And Party Every Day: The Inside Story of Casablanca Records (25 page)

A host of new acts and dozens of new employees would seem to be the earmarks of a successful record company. But we were spending so much money on paint—placing full-page ads in the trades by the gross, racking up mind-numbing figures on our expense accounts, increasing our payroll several times over—that despite the successes (even the real ones) we were still nearly broke. We had no cash flow even when we did have hits. We were having record sales months: $5.8 million in May, followed by $6.3 million in June. In July, seven of our albums were on
Billboard’s
disco charts. And all that money was gone as soon as we made it. We spent so much time keeping the wolves from the door that it cut into our ability to run the company as we would have liked. That was just part of the game, and we were used to the wolves, but things were getting worse.

Our motion picture deal with Peter Guber had given us the appearance of being a rising player in traditional Hollywood. The first picture in the deal,
The Deep,
was released in June, and within three days it was apparent that it was going to be a big hit. It bolted out of the gate with a first-weekend gross of nearly seven million, on its way to pulling in over $125 million (adjusted for inflation) in ticket receipts. We kept the cast constantly in the public eye—they appeared on Johnny Carson, Merv Griffin, Dinah Shore, and Phil Donahue, as well as in the pages of
Time, Newsweek, Playboy, and Cosmopolitan.

Just before the movie was released, Neil arranged a screening for all of our promotions people. Then he announced that we were not going to promote the movie in the traditional Hollywood fashion. Instead, we would have a heavy radio focus. The promotions guys, of course, had all appreciated the infamous and alluring scene at the beginning of the film where Jacqueline Bisset emerges from the water after a scuba dive wearing a transparent T-shirt. The publicity brainstorm was obvious: we organized wet T-shirt contests around the country (which must have been among the first events of their type ever staged) in conjunction with local radio.

The soundtrack album was released on transparent blue vinyl, and it came with a poster that featured an incredibly sexy image of Jacqueline in her wet T-shirt. The record featured original music by John Barry of James Bond fame, as well as songs by Donna Summer and Beckett, another of our recent disco signings. It was a decent seller, and we added to the din by releasing not only the making-of book, penned by Guber, but also a sixty-minute documentary film called
Making “The Deep,”
the brainchild of Peter Lake. The documentary aired as an ABC Television prime time special on September 11, nearly three months after the feature film had been released—a lag time that would never occur in today’s marketplace.
The Deep
was the fourth-highest-grossing film of the year, so things looked rosy for Casablanca’s FilmWorks division. That might have solved our cash flow issue, except that by September we’d yet to be paid by Columbia Pictures. They were trying to screw us out of our share of the profits—something
unheard-of
in Hollywood. Luckily, Guber, who had worked for Columbia, knew about their accounting practices and worked with Columbia chieftain Ray Stark to figure out a way for us to get paid. We were owed eight million, but we settled for five. However, the funds were not available when we needed them most, leaving Neil to face several courses of action, none of them appealing.

Neil and I, along with Richard Trugman, met in Neil’s office. I sat on a barstool while Neil paced around the big conference table running over our options. He was trying to convince us that selling the company made sense, but he was just convincing himself. It was hard to watch. There seemed to be only one taker: Clive Davis at Arista. Clive had offered us two million, and Neil was seriously considering it. I wasn’t all that worried about myself, about not having a gig if this went through. I knew Clive a little, and I’d heard from others that he liked me. To me, the problem was that Casablanca was much more successful than Arista: we had stronger acts and far better promo people. It would be like the Yankees being bought out by the Milwaukee Brewers. I could abide selling the company, if that’s what it came down to, but to a smaller and less-talented one?

Neil also had an offer to run MCA for an annual salary of one million dollars with bonuses, and I knew that if he decided to accept the job he’d take me with him. But the MCA deal, as attractive it might sound, meant little or nothing to Neil. MCA was known as a crummy label to work for; they didn’t care about their employees. The music end of the company had gone through a new president every year. Also, MCA was part of a huge corporation, which meant that Neil would be forced to run through endless bureaucratic gauntlets—a situation that had driven him away from both Buddah and Warner Brothers. Rumors of our sale to ABC, or Columbia, or Capitol—depending upon which source you believed—ran rampant in the trades, and Neil flatly denied them, even though they weren’t far off the mark.

When Casablanca first signed with Warner, in 1973, the deal was set up for us to go out of business. After a specified period of time, the controlling interest in our label would be bought out and rolled into the Warner family. But our sentiments had changed by the time the 1974 split occurred, and we remained an independent company. Now we were really missing that big, warm security blanket. Like the cavalry coming to the rescue, Neil’s close friend and ATI chief, Jeff Franklin, showed up with an offer. And this offer was so good that rather than cry in our soup over losing Casablanca, we were ecstatic. After failing twice to broker a deal with ABC Records to merge with Casablanca, Franklin had gone to PolyGram, which was co-owned by two old and very powerful Dutch and German corporations, Philips and Siemens. As early as 1962, both companies had begun expanding their international operations by acquiring several American music and film companies, including Mercury, MGM Records, and Verve, plus Robert Stigwood’s RSO Records in the UK. It was an impressive list, to be sure. Talks between PolyGram and Casablanca went on for weeks, and when PolyGram seemed to be dragging their heels, Neil played them in the trades. Blurbs started appearing in
Billboard
with gossip-column copy like, “Is the gleam in Neil Bogart’s eyes fading over the prospect of a PolyGram buyout?” It was pure propaganda. Neil was using the press to leverage negotiations in his favor. PolyGram finally offered us ten million for just half the company, with a guarantee to purchase the remaining shares of Casablanca within five years at five times earnings. Plus, they weren’t experienced in our market niches and could probably be bent to our wishes. This wasn’t the death of Casablanca: this was our lottery ticket. It was turn-off-the-lights-we’re-flyin’-to-Bora-Bora-to-count-our-money time. It’s not that PolyGram had bought into the vision we’d cultivated that Casablanca was the four-hundred-pound gorilla of the record world; in their eyes, our motion picture division, with its five-movie deal with Columbia, was a license to print money. The record company was nothing more than a shiny bonus.

Once the offer was made, Neil pulled the trigger quickly. Then Guber decided he could improve it, and that’s when things got interesting. Guber waited for PolyGram’s check to clear the bank, and then he told them that he was going to the beach—Hollywood jargon for “I’m not working for you unless you give me more money.” Guber wanted an additional five million to cut short his vacation, so to speak, and he got it. The already lopsided deal improved by 50 percent when PolyGram caved and bought half of Casablanca for fifteen million dollars total. I never asked and was never told what Jeff Franklin got to put the deal together; but I do know that he didn’t get any of the fifteen million, so I assume he received a finder’s fee from PolyGram. Jeff often told people that he owned part of Casablanca, but he never did; the only owners were Neil, Peter Guber, Cecil Holmes, Richard Trugman, me, and Buck Reingold, who had relinquished his share when he left the company.

Soon after the deal was signed, Neil, Cecil, Guber, Trugman, and I gathered at the main branch of Security Pacific Bank, a major financial institution in LA. As a group, we were escorted to the room where the PolyGram buyout checks had been made out to each of us. We signed some legal documents, we each had our picture taken, and then the money was placed into accounts that investment firm Bear Stearns had already opened for us. Guber received 20 percent of the ten-million-dollar payout. Trugman and I each received about 8.5 percent, Cecil took about 10 percent, and Neil pocketed the remainder. Neil had made sure to retain a bit more than half so that he would never lose controlling interest in the company. The percentages on the additional five million Guber had been able to get for us were paid out some months later.

The room was filled with laughter and joking. After years of living paycheck to paycheck, we were all in a state of semishock due to this sudden windfall. We felt a great sense of relief and excitement over the fact that we did not have to worry about the company having money; we had what amounted to a blank check from PolyGram to sign acts, increase the company payroll, be creative, and have fun. With a very curious bit of rationalizing, Neil decided not to pay any taxes on his PolyGram money. He was convinced that because he’d given up his Viewlex stock when we left Buddah in 1973, he shouldn’t have to pay taxes on the PolyGram payment. It was a fair trade, to his mind. Everyone laughed and told him that’s not how it worked, even his accountant, but he still insisted that he shouldn’t have to pay taxes on that money.

After we got the payout, we needed to minimize the taxes that would be demanded by the IRS and the State of California. Since the money from PolyGram was not a capital gain (to qualify for that status, we would have to have owned the stock for five years or more), our accountant, Arnold Feldman, came up with some tax shelters. When Neil had launched ArtWorks, Arnold had figured out that if you owned a lithograph (or any type of master print from which duplicates could be made), you could not reproduce it infinitely; the master would begin to show signs of wear, and you would have to stop making prints from it. An unusable master, Arnold reasoned, could be depreciated as an asset. This meant that the owner—in this case, Neil—could claim a deduction on all masters.

With that in mind, we thought that we could shelter the PolyGram money by purchasing master recordings—tapes or acetates used in the mass production of cassettes, vinyl, 8-tracks, and so forth. I therefore ended up owning some children’s recordings that were absolutely terrible, and few of them were ever manufactured or distributed—maybe a dozen or so. After a few years, the IRS threw out the shelters and told us to pay up; California followed suit a year or two after that.

If I had been sawier about this stuff, I would have just paid what was due in the beginning and aligned myself with my own accountant, but we all considered Arnold a friend and thought he knew what he was doing. I had certainly never had this kind of money before, so I listened, and when Neil told me to trust Arnold, I did. Those decisions would haunt me for years; the State of California alone charged me over eighty thousand dollars in interest and penalties.

Bear Stearns also got us into some real estate deals that everyone but me knew would never show a profit. In most cases, only the principal players ever saw a profit, and—silly me—I did not stop to think that the principals here were the Bear Stearns account reps who were handling my stuff. I once called a rep and said I had a feeling about gold and wanted to buy some. He tried to talk me out of it, but I insisted, and I bought ten- or twenty-thousand-dollars’ worth of gold at about one-hundred-forty dollars per ounce. I was ecstatic when it reached over eight hundred dollars. I later found out that Neil had also bought gold, but he knew what he was doing, and instead of hard gold, he bought some kind of contract for one hundred thousand dollars and made considerably more money.

Years later, in 1986, Bruce Bird, Richard Trugman, and I were called to be expert witnesses at a tax evasion trial that involved the masters of
The
Deep
soundtrack, which were owned by the family of Sydney S. Baron (who had passed away after purchasing them). Baron had acquired the masters as a tax shelter, and he thought that since Donna Summer was on the album and the music was largely composed by John Barry, it would be a big hit. He’d made an initial cash outlay and backed the rest of the purchase price with a promissory note for more than half a million dollars. This was an instance of Neil cleverly hedging his risks by selling off an album that, according to our own projections, wouldn’t recoup the sale price. When the album didn’t sell anywhere near enough for Baron to break even, he’d written it off as a depreciation of an asset. The IRS nixed the idea and cut him to shreds. I am sure Donna and Giorgio never knew about this; if they read about it here, it may come as news to them.

The independent distributors who had saved us when we left Warner in 1974 were not at all pleased at how the buyout changed the distribution pipeline. It forced us to indemnify them for returns so we could have a fairly seamless transition to PolyGram. When product was returned, the distributors had to reimburse the retailers for the cost of the albums; Casablanca had been paid for that product when it was first released. But we could not let the distributors hold the bag for unsold product, so we agreed to reimburse them. Fortunately, returns were minimal, thanks to KISS and the disco craze.

I felt bad leaving some of the distributors. I had worked closely with many of them, and I recognized the vital role they’d played in our success. Without them, we would not have survived the departure from Warner in 1974. The major problem with PolyGram acquiring various record companies—the list included RSO, Mercury, Polydor, and us—was that they now had to establish their own distribution company. This proved more difficult than they had expected. They hired a guy from the trucking industry, John Frizolli, to head the distribution company, and he knew less than nothing about the music business. Casablanca was moving product at a good rate on several fronts, but aside from that, plus RSO’s mainstay, the Bee Gees, and the soundtrack of
Grease,
nothing was really selling well for PolyGram. The company needed to establish a consistent flow of hit product if it wanted retailers to pay them and buy their new artists.