Launch and operations
Relativity Media was founded by Ryan Kavanaugh and Lynwood Spinks in 2004. Kavanaugh convinced Spinks, a former Carolco Pictures executive to invest $1 million into the venture.[10] Relativity began operations as a middleman brokering deals between film studios and banks,[11] private equity firms, and hedge funds to finance multi-film slates.[12] In 2005, the funding needs of Hollywood studios became more critical when a German tax shelter that had supported them for 25 years[13] was eliminated, and Relativity Media met that need with Wall Street's plentiful funds in the early 2000s.[10] Relativity arranged financing for slates produced by Warner Bros., Universal Pictures, and Sony Pictures.[10] For each film, Relativity received equity and brokerage fees of $500,000[10] to $1 million,[12] and Kavanaugh arranged an executive producer credit for himself.
In 2007, Kavanaugh sued Spinks after the partners had a falling out.[11]
In 2008, Elliott Management bought 49.5% of Relativity Media for $67 million and provided access to about $1 billion in capital and a revolving credit line.[11] The increased funds allowed Relativity to expand involvement with film production companies. In 2009, Relativity reached an output deal with Lionsgate,[14] and bought Rogue Pictures from Universal Pictures for $150 million.[15] In 2010, a deal with Netflix allowed Relativity Media-owned films to be streamed on the platform,[16][17][18]
Elliott Management's funding eventually allowed Relativity Media to begin operating its own studio, producing and distributing its own films.[21] The studio distributed its first film on December 3, 2010.
In 2011, Elliott Management pulled its financial backing from Relativity amid reports of tension between the companies.[22] In May 2011, Relativity's president Michael Joe moved to Elliott Associates to manage their investment in Relativity[23] after Elliott had invested hundreds of millions of dollars with very little in return.[24] Kavanaugh had structured a slate deal between Elliott and Universal titled "Beverly 2" that comprised the majority of Elliott's investment in Relativity at the time, but the investment turned out poorly for Elliott and further enormous losses were forecasted. Relativity was also scheduling their own movies opposite Universal's, including competing Snow White adaptations,[25] which Universal executives saw as Relativity using "Beverly 2" funds to gain a competitive advantage. Elliott put pressure on Kavanaugh to hand Beverly 2 over to Elliott in exchange for releasing Michael Joe from his non-compete.[26] Two weeks before the opening of Relativity's first big-budget epic Immortals, Elliott reportedly threatened to further reduce its investment unless Kavanaugh made significant concessions when Relativity was already short on funds.
Relativity took out a $200 million loan from Ron Burkle, who had other entertainment investments including with Bob and Harvey Weinstein through his associated firm Colbeck Capital. The loan was taken in part to cover the multi-million dollar marketing costs for Immortals.[27] In January 2012, as Relativity continued to struggle financially, Kavanaugh sought a new major investor, and Burkle, and his invested between $600 million and $800 million[28] and became a shareholder.[29]
In May 2012, Relativity announced that Colbeck structured $350 million in debt financing for the company, with Elliott departing from its investment in the company.[10] Later that month, it signed a co-production and co-financing deal on two movies with EuropaCorp that Relativity would distribute in the United States.[30][31] Relativity also has co-production deals with Atlas Entertainment including Project.[14]
On June 12, 2012, Relativity Media and Rogue sold 30 of their films to Manchester Library Company,[32] which was acquired by Vine Alternative Investments in April 2017.[33]
In July 2012, Relativity merged its Rogue Sports, a Maximum Sports Management basketball agency, a football agency, and SFX Baseball into Relativity Sports.[34] Relativity Sports represented more than 400 clients including Amar'e Stoudemire.[35]
In 2013, hedge fund investor Carey Metz made a $10 million investment in Relativity Media based on what he later described as Ryan Kavanaugh's lies.[36]
In April 2013, Relativity partnered with Glenn Kalison to create a film and performing arts school called Relativity School.[37]
Most of the studio's movies performed poorly at the box office.[38][39] The movie slate financing Relativity Media brokered for Wall Street investors also fared poorly for equity holders.[39]
Reorganization
On January 6, 2016, Relativity Media acquired Trigger Street Productions. Owners Kevin Spacey and Dana Brunetti were given the roles chairman and president of Relativity Studios, respectively.[46] That March, Spacey announced that he would not accept Relativity's offer; Brunetti's position is still in place.[47]
On January 26, 2016, Relativity Television, Relativity Media's television division, became an independent company named Critical Content after the post-bankruptcy.[48]
On March 18, 2016, the company reemerged from the supervision of U.S. Bankruptcy Court Judge Michael Wiles.[43] In the wake of the bankruptcy, Ryan Kavanaugh chose to pay himself $2.6 million between April and November 2016 while his company failed to pay bankruptcy fees or file tax returns.[49]
2018 bankruptcy and sale
In May 2018, the company filed for bankruptcy once again and arranged to sell all of its assets.[9] The U.S. Trustee's office expressed concern at the bankruptcy filing, saying that it appeared "designed to benefit Kavanaugh and lender UltraV Holdings at the expense of other creditors" and advocated for a robust investigation. This concern was partially based on the negligence of Relativity to satisfy even the administrative fees owed from the 2016 bankruptcy. Greg Zipes, the attorney for the U.S. trustee's office in New York wrote "the Debtors [Relativity Media] have apparently been unable to pay even the administrative claims owed under the confirmed (bankruptcy) plan" of 2016... In summary, while the Debtors appear to have raised some capital and paid down some debt, their finances are largely a mystery, apparently even to themselves." The filing from the trustee's office also uncovered the $2.6 million Kavanaugh paid himself between April and November 2016 while remaining delinquent on what Relativity owed from the bankruptcy agreement. The trustee's office also expressed concern that this 2018 bankruptcy filing might be an "arm's length transaction", as Kavanaugh continued to have inappropriate access to computer systems, email, bank accounts, and servers at Relativity after the filing stated Kavanaugh had left the company.[49]
In June 2018, Netflix sued Relativity Media for breaching an exclusivity agreement after five films that were to be exclusively featured on Netflix were provided to Amazon and Starz.
