What if Eisner had listened to Ovitz?

(FORTUNE Magazine) – THE WORD OUT OF ALLEN & CO.'S ANNUAL mogulfest in Sun Valley, Idaho, this month is that Eisner and Ovitz still aren't speaking. Which isn't surprising. Epic feuds are as much a part of Hollywood as the Walk of Fame, but the spat between the two Michaels--Disney CEO Eisner and fallen superagent and former Disney president Ovitz--has taken the art of war to new heights. Of course, the two were best friends when the squabbling began--which was more or less the day Eisner hired Ovitz in August 1995. Ovitz lasted a mere 14 months before Eisner pushed him out; he departed with a $140 million contractual payout.

For a decade now the two men--both accused of trafficking in gross hyperbole when it suits their purposes--have been skewering each other in a never-ending game of he said/he said that peaked with their court testimony in a lawsuit brought by the strike-suit firm Milberg Weiss. (The action, which was first filed in 1997, charges Disney's board with bad faith in the hiring and firing of Ovitz, given his huge compensation package.) Eisner complained that Ovitz, a manic, legendary dealmaker, ran around Disney like a manic, legendary dealmaker, bringing Eisner all manner of transactions, joint ventures, and investment possibilities, most of which he rejected as off point. (For more detail read Jim Stewart's exhaustive and highly damning book, Disney War.) In part because of Eisner's dismissiveness, Ovitz's reputation is in tatters, while Eisner, even after this lawsuit and a campaign against him by Roy Disney and his fellow former board member Stanley Gold, remains CEO of Disney. Eisner declined to be interviewed.

But here's the question: Just how far-fetched were Michael Ovitz's ideas? Were they pipe dreams, or did they actually make sense? What would have happened if Disney had taken Ovitz's advice? True, the business world is full of what-ifs. (What if Procter had never met Gamble? Or what if IBM hadn't let Bill Gates and Paul Allen license their PC operating software?) Asking these questions is usually pointless. But the soundness of Ovitz's game plan is relevant today, because by the time you read this it's likely that Chancellor William Chandler of the Delaware Court of Chancery will have made a ruling in this case, and because Eisner will finally turn over the CEO scepter to Robert Iger in September. (For more on how Iger was hired, read "Clash of the Corporate Kingmakers," page 58.) Here, then, are some of the deals that Ovitz proposed to Eisner. You be the judge.

âñ¶ Buying a stake in Yahoo. In his court testimony, Ovitz describes how, soon after he joined Disney, he flew to Japan to meet with Masayoshi Son, CEO of the Japanese holding company Softbank. At that meeting Son offered to sell Disney his firm's stake in Yahoo--which today would amount to between 25% and 50% of the company--for some $250 million. Ovitz was so excited that he hopped on a plane to L.A. and rushed to Eisner's office to share the news. Eisner's response? "He did not want me to pursue it," Ovitz testified. Today Yahoo has a market capitalization of $48 billion (almost exactly the same as Disney's). So even if Disney had only bought 25% of Yahoo for that $250 million, its stake would be worth $12 billion today--a nearly 50-fold jump in value. But who knows if Yahoo would have grown to the same degree if Disney had had such a large stake? After all, Disney's own portal, Go.com, is an also-ran. Still, score a big one for Ovitz.

âñ¶ Settling with Katzenberg. Before Eisner began feuding with Ovitz, the CEO famously sparred with another associate, Jeffrey Katzenberg, who had worked with Eisner for decades, first at Paramount and then at Disney, where he headed the motion picture divisions. When Katzenberg joined Disney in 1984, he was put in charge of the company's ailing animation unit. In one of history's all-time great compensation packages, according to Stewart and a key source who confirmed the account to FORTUNE, Katzenberg would receive, as a bonus, 2% of the divisions' profits over a certain threshold. And if he left the company, he would receive a lump sum representing the present value of that 2%. Animation was moribund at that point, but Katzenberg quickly turned it around, producing The Little Mermaid, Aladdin, and the mega-blockbuster The Lion King. When Eisner finally ousted Katzenberg in 1994, that 2% had become a king's ransom. Yet Eisner refused to pay him. Katzenberg threatened to sue, and Ovitz says Eisner authorized him to settle the matter. Ovitz got Katzenberg to agree to "a dollar less than $100 million," according to another source, and Ovitz triumphantly brought the deal to Eisner, who turned it down. In 1999 an arbitrator ruled in Katzenberg's favor, and Disney ended up paying Katzenberg $280 million. Ovitz 2, Eisner 0.

âñ¶ Building books. Ovitz, who as founder of talent agency CAA had close ties to power authors such as Michael Crichton and Tom Clancy, wanted to build Disney's small-potatoes Hyperion book-publishing unit into a powerhouse. One idea was to buy Putnam, which published Clancy; Ovitz set up a deal for $350 million. According to Ovitz's testimony, Eisner rejected the deal, and Putnam was soon sold to Pearson for roughly the same amount. Eisner testified that he couldn't recall the deal. In any event, Putnam is worth some $600 million today, according to FORTUNE's analysis, its value having climbed at an annualized growth rate of 7.6% over the ensuing eight years. Score this for Ovitz as well.

âñ¶ Making music. Disney's music company, Hollywood Records, like Hyperion, was a small-to-middling business. Here, too, Ovitz wanted to bring in big acts. He tried to sign Janet Jackson (pre- wardrobe-malfunction) to a seven-album, $75 million deal. Eisner rejected this deal as well, according to Ovitz's testimony, and Jackson reportedly signed a four-album, $80 million deal with another label. Given the record business's big swoon, maybe it was smart for Eisner to reject Ovitz's plans to expand. But Eisner didn't sell Hollywood Records; he uses it to develop the careers of young Disney stars like Hilary Duff. Second, Ovitz looked to do a joint venture that would have merged Hollywood Records with 50% of Sony's music business. But Ovitz is a famous Japanophile, and Eisner had good reason to avoid the liaison with this risky business. This one goes to Eisner. Score: Ovitz 3, Eisner 1.

âñ¶ PlayStation. Here Ovitz tried to leverage his relationship with Nobuyuki Idei, then president of Sony, to cut another deal with the Japanese giant. Ovitz got a room at the Pierre hotel in New York and began to negotiate. He sought to create a joint venture with Sony's interactive-game business, basically combining Sony's PlayStation with Disney content. That deal was shot down, and the PlayStation went on to become the dominant platform for gamers. Ovitz 4, Eisner 1.

âñ¶ Ready for some football? Ovitz proposed renovating a section of downtown L.A. to create an urban theme park in conjunction with the purchase of an NFL franchise. This appears to have been a pie-in-the-sky deal, since the NFL has always been adamant that no public company can own an NFL team. Instead, Disney chose to own the California Angels and the Mighty Ducks. Baseball soon stagnated, while hockey imploded. The company ended up selling both the Angels and the Ducks. Meanwhile, the NFL has become stronger than ever, with the average NFL franchise growing in value. This one's harder to score than Olympic figure skating. We'll call it a draw. Final score: Ovitz 4, Eisner 1, and one tie.

Make no mistake: Michael Ovitz has his foibles and faults--plenty of them. He ran roughshod over other Disney executives, never mind subordinates, and spent money like, well, like a Hollywood executive. He brought Martin Scorsese to Disney to make the film Kundun, a notorious bomb that got the company in hot water with the Chinese government. But the guy has a nose for deals, and many of his proposals from back then don't look so indecent today. The Yahoo win alone would outweigh all the other deals combined. Of course, this is all from the Department of What-If. And some hypotheticals are too preposterous to consider. But what if Bob Iger asked Michael Ovitz to come back to Disney? He might do it--just to get a chance to win 'em all. âñ 

Andy Serwer, editor at large of FORTUNE, can be reached at aserwer@fortunemail.com. Read him online in Street Life on fortune.com and watch him on CNN's American Morning and In the Money.