries and the once-common "gross" deals, which give the actor a percentage of the box office revenue.

Today, if budgets get out of control, prudent studio heads may simply cancel projects. Fox recently scrapped "Used Guys," a comedy starring Ben Stiller and Jim Carrey, when the budget went north of $100 million, partly because of the stars' salaries.

Even the biggest, richest stars are sometimes making extraordinary concessions. On the new Indiana Jones movie, for example, Harrison Ford, Steven Spielberg, and George Lucas reportedly agreed that they would take nothing until the studio got all its money back. The same is rumored for Jim Carrey in his upcoming movie "Yes Man."

George Clooney recently complained to reporters that he hadn't earned a star-sized paycheck for years as he continues to work on smaller, less commercial films.

"This is all bad news for agents," says one studio boss. "I'm friends with most of the top agents, and all they do is complain about how bad business is. They talk of merging, because in a shrinking industry, you want to eliminate as much overhead as possible and have less competition. But none of them can do it because they're all such little egomaniacs."

It didn't take long for Lovett to see the writing on the wall. If his company's future mainly hinged on 10% of clients' salaries and the clients were making less, then obviously he had a problem. So he started searching out advice from other industry sages who had been in similar situations.

He grew close to Mark McCormack, the founder of International Management Group, the country's largest sports agency. Over the past 40 years McCormack had practically invented the business of sports management and marketing. By his death in 2003, IMG had 80 offices in 32 countries and employed more than 2,000 people. McCormack was a big believer in market share in the talent business. "Learn the business and expand by applying what you already know," he once said. Soon Lovett was handing out copies of McCormack's bestselling management books.

CAA says the influence is greatly exaggerated, but at a meeting shortly after McCormack's death, Lovett, usually a reserved speaker, gave a passionate and emotional lecture about him, says someone who was present. At any rate, consciously or not, the agency soon started following the IMG model by going after market share and entering related businesses.

On the talent side, CAA went after its rivals. ICM claimed the best actress roster in town until CAA poached Cameron Diaz, Julia Roberts, and Drew Barrymore. When CAA couldn't land the clients it wanted, it cherry-picked the best agents in town instead, sometimes tripling their salaries. William Morris Agency's Hylda Queally brought Kate Winslet and Cate Blanchett; United Talent Agency's Jason Heyman bolstered CAA's comedy list with Will Ferrell and Dave Chappelle, while UTA's Dan Aloni added Tom Shadyac ("Evan Almighty") and Chris Nolan ("Batman Begins") to CAA's list of directors.

Then last year Lovett, a sports nut, bought out some of IMG's top agents to start his own sports division. The company now boasts more than 350 sports clients, including the past five NFL MVPs, the 2006 National League baseball MVP, the No. 1 selection in the past three NHL drafts, and an NBA MVP. It recently signed the Yankees. "Everything is connected in the entertainment world," says Lovett. "Sports is just a natural extension of our business."

So, apparently, is Madison Avenue. In the past five years the company's marketing division has been involved in projects such as lining up Coca-Cola as a major sponsor for "American Idol" and helping engineer Delta Air Lines' new branding strategy since its bankruptcy.

CAA has organized mall concerts promoting Abercrombie & Fitch's Hollister brand, arranged for graphic novels to be written about Harley-Davidson motorcycles, and connected Will Ferrell and his partner Adam McKay with backers from venture capital firm Sequoia Capital to start FunnyOrDie.com, a comedy site.

Full service

"We don't think that someone who effectuates creative suicide and costs the company revenue should be on the lot." Those words, uttered last summer by Viacom (Charts) chief Sumner Redstone, sent a shock through Hollywood and, in particular, through the halls of CAA. Redstone was firing Tom Cruise, the world's most famous actor and CAA's biggest client, on the front page of the Wall Street Journal.

When the story broke, Harry Sloan, the chairman of MGM Studios, was on a corporate retreat in Aspen. Like many Hollywood executives that day, Sloan picked up the phone and called Nicita, Cruise's agent at CAA, to say that his studio would be pleased to do business with Cruise.

"When I got Rick Nicita on the phone," says Sloan, "he's like, 'Maybe there's something more interesting to talk about.' " Two and a half months later, after a series of secret meetings, CAA helped work out a deal to reconstitute the United Artists brand, which MGM (Charts, Fortune 500) owned. Cruise and his producing partner, Paula Wagner, who happens to be Nicita's wife, would be studio chiefs. "They took care of everything," Sloan says. "Before I knew it, UA got its own financing. It got its own bank credit lines. It got its own movies in production. It got a long-term distribution deal."

That kind of soup-to-nuts service is what CAA does better than anybody else. Its agents are encouraged to share intelligence among themselves. Instead of individual agents representing individual clients, as at most agencies, every CAA agent works on behalf of every client. Compensation isn't tied to how many jobs you book for an actor; it's based on the way you work within the group.

"It's not hard to share information when it's in your DNA," says Huvane. CAA associates must return their colleagues' calls first. "If you tell one person at CAA something, it's pretty certain that everyone else there will soon know it as well," says Marc Graboff, the co-chairman of NBC. "I don't know how they have such instantaneous communication, but it's like they're acting with a common brain."

Take Sean Penn, for example. Lourd oversees half-a-dozen agents who serve Penn's varied interests. Besides looking for acting opportunities, agents on his team find scripts for Penn to produce and sometimes gin up financing for them. There is even an agent who helps him with his philanthropic efforts. When he became interested in producing his new movie "Into the Wild," CAA agents helped find independent financing and distribution.

Every Monday morning more than 100 agents gather around an enormous custom- made marble table to hear their marching orders. The men wear dark suits, colorful ties, and shiny black shoes. The few women present are clad in similar dark pantsuits - conservative but not boring. The questions from the head of the table begin: What scripts did you read? What's everyone's schedule? Is there a screening that people need to know about? Has there been any movement over the weekend at studios on things that are going to get greenlighted? What clients are in town who might need meetings?

Then it's off to the phones, the BlackBerrys, the lunch meetings. Lovett, who has four assistants, is famous for his hyperconnectivity - probably making upwards of 200 phone calls a day and writing countless more e-mails. "Sometimes I'll talk to Richard [Lovett] five or more times a day," says one studio's president of production. "There's an interesting quid pro quo with agents. They need to know what's going on at the studio, and we need to know what their clients are interested in."

Growing pains

The firm's rush into new businesses hasn't come cheaply or without internal controversy, and outsiders question what they see as expansion for expansion's sake. While the fiercely private company doesn't release numbers, people close to the agency say that revenues are up to about $300 million, but profits are suffering. Two former employees say the new headquarters cost about $35 million. Setting up offices in China cost another $5 million to $10 million, they say. (CAA disputes these figures but won't give any of its own.)

The sports business is an example of CAA's growing pains. Not only is luring top sports agents expensive, but the commissions on sports contracts are around 3%, compared with 10% on most movie and television deals. A few sports stars make big money on endorsements, of which agents can get a 20% cut, but on the whole they earn much less than big movie stars.

When profits drop in the agency business, salaries and bonuses drop too. This year, as last year, the company is reportedly cutting bonuses by 10%. It is reducing expense accounts by 25% and limiting first-class travel and car service to and from the airport. "For the first time in their history, some of their agents are looking for new jobs," says a former insider. "And for the first time in their history, their storied culture is starting to lose its luster."

Lovett, Lourd, and their partners scoff at such criticisms, saying you have to spend to expand. It seems ludicrous to them that people would criticize them for doing something that in another industry, people would consider a sign of success. Cutting costs? That's smart business sense.

Some people inside and outside the firm question whether it makes much sense to represent both athletes and movie stars. "It's not axiomatic to move Derek Jeter into the movie or television business," says Peter Guber, the chairman of Mandalay Entertainment, which also owns minor league sports teams. "Being big just isn't enough." CAA notes that it recently arranged for pop singer Brian McKnight to play at Jeter's cancer fundraiser.

Lovett believes that there are intangible benefits in getting clients from different fields together. The company's Super Bowl party this year in Miami was a stew of CAA celebrities: Tom Cruise danced not far from where his wife Katie Holmes and son Connor hung out with Nicole Kidman; Alec Baldwin danced with his brother Stephen; Billy Bob Thornton sat at a booth near Katie Couric, Alex Rodriguez, and Kid Rock. And if you believe the gossip pages, the actress Alyssa Milano made out with Arizona Cardinal quarterback Matt Leinart.

There's no sign of tough times when you walk into the company's new 240,000- square-foot headquarters. Sometimes called the "building with a hole in it" for the 100-foot gap between its bridged wings, the space certainly seems meant to impress. The two-story lobby has a 220- foot sculpted focal wall made of 1,000- pound blocks of Italian marble. Up the carved marble staircase is an eight-story atrium with an internal staircase made of white tempered glass and surrounded by electronic color-changing diodes. It's like a W hotel without the party.

"The building is about idea generation," says Lourd, who oversaw its construction. "The clients can come here and be in conference rooms and offices and feel that the building is not bigger than they are.

Actually, no. In Hollywood, the building's more common nickname is the "Death Star."

"I've been in this business 25 years now, and I still don't know how that place works," says yet another anonymous studio chief. "They don't force clients on you like they used to, but they have this Jedi mind trick: You know they're there. You know you'll have to deal with them in the future. And you know, in the back of your head, you tend to do what they want."

Research associate Lisa Bergtraum  Top of page


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.