Valentine vs. UPN in legal smackdown

Sep 10, 2001  •  Post A Comment

Dean Valentine, president and CEO of UPN, has sued the network and is claiming he is owed up to $22 million based on a long-term incentive plan taking into account the past and future financial performance of the struggling, nearly 6-year-old network.
The suit, filed last Thursday in Los Angeles Superior Court, says that, minimally, Mr. Valentine is already owed $9.375 million for his performance since he was hired on Sept. 15, 1997. Furthermore, the suit suggests that by the time his contract expires in 12 months, he will be owed, minimally, an additional $3.125 million “if UPN’s performance continues to surpass reasonable and fair targets” to just over $12 million in bonuses.
The maximum amount Mr. Valentine claims he will be entitled to at the end of his contract is $22 million.
Other than confirming that Mr. Valentine is still UPN’s president and CEO despite the filing of the lawsuit against his employer, a UPN spokeswoman had no comment.
At the affiliate level, even the station executives found sheer entertainment value in a business plot twist that is sure to become a Hollywood legend. Several station executives were worried about the fallout for the network, which is on the verge of a make-or-break season. Furthermore, a competing network executive, who requested anonymity, said if he were to renew his contract, the terms of the incentive clause “would be folded into a new deal,” typically.
“Normally when you are negotiating a new deal, the old deals gets folded into the new deal and you don’t hear of these kind of disputes,” the network source said. “This is the first time I can recall a network head suing his own network while under contract, so I’d guess Dean’s not consumed with the idea of being given a new one right now.”
In fact, the suit appears to have been in the works for “over 12 months,” according to Mr. Valentine’s attorney Dale Kinsella of the high-powered entertainment firm of Greenberg Glusker Fields Claman Machtinger & Kinsella LLP, Los Angeles. When it became apparent that no headway was being made on spelling out Mr. Valentine’s alleged past and future bonus fees, Mr. Kinsella said Paramount “certainly [knew] for more than a few weeks” that a suit would be brought against UPN.
“We hope UPN makes a sincere effort to resolve this and Paramount does not attempt to blame Dean for certain things,” Mr. Kinsella said in reference to the awkward situation.
According to the suit, “The cornerstone of the UPN financial package offered to Valentine was a long-term cash incentive plan. Valentine agreed to accept a[n incentive plan] because he was told no stock option plan was available.” At the time, UPN was co-owned by Chris-Craft Industries (acquired by Fox’s News Corp. parent company earlier this year) and Paramount. Mr. Valentine alleges he was told by Chris-Craft executive Evan Thompson that he would receive up to $22 million under the incentive plan “if he did an exceptional job,” and approximately $12.5 million “if he did an `OK’ job.”
The plan was to be tied to “improvements in UPN’s EBITDA (earnings before interest, taxes, depreciation and amortization) and [costs per thousand],” the suit alleges. The latter refers to money UPN gets from national advertisers. When Mr. Valentine joined UPN, the network’s losses were approximately $190 million, the suit claims. If the network’s losses narrowed to “close to zero by the end of his contract,” the suit claims, “it was made clear to Valentine that he would be entitled to the maximum … $22 million.”
During Mr. Valentine’s first three years at UPN, the network failed to furnish him with the allegedly promised incentive plan. “The chairman of Paramount Pictures Television Group, Kerry McCluggage, alternatively blamed Chris-Craft for the delays and then asserted that delays were due to the difficulty of getting a stock option plan together, which he thought could take the place of at least a portion of the [incentive plan].
Finally, in the last year Paramount has put forth three [incentive plan] proposals that can only be described as inadequate and obvious attempts by Paramount to avoid paying Valentine what he is entitled to …” the suit states.
A studio business affairs executive and former legal counsel said it is entirely possible that Mr. Valentine had a “provision” in his contract to later negotiate his incentive plan. But the source also stressed that Mr. Valentine’s attorneys could still face the “onus” of “trying to ascertain the actual value” of his participation and quantifying whether he did increase the value of UPN during his three-plus years at the network.
“OK, so UPN cut losses from $190 million [in 1998] to $155 million [in 1999], but [that] was less a reflection of increased revenue and more to do with Paramount cutting their development budget to nothing,” the studio source said. The network’s losses were estimated to be around $160 million in 2000.
“They are going to have to prove that UPN has actually increased in value,” the source added. “What’s really funny is that since Dean got there, they don’t program Thursday nights [with “WWF Smackdown!”] because it is owned and sold by someone else [WWF Entertainment] and the `Buffy’/’Roswell’ acquisitions came at the expense of again cutting their [2001-02 season] development budgets. How is that increasing value?”
Except for what they read or heard from non-network sources, affiliates on Friday were in the dark about what happens next. “It would be nice to know,” said one general manager.
In New York and Hollywood, there was agreement that it was a humiliating disaster for Mr. McCluggage and not likely to benefit Adam Ware, the UPN chief operating officer whose contract also is up next year.
It also forces Viacom to deal now with some of the more cosmic questions about UPN’s existence, questions they thought they had finished tackling through the end of the always-tense Chris-Craft and Paramount partnership and Fox’s final acquisition of eight major-market UPN stations.
Going into deadline late Friday, the offices of Mr. McCluggage and Mr. Valentine said the executives were behind closed doors at an extended budget meeting. A Paramount spokeswoman declined to comment on the suit.
However, one Paramount source said that Mr. Valentine’s compensation package “is fair and consistent with his contract,” and that “the bonus plan is only one part of his total compensation package.”
Mr. Valentine’s suit claims that UPN’s earnings have improved “by an estimated $100 million to $130 million” and CPMs have more than doubled under his tenure. His base salary in the fourth year of his contract is $2.125 million, increasing to $2.25 million in the contract’s fifth and final year.
An executive wise to the ways of contracts and another executive familiar with reading the tea leaves at UPN both said the filing of the suit will most likely mean Mr. Valentine will depart UPN before the expiration of his contract.
There were rumors circulating Friday that Greg Meidel, president of programming for Paramount’s domestic syndication unit, is being prominently mentioned for a senior position at the embattled network, which has been without an entertainment president since Tom Nunan left in June.
One UPN executive, speaking on the condition of anonymity, said that the network is continuing to look at candidates for the entertainment president post, though it has been said that hiring decision has been taken out of Mr. Valentine’s hands.
“We are just trying to find the right person for the entertainment post, and whatever time it takes will be our timetable,” the UPN source said. “Dean is still picking up development here, and we’re actively working.”
But the filing of Mr. Valentine’s suit may only compound the problems of attracting veteran Hollywood studio or network executives.
In fact, Mr. Valentine’s suit suggested he was somewhat hamstrung by Viacom/Chris-Craft higher-ups on increasing operational budgets for the network in the past.
During his 40 months at UPN, the suit alleged “no bud
get was approved for 1999, forcing the Network to operate without a budget,” “a long-range business plan was not approved until recently,” and “programming that Valentine believed would improve the Network’s performance was disapproved.”
Michael Freeman contributed to this report.