Ryan Kavanaugh: The Fall and Rise

By: Sonja Magdevski | Photographed by Keegan Gibbs | January 30, 2009 | Film Profile

Ryan Kavanaugh is either the most genuine person in Hollywood or the smoothest roller in town. After only a handful of years in the movie business, Kavanaugh’s company, Relativity Media LLC, seems to have blindsided the ever-evolving entertainment industry, thanks in large part to its savvy young founder with his energy, wit and surprising wisdom. In the past two years alone, Relativity Media has succeeded in not only reaching, but also surpassing all of the benchmarks by which studios rate themselves. To date, the company has financed and/or produced more than 100 films and counting, with $7.4 billion in worldwide box-office revenue. According to numbers provided by Relativity, 50 of those films have been top 10 box-office releases. In 2008 alone, the company was involved with five of the top 12 highest-grossing films of the year. Its roster includes Frost/Nixon, Burn After Reading, Hancock, Mamma Mia!, Pineapple Express, Atonement, American Gangster, 3:10 to Yuma, Talladega Nights: The Ballad of Ricky Bobby, The Pursuit of Happyness, and the surprise hit 300.
Relativity Media’s recent acquisition of Rogue Pictures from Universal Pictures for an unconfirmed $150 million was another left hook to the naysayers that never believed Kavanaugh had the means to sprint his way to the top. What they underestimated was this 34-year-old’s determination to bankroll enough capital in order to get what he wants: an even stronger foothold in the movie business. Sources estimate that more than 70 percent of Rogue’s films were profitable in an industry that runs on a 30 percent profitability rate. Relativity gains ownership to Rogue’s past and future films, in addition to an established distribution channel through its former parent, Universal, with whom Relativity already has a long-term $3 billion finance deal in place. “This makes us more like a studio in terms of having all aspects from development, financing, production, as well as distribution and marketing through Universal, and it expands us into what we believe to be the underserved and highly profitable [horror -and suspense-] genre world,” Kavanaugh stated.
It is rather unbelievable to think that a guy sitting so close to the top of the world in 2009 lost everything in 2001. At that time, by his account, he was in his mid-20s living in a multimillion-dollar home driving a Ferrari and making a fine living through his venture capital company. “Literally, I was the guy if I met today I would have hated,” Kavanaugh said. “The best thing that ever happened to me was losing everything.” When the market crashed and venture capital came to a screeching halt after 9/11, he was left asking himself whether he preferred flipping burgers at McDonald’s or Burger King to get by. Everything he had was invested in his business, which was worthless.
It does seem a bit dramatic today while sitting across from him at his sun-bleached Malibu beach house on a gorgeous Saturday afternoon partially blinded by the sun bouncing off the sparkling Pacific Ocean. Out front, mobile car-wash guys are scrubbing his cars clean in the driveway. His white German shepherd, Blue, nips at my fingers while his new months-old white Siberian husky named Taz coos in the corner. Fresh flowers are beautifully arranged throughout the house, which has the clean, open tri-level structure found in many of the understated traditional Malibu beach homes — the perfect size for a bachelor. Kavanaugh is in good spirits, re-energized after his extensive daily workout that he religiously sticks to. “Looking back at that time amidst the craziness,” he said, referring to his old self, “I realized that only I could make myself happy. I didn’t need money and things,” he said. “I also realized that I hated what I did even though I didn’t know I hated it at the time.”
To scrape by, he did what he could writing business plans and consulting for former venture capital clients, many of them Hollywood producers and studio heads. His family helped, too, which is one topic he never tires of talking about. “My parents are my best friends,” he said. “I have the best family that has always been an absolute support system.” While he was never in danger of being homeless, he did lose everything he had worked for. He estimates that during that year he lived off less than $40,000; a reasonable sum for most, but a pittance when you are used to living off millions. “I didn’t have a penny in the bank, and I didn’t know how I was going to make it the next month,” he said. It was during this time that he became familiar with the inner workings of the film finance world and discovered the gaping inefficiencies that plagued the movie business, something he never intended to become a part of.

The Resurrection
Sure, he loved movies, but having spent his childhood between Brentwood and Broad Beach, he had seen enough of the industry to know he wasn’t interested, though he couldn’t avoid the pieces that seemed to be magically falling into place. In 2002, the stock market hit bottom, real estate was inflated and bonds were insignificant. Hedge funds were now flush with capital with nowhere to invest. Many studios were being bought by corporate parents with tighter belts than executives expected. As Kavanaugh explains it, he had guys over here needing to invest their money and he had guys over there needing investors with money. “That next year, I spent all of my time trying to accumulate as much data as I could, trying to make the movie industry, which is generally surrounded with negative connotations for investors, an attractive and viable alternative for everyone involved,” he said.
Kavanaugh’s challenge was to convince investors that they could actually make money, and lots of it, in an industry that did not traditionally run as a business with a profit perspective. With his mountains of data, he analyzed how movies were currently being made in order to readdress financing decisions. Essentially, he needed to know what variables made films work and what variables didn’t, and the risk factors involved in these decisions. “Once we had the information, we were able to ask, ‘Is there a way to approach movies so that it isn’t just about reading a script and saying we love this and we have to package it,’ but more importantly using the numbers to understand what movies are too risky to make,” he explained.
The formula they use is similar to what is called a “Monte Carlo” that is used in statistical analysis, named after the city in Monaco in the south of France whose primary draw is gambling, or what some like to call games of chance — an apt analogy for the movie industry. After enough data in each category has been registered into the formula, it can measure the probability of success based on past scenarios with similar variables. Categories include talent rank, release date, genre, budget, box office success, home-video performance, etc. Kavanaugh says the formula is only a tool the company uses and that it doesn’t provide a guarantee for success. “If the results come back showing that a certain percentage of the time we’d lose money, then it is too risky,” he said.
The movie 300, for example, was a gamble most studios weren’t willing to take, and Kavanaugh admits it was the riskiest film they’ve helped financed to date. “We were pitching a movie with 300 guys running around in their underwear holding sticks in slow motion screaming at the top of their lungs with a fake background and blood flying in the air for approximately $70 million dollars about a battle that took place in ancient Greece — and it was R-rated,” he laughed. “I don’t think it gets any riskier than that.” The film made a fortune, beyond anyone expectations. Relativity agreed because its instincts pointed it forward and its initial backer, Stark Investments, saw the same potential. It also helped that the numbers showed it wouldn’t be too hard to break even.
It is difficult to dispute that Relativity and other companies like it have not made the entertainment industry more profitable in shifting the paradigm by which films are financed. Various reports show that hedge funds alone invested $15 billion into Hollywood in recent years with potential annual returns of 20 percent or more. Unfortunately, Kavanaugh admits, this infusion of science has also removed some of the art. “You can’t do what we do and not have that happen,” he said. “I say it all the time, ‘There are great movies that we have passed on that could be industry-changing movies, but that are so far out of the numbers.’ ” It isn’t that the numbers don’t work, he added, it’s that numbers don’t even exist for that particular scenario, therefore eliminating any justification for investing in them. “It is a negative affect we can’t help but have,” he said.

Back to the beginning
You’d think that after losing everything the first time, Kavanaugh wouldn’t have risked it all again. When he first decided to start Relativity, he had one faithful employee, Eva Quiroz, who’d followed him from his venture capital days. The two of them set out to do the impossible and they were reminded of it every step of the way. “I was told every day by the biggest people in the industry that I would never make it; they were laughing at me,” Kavanaugh said. “They don’t want to believe that someone can do something different. But I put my blinders on, fought hard, stuck to my plan and never gave up.”
Kavanaugh couldn’t afford the rent initially posted at the office he wanted, so he struck a deal with the landlord to pay half the rate in the first year and double it the second year. Relativity now has multiple floors in the same building with 65 employees, all of whom Kavanaugh calls his greatest strength. He took a mortgage out on his house at the time for $300,000 and put all of it into the company. There were times, he said, when he didn’t know if he could make payroll. That was 2004. Today, Relativity has major dealings with almost every key studio in Hollywood. Together with its hedge-fund partner Elliot Associates LP, Kavanaugh said the company has enough money to be self-sustaining for years to come. They co-finance about 20 movies a year and principally finance about 10. Their newly created television division currently has 20 programs that will be either piloting or premiering in the coming year.
“They are like a whirlwind, aren’t they?” commented director Jim Sheridan, with whom Relativity has made the upcoming film Brothers. “Ryan is a guy who understands finance better than anybody I have ever met, and someone who has also managed to maintain a very creative environment throughout.”
“I call him the golden boy,” Quiroz said, currently director of operations, recalling her experiences with Kavanaugh. “He is straightforward, hardworking, gregarious, and a very lucky man”, she said laughing, something Kavanaugh would agree with. “He has matured a great deal through this time and has become more aware of the greater good in the world,” she said. His extensive charity work is evidence of this. He donates a substantial amount of time and money to more than 30 charities in Los Angeles, many revolving around children, including Best Buddies, the Sheriff’s Youth Foundation and the Art of Elysium. “I am the happiest guy I know,” Kavanaugh said. “I honestly feel like I must have been a saint in my past life to be so blessed with what I have now, so for everything good that happens, I try to give something back.”
After spending time with Kavanaugh, you come to realize that his ambitions aren’t based on greed, just a determination to never give up, a characteristic fortunately impressed upon him by his father, an overachiever above and beyond the average overachiever. “He is a genius,” Kavanaugh says. He speaks nine languages, has a D.D.S., an M.B.A., and an M.D. He is currently in phase-three trials for a pending cure for cataracts, and together father and son have a cancer treatment company involved with a new technology that has completely cured a brain cancer tumor in one human being and has shown unanimous cancer cure rates in 100 percent of the lab tests done on rats.
Kavanaugh says that the only thing he’d leave the entertainment business for is to become more involved with his dad and continue his charity work. “I love being involved in making movies,” he said. “The brilliance for me is that you can build something in such a short period of time, unlike any other business. If it works you have created a successful business, employed thousands of people and potentially affected change to the world.”
“The bad thing,” he continued, “is that it is really hard for me now to go to a movie.”

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