SPS Newsflash, Schenkel and Levitt in The Hollywood Reporter

The Hollywood Reporter’s Power Business Managers

The moneymen and women on this third annual list handle the finances, and sometimes financial misfortunes, of Hollywood stars who need help with everything from taxes to stocks to investments to chrome-plated electric cars. Plus the ever-changing intersection of Wall Street and Wilshire as private money flows — and ebbs   Edited by Matthew Belloni

The List

Steve Levitt, Sobul Primes & Schenkel – “I have one very successful entertainment client who told me, ‘Next to my shrink, you’re my most trusted adviser,’ and that kind of summarizes what we do,” says Levitt, whose clients include actors, writers and  producers as well as several executives, agents and lawyers. He says he abides by a simple strategy for investments: “The unusual ones tend to be the money losers. Restaurants sound fun until the money is gone.” What’s occupying much of Levitt’s time nowadays is the “fiscal cliff,” shorthand for the expiration of the George W. Bush tax cuts. “Those rates expire at the end of the year, and Congress has done nothing to extend them or enact new tax laws,” he says. “Surprisingly, many people in Hollywood focus a lot on taxes. After paying their agent, lawyer and business manager, they realize their tax bill is a big number. My job is to make sure there are no surprises.”

Rick Schenkel, Sobul Primes & Schenkel – With about 25 employees, Schenkel’s firm reps individuals and companies, provides traditional accounting and tax services and also works with investment pros. One longtime client is UTA, which Schenkel has advised since it started with one agent and a handful of clients. He also is active in the Water Buffalo Club, which has supported more than 100 Los Angeles charities that help underprivileged children with gifts for one-time capital expenditures. One of its fund-raising events is Christmas in July, where families mix with about 200 inner-city kids at the Santa Monica Pier and everybody goes home with gifts and school supplies.

How Business Managers Say No to Very Famous People – by Eriq Gardner

“No.”

It’s not a word often heard by A-list talent. But last year, New York-based business manager Evan Bell says he “begged and pleaded” when client Steven Soderbergh came to him and wanted to pour his savings into the development of a movie. The plan, explained Bell, would violate the cardinal rule of Hollywood: Never spend your own money. But Soderbergh didn’t listen. He split the $6.5 million production budget with star-producer Channing Tatum, and the movie, Magic Mike, went on to gross more than $150 million globally this summer. “I looked foolish once again,” jokes Bell.

Such is the tricky relationship Hollywood’s top money managers have with clients whose careers are built on taking creative and, at times, financial risks. Often the voice of reason or devil’s advocate on a star’s team of representatives, the top business managers say it’s better to appear too cautious than to explain an investment strategy that didn’t turn out well.

Some in Hollywood might fancy themselves the next Ashton Kutcher, who made a killing when he invested in Skype, or Justin Timberlake, who has done well in the tech space. But there are horror stories, too. U2’s Bono, who co-founded Elevation Partners, plowed $460 million into mobile device maker Palm before it hit trouble and $300 million into Forbes despite the tough advertising market. And even though he is in the black thanks to an early investment in Facebook, now that the company’s stock is sinking, one financial website dubbed the singer “the worst investor in America.”

Bono has competition on that front. Bell says he has a client who had made four terrible investments before signing with him. “ ‘Why go into that fourth?’ ” Bell recalls asking somewhat incredulously. “He answered, ‘Statistically, I thought I had this one.’ He was serious.”

Business managers say entertainment clients present special challenges. Projecting a steady revenue stream is never wise,  given the fickle nature of the business. So in choosing between high-risk, great-upside plays and low-risk, steady-reward moves,  they’ll typically opt for a more conservative approach. “You don’t lose a client because you’re only making a 1 percent return,” says business manager Scott Feinstein. “On the other hand, if you start losing, you’ll hear about it.”

Feinstein, who reps Taylor Lautner, Mila Kunis and Breaking Bad’s Aaron Paul, says a good money manager doesn’t mind getting screamed at by clients. Requests to invest in restaurants are common, he says. But beware Burt Reynolds, Feinstein tells his clients, noting that the actor once went bankrupt after investing $15 million in the PoFolks restaurant chain. Similarly, Eva Longoria’s Vegas steakhouse Beso was shuttered this year. Feinstein struggles to win arguments over these types of investments because entertainers are optimists by psychological disposition — “maybe because they are used to having doors closed in their face every day,” he says.

In assembling a star’s portfolio, Feinstein likes to allocate no more than 50 percent in stocks and bonds, supplemented by the least sexy mutual funds imaginable. In addition, some stars might be surprised they are the proud owners of apartment buildings in such obscure locales as the San Fernando Valley. For some of his wealthier clients, Feinstein has also invested in private equity firms like the Blackstone Group.

Alan Goldman at Goldman & Knell says he divides up money between assets that will pay out dividends on a regular basis and wealth managers who can invest with an eye toward the long term. Those long-term assets include things like retail shopping centers, warehouses and business parks. But Goldman says he doesn’t recommend his actors and directors hold individual rental units because “being someone’s landlord is not something that many people are comfortable doing.”

Bell, whose clients include Bill O’Reilly and Amanda Seyfried, sets up limited partnerships, investing in properties like apartment buildings in Manhattan’s East Village. Other business managers don’t like to pool investments, but they have ways of sharing the upside. “We do not recommend a real estate deal that we do not ourselves invest in,” says Michael Karlin. “A partner here will participate pro rata to the investor.”

Some celebrity investments are more splashy. Leonardo DiCaprio put $4 million into Mobli, a photo-sharing startup. Lady Gaga sank millions into a social network for celebs like herself. Fergie of the Black Eyed Peas has taken equity in a low-calorie vodka company. Perhaps the latest poster child for celebrity investor is Justin Bieber, who holds significant shares in a dozen companies including Spotify. But not even the celebrity association of Biebermania could help drive OPMG — a software company that disables text-messaging while driving — into anything more than just a penny stock.

Top money managers typically charge clients 5 percent of their earnings — similar to the fees entertainment lawyers charge — but they don’t take extra commissions if investments deliver big returns. When sitting down with a star client, they first ask detailed financial questions, figure out the person’s possible career trajectory, and arrive at what the investment risk tolerance should be.  The truth is, despite the glamour, Hollywood as a class tends to be some of the most conservative investors on the planet —  thanks in part to business managers. “Today it’s about protecting the principal,” says Karlin. “These clients take risks in their day-to-day profession. That’s where the risk is. Investments shouldn’t be risky.”

That’s not to say that celebrities don’t get some “play money” to chase dreams of becoming Hollywood’s next great venture capitalist. “Let’s call it the Las Vegas account,” Goldman says he tells clients. “Take all your stock tips and you can play.”

The Biggest Showbiz Money Debacles – by Brandon Kirby

1. Bernie Madoff His infamous 20-year, $50 billion Ponzi scheme is considered the largest financial fraud in history. Many Hollywood players took it on the chin in 2008, including The Closer’s Kyra Sedgwick and her husband Kevin Bacon, director Steven Spielberg, DreamWorks Animation mogul Jeffrey Katzenberg and screenwriter Eric Roth. With Madoff still in jail, several victims recovered at least a small part of their lost investments.
2. Dana Giacchetto The former business manager and Michael Ovitz buddy swindled millions of dollars in the late 1990s from  his A-list clients, including Matt Damon, Ben Affleck, Cameron Diaz and, most notably, Leonardo DiCaprio and Tobey Maguire. The stars terminated their professional relationship with Giacchetto after their money went missing and it was revealed that he was siphoning off more than $10 million of his clients’ earnings.
3. Nicolas Cage The free-spending actor lost four homes to foreclosure (in Bel-Air, Las Vegas and two properties in New  Orleans). He then sued his business manager for $20 million for allegedly leading him down a path to bankruptcy, but the rep  responded by blaming Cage for ignoring his pleas to stop the “destructive spending” on 12 cars and a $1.6 million comics  collection. The case settled.
4. Kim Basinger In 1989, the Batman actress thought it would be a good idea to purchase the town of Braselton, Ga., for $20 million and turn it into a tourist attraction. It would have featured movie studios and a film festival — that is, had those in Hollywood been interested in trekking across the country to visit. Five years later, she and her partners sold Braselton for $1 million and later  declared bankruptcy.

You Can’t Hide the Hookers

A business manager offers candid advice on when to pay for a fancy dress instead of rent, how to avoid shady contractors and why actors should never lie about their expenses – by Anonymous

Your business manager is your protector. I am here to help you make the most out of your life, and since I have a great  relationship with money and an intimate understanding of your finances, I am a tremendous resource for you. Here are five  brutally honest tips to keep your balance sheet healthy:

1. KNOW WHEN TO SPLURGE – Hollywood people often find themselves having to make tough money choices. I repped an  actress who was almost broke but needed a splashy new dress for a big premiere. It was either buy the dress or pay her rent. We sat down, discussed the options and decided she had to go for it. She bought an incredible outfit, walked the red carpet and was  a complete knockout. That dress literally changed her career, and she has been working steadily ever since. And now she has a ton of cash in the bank.
2. KNOW WHEN TO SAVE – I go to great lengths to keep people solvent. You need to have reserves in the bank in case you don’t  get that offer during pilot season. If the funds start running low, make hard choices NOW! Take a cab to the premiere and hope a friend has a studio town car that can drop you at home. (Just make sure the cab lets you off down the street, and walk the rest of  the way.)
3. JUST SAY NO TO DUMB INVESTMENTS – The market crash a few years ago changed everything. People that had no access  to cash got screwed. That’s why I plead with clients to avoid too many brokerage accounts, the dumb restaurant investments, the  hedge funds with five-year waiting periods to withdraw. Higher eventual “returns” don’t mean anything if you  don’t have the cash to pay the mortgage. Too many people in Hollywood are forced to wave bye-bye to all their houses. It’s sad.
4. DON’T BE SUCKERED BY FAKE DEALS – Construction projects are the worst money pits, period. Celebrities get so much given to them for free, some think this applies to remodels. It doesn’t. I always suggest three or four contractors my firm has vetted, but occasionally an actor will go rogue and hire a “contractor” that promises him a deal: “Just refer me to your other A-list friends.”  These people are stalkers or crooks (or both). I end up having to swoop in and appease the unpaid subcontractors who are about to file liens on the property. NEVER give contractors big lump sums, and always pay subs directly. Oh, and that reduced-price job  just cost you 30 percent more than my top-notch guy.
5. OWN UP TO YOUR WILD PARTYING  – I’ve seen it all, so don’t be embarrassed by your go-go lifestyle. But please don’t try to  lie to me because you can’t hide the hookers. I see the late-night ATM withdrawals at Les Girls, the cell-phone bills and the bank  statements. It’s easy to piece together last Saturday night’s events. I’ve had clients “redirect” paychecks to a secret account, but I always find out because I reconcile W2s. I’m trained to catch sneaky maneuvers — that’s how I prevent people from stealing from you! BTW, I know that a charge to PCLTD on your Visa is for the Pleasure Chest.