The Epic Fail of Hollywood’s Hottest Algorithm

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In an industry where no one knows anything, here, finally, was someone who seemed to know something: Ryan Kavanaugh, a spikily red-haired man-child with an impish grin and a uniform of jeans and Converse sneakers who had an uncanny ability to fill a room and an irresistible outlook on how to make money making movies. Not yet 30 when he founded Relativity Media in 2004, he very quickly became not only a power player in Hollywood but the man who might just save it. With a dwindling number of studios putting out ever fewer movies, other than ones featuring name-brand super­heroes, Kavanaugh became first a studio financier and then a fresh-faced buyer of textured, mid-budget films. To bankers, Kavanaugh appeared to have cracked the code, having come up with a way to forecast a famously unpredictable business by replacing the vagaries of intuition with the certainties of math.

Even Hollywood wasn’t used to a pitch this good. Kavanaugh alternately dazzled and baffled — talking fast, scrawling numbers and arrows and lines on whiteboards, projecting spreadsheets. “You get caught up in the enthusiasm,” a former colleague says of Kavanaugh’s powers of persuasion. “It’s like trying to analyze love. I know that sounds absurd. This guy’s charisma is really that good.”

Kavanaugh knew when to turn on the language of Wall Street, speaking of financial modeling and risk mitigance and calling films “widgets.” He also knew when to turn it off and shower East Coast bankers with the soft currencies of the movie business: the poolside tables at Chateau Marmont, proximity to celebrities. He was “the ringleader of having a good time,” in the words of one business partner, and his friendships with Bradley Cooper and Leonardo DiCaprio, his private-jet trips with actresses Kate Bosworth and Natalie Portman, his showstopping charity pledges and ­restaurant-silencing tips — all of this became part of the sale, further proof of his success. Later, when Relativity’s fortunes turned, the helicopters and grand pronouncements and inclusion on the Forbes billionaires list became still more essential to perceptions of Kavanaugh, as much as they started to ­suggest a departure from reality.

And even now, with Kavanaugh struggling to rescue Relativity from bankruptcy and increasingly resembling a false prophet, his disappointed followers as well as his most bilious antagonists allow that the studio mogul is one of the greatest salesmen Hollywood has ever known. “He’s unlike anything we’ve seen in a long time,” says Jon Schwartz, a former Relativity executive, who fondly recalls meeting with producer Al Ruddy about a remake of Cannonball Run: “At the end of the meeting, after Ryan leaves, Ruddy says: ‘I have no idea what just happened, but I feel really good about it.’ ”

Jim Wiatt, who at the time was the head of the William Morris agency, recalls the day around 2003 when Kavanaugh first revealed his big plans. “He told me the idea for Relativity,” says Wiatt, who later joined its board. “I remember saying, ‘Jeez, how are you going to pull that off?’ ”

Kavanaugh had spent his 20s building a venture-capital firm with his father in Los Angeles, an experience that was financially unsuccessful but taught him how to raise money and manage the egos of Hollywood potentates. His first act in the film business was to use that experience to broker deals between Wall Street and the studios: He teamed up with Lynwood Spinks, a former executive at the defunct independent studio Carolco whose wide network of industry contacts made up for Kavanaugh’s youth. It was Kavanaugh, though, who had a nose for the shifting demands of the moment. Studios, newly conglomeratized and recently bereft of a favored German tax shelter, were looking for fresh ways to fund movies and hedge risk. Meanwhile, Wall Street’s bubble was reinflating, and alternative asset classes  —franchise rights to restaurants, royalties from drug patents — were the rage. In the market’s frothiness, Kavanaugh spied opportunity.

Because the performance of any one movie is unpredictable, studios have always managed risk by betting on an entire slate of films. But Kavanaugh presented banks with a couple of big ideas: Borrowing a tool from Wall Street, he touted his “Monte Carlo model,” a computer program that runs thousands of simulations, as a device that could predict a film’s success far more reliably than even a sophisticated studio executive. Better, Kavanaugh convinced several studios that he could raise more money for them if they gave him access to their guarded “ultimates” numbers showing the historical or projected performance of a film across all platforms (DVD, video-on-demand, etc.) over a number of years.

If, for instance, a studio was planning to make an Untouchables prequel starring Nicolas Cage and Gerard Butler and directed by Brian De Palma, Kavanaugh posited that he could evaluate the potential investment by plugging scores of historical-performance variables into his model, from Cage’s average global-box-office grosses in a particular genre to De Palma’s track record within a particular budget range. Applying this analysis across a studio’s entire slate, he could theoretically cherry-pick the winners and channel investors’ money into those alone.

Soon, glossy magazines were painting Kavanaugh as a nerdy math prodigy reigning over a “geek squad,” crunching numbers in “marathon overnight sessions” in which four linked computers would spit out hundreds of pages of analysis. And within a few years, he had funneled billions of dollars from banks and investment funds into Holly­wood. He brokered a $525 million revolving loan by Merrill Lynch to Marvel Entertainment and $264 million in co-financing by Wisconsin hedge fund Stark Investments for six Warner Bros. movies. For Kavanaugh’s first slate fund, Gun Hill 1, he raised $600 million through Deutsche Bank to co-finance 18 movies at Universal and Sony. Other slates followed.

Relativity was paid a fee of $1 million per film in each slate, and Kavanaugh shrewdly insisted that he receive an executive-producer credit for each of the dozens of films being financed, which gave Relativity the aura of a production company and Kavanaugh that of a producer. He nurtured this impression, referring to Sony’s The Social Network and Universal’s Atonement as “Relativity films.” And now that he was Hollywood’s favorite type of person — a check-writer, or at least a check-writer’s representative — producers started bringing individual movies to him in the hope that he could line up financing. One of the first of these, 3:10 to Yuma, was well reviewed and a box-office hit when it opened in September 2007. A Variety article published the next month reported that Gun Hill 1’s investors would initially make a 13 percent internal rate of return, which would rise over the next five years to 18 percent. Kavanaugh was already prepared to be generous with his success. At a Habitat for Humanity dinner that November, he revealed that he would donate $1 million and become chair of the organization’s fund-raising campaign.

Then Kavanaugh did what every person who has ever started out in Hollywood as a financial middleman does: He decided to make movies himself. And why not? Earning a $1 million fee for every film on someone else’s slate was solid business but hardly exciting. If he could harness the same algorithm that had predicted 3:10 to Yuma’s future — Russell Crowe + Christian Bale + sagebrush and six-shooters = No. 1 on opening weekend + 89 percent Rotten Tomatoes score? — to make Relativity’s own movies, and if he assembled his own studio around them, he could make real money. The studio system was broken, he liked to say, and he knew how to fix it: Where studios were fat, Relativity would be lean; where studios were obsessed with can’t-fail tentpoles, Relativity would gamble on quality movies. Relativity would hedge its risks elsewhere, by covering much of a film’s budget through foreign presales and shooting-location tax credits and aligning Relativity’s incentives with actors’.

Kavanaugh proved as effective at raising money to launch his own studio as he was at financing other studios’ movies. In fact, he landed as sophisticated an investor as anyone could imagine: Elliott Management, the hedge fund founded by Paul Singer, one of the Republican Party’s largest donors. Elliott had already taken a small position in Gun Hill 1, and a senior director at the firm, Chuck MacDonald, was impressed by Kavanaugh’s business model — in particular, the fees it took regardless of how the underlying assets performed. (In this sense, Relativity was operating like a hedge fund itself.) Elliott knew that Kavanaugh wanted to build out his own studio, but the firm was reassured that his proprietary methodology and risk-hedging model would ensure that the company delivered a steady stream of “singles and doubles.”

By the end of 2008, according to a source close to Elliott, the firm had paid $67 million for 49.5 percent of Relativity, and Kavanaugh quickly made a series of smart, opportunistic deals. He scooped up New Line’s long-term foreign-distribution arrangements, which meant as much as 50 percent of a Relativity film’s budget would be covered in advance. Relativity made a lucrative deal with Netflix and acquired Overture, a domestic theatrical-distribution company, for little more than its overhead. The studio launched TV and music divisions, and Elliott provided over $100 million in loans with which Relativity could fund individual movies. (These and other figures in this account are disputed by Relativity.)

For many who worked at Relativity, the excitement of being in Kavanaugh’s orbit outweighed the unusual tasks they were sometimes assigned. In 2010, after Relativity’s The Fighter was released, Kavanaugh was denied one of the three Producers Guild credits that entitle one to ascend the stage in the event of a Best Picture Oscar win. The credited producers argued on Kavanaugh’s behalf, but as he appealed the decision, former Relativity executives say that staff were also ordered to construct a phony paper trail, submitting notes on a rough cut of the film from president of production Robbie Brenner and a timeline of company ­president Tucker Tooley’s set visits and production meetings as if they were ­Kavanaugh’s. Though the appeal was denied, Kavanaugh was able to engineer a consolation prize on the night of the Golden Globes, where The Fighter had six nominations. As Christian Bale accepted the award for Best Supporting Actor, he said, between thank-yous, “Ryan,” pointing at Kavanaugh, who was sitting at a table near the stage. “That was a deal we just made,” Bale continued. “I’d announce him personally. Ryan from Relativity.”

The Fighter resonated with Kavanaugh. “I don’t know if you know my history,” he told Movieline, likening himself to Mark Wahlberg’s underdog boxer in the film, “but before Hollywood I was down and out and told, ‘You’ll never make it in this town.’ ”

Kavanaugh’s own story wasn’t quite the tale of an orphaned bootblack. His mother, Leslie, a graduate of Beverly Hills High, was a successful Realtor with Sotheby’s; his father, Jack, was a highly educated entrepreneur; and Ryan graduated from the Brentwood School. But in the Kavanaugh home, wealth mixed with anxious aspiration in a way that wouldn’t be out of place in the family albums of many Hollywood movers and shakers. Jack Konitz, the son of Holocaust survivors, had changed the family name to Kavanaugh and, in a bit of lily-gilding, named his firstborn son Ryan Colin Kavanaugh. Leslie was a redhead, and as Ryan grew into a freckly, ginger-haired child, the name fit.

Jack Kavanaugh cast a long shadow. He was quick to tell new acquaintances that he was fluent in nine languages, could bench-press 565 pounds, and had an IQ of 180. Having begun his career as a dentist, he later acquired both an M.B.A. and an M.D. Jack and Leslie were overtly proud of Matthew, Ryan’s tall and handsome younger brother, but “no matter how much Ryan did, it was never enough,” says someone who knew him in his younger days. The pressures at home bled into his school life. “Ryan was known for a few things,” a Brentwood classmate recalls. “He had major attendance issues. He had serious anxiety. And he had a reputation for being—a pathological liar is probably too strong a word. He was big into falsehoods.” Ryan briefly attended UC Santa Barbara before transferring to UCLA; he took part in the 1998 commencement ceremony and for years would call himself a graduate, but he did not receive his degree until 2012.

It would be with his father, however, that Ryan made his first big entrepreneurial gambit, parlaying tangential connections into a venture-capital business. Jack’s brother Russ had done construction work for the producer Jon Peters, and as a teenager, Ryan took to hanging out at Peters’s house and, later, day-trading for him. The nasdaq was rising, and Jack told at least one investor that he and Ryan had developed a computerized formula that would cap losses. Ryan worked hard to impress clients: Once, he considered renting a Ferrari before going to meet with a potential investor.

It worked. By the time Ryan was in his mid-20s, he and his father had managed, with the help of the then-powerful Peters, to persuade some of Hollywood’s most prominent figures, including Warner Bros. boss Terry Semel, Columbia/TriStar CEO Mark Canton, Batman producer Chuck Roven, and producer Jerry Bruckheimer, to invest what a colleague from that time estimates to have been $175 million in a variety of funds and start-up companies, including a prepaid-credit-card business named PreNet. Ryan was briefly married to Tracy Tanner, a makeup artist eight years his senior, and he bought a $3 million house in the Hollywood Hills.

After the dot-com deflation began in March 2000, Kavanaugh’s investors started asking for their money back, and Kavanaugh became hard to get ahold of. On 9/11, he phoned the office to say he was in Boston and lucky to be alive, having missed Flight 11 because of a medical emergency in his girlfriend’s family (an account the girlfriend confirms). A week later, at the Peninsula Hotel in Beverly Hills, more than 100 concerned shareholders gathered to hear from PreNet chairman John Chaney, who spoke of how the company never received millions of dollars Kavanaugh’s fund was supposed to invest in it. (This allegation was also included in an investor’s lawsuit against Kavanaugh that was later filed and settled out of court; it is disputed by Relativity.) Kavanaugh wasn’t there, but his parents were, and one lawyer who rose to speak addressed them directly: “You’re lucky your son isn’t walking around in striped pajamas.”

At least eight of the investors sued Kavanaugh, alleging fraud, and the cases were eventually resolved without trial. Michael Sitrick, a hard-nosed crisis-p.r. adviser who had put $6.2 million in a fund that Kavanaugh had assured him would own a diversified basket of public stocks, sued for negligence after learning that 50 percent of the fund was already invested in PreNet and another private company in which Kavanaugh had a controlling stake, and that case went to arbitration. The arbitrator noted in his ruling that Kavanaugh had been “clearly negligent” and had tried to deflect blame onto others, and awarded Sitrick $7.7 million against Kavanaugh personally. The award was confirmed by a court, but after Kavanaugh swore he had no more than $100,000 in assets, Sitrick agreed to release him from the judgment in return for Kavanaugh cooperating with Sitrick’s efforts to recoup his losses from his insurance company.

It isn’t easy to emerge from your late 20s with the mangled reputation Kavanaugh had among the Hollywood elite, and, by the time you are 30, be structuring financing deals for Section Eight, George Clooney and Steven Soderbergh’s now-defunct production company. Throughout Relativity’s early days, there were sporadic reminders that Kavanaugh’s posture as a prudent, numbers-minded outlier in Hollywood was recently assumed and that his talents lay more in sales than in operations. Some took the form of flashbacks, such as when Sitrick moved to reopen the settlement of the case, unsuccessfully alleging that Kavanaugh had concealed assets.

Other demonstrations played out in real time. Relativity actually did look at whether to finance that Untouchables prequel, Capone Rising, with Nicolas Cage and Gerard Butler attached to star and Brian De Palma to direct. The company ended up passing, but someone close to the financial modeling recalls doing a double take at the rosiness of the Relativity algorithm’s prediction. “I read the input log for it. I thought: What’s missing? I said, ‘Where’s Snake Eyes?’” — a Cage flop. “They said, ‘Uh, we’re leaving that out.’ ”

On the night of the Golden Globes in January 2011, ­Kavanaugh beamed as he and Harvey Weinstein, whose Weinstein Company had co-financed The Fighter, threw what a former Relativity executive calls a “multimillion-dollar” after-party. As the Moët flowed in the tented garden of the Beverly Hilton, a Relativity employee noticed that Gordon Singer, a son of Elliott founder Paul Singer who was visiting from London, was alone in a corner at the party. “I know he’s paying for all this,” the employee recalls, “and I can’t for the life of me imagine why he’s being allowed to stand by himself. I go over and we have a drink. He says, ‘Let me ask you a question: Is all this necessary?’ ”

At first, the premise of Elliott’s investment had panned out: A steady stream of fee income continued to come in while Kavanaugh built his new studio. Kavanaugh became prone to claims about how big Relativity was: Elliott had put “$1 billion” into Relativity. Relativity had made “$2 billion” in revenues in both 2009 and 2010. There was an idiosyncratic logic to some of this math: If Relativity had brokered a $500 million investment between third parties, say, Kavanaugh would lump that $500 million into his tally of Relativity revenue. Or he would count extremely sunny projections as current revenue. He was also enabled by the trade press; Variety put him on its cover with the words billion dollar producer.

It didn’t hurt Elliott for one of its assets to appear larger than it was, and Elliott likewise tolerated the kerfuffles that would arise — like when, lobbying the Hollywood Foreign Press Association for a Golden Globe for Brothers, Kavanaugh ran afoul of its rules by trying to give its members Blu-ray players, or when he was arrested for the second time on a DUI charge (the first time, he had allegedly sideswiped a police cruiser in Malibu and fled the scene; after the ­second, which was dropped as part of a plea deal, he took to using a driver).

Once Relativity started funding its own movies and was itself on the line for Kavanaugh’s talent at predicting successful movies, Elliott’s investment became a lot riskier. And most of Relativity’s movies, forgettable when not memorably bad, performed unimpressively at the box office. Remember The Spy Next Door? How about A Perfect Getaway? By early 2010, with a full year of films to assess, it was clear to Elliott that there was a significant mismatch between Kavanaugh’s model’s projections and the actual performance of the films. The bombs would continue. The Warrior’s Way, a martial-arts spaghetti Western that cost $42 million to make, brought in $5.7 million in U.S. theaters. Machine Gun Preacher, a passion project of Kavanaugh’s friend Gerard Butler, took in $539,000 domestically. Kavanaugh routinely said that “85 percent” of Relativity’s movies were profitable, but the bottom line, according to a source close to Elliott, was that these were “not movies that are making money.”

The slate funds didn’t do well either. Gun Hill 1 was a debacle for equity holders. (By the end of 2012, according to audited financial statements, the fund showed a net loss of $315 million.) One investor in Gun Hill 2 saw its stake of more than $50 million completely wiped out. A third slate, Beverly 1, was shut down early. Beverly 2, a fund established specifically for Elliott to co-finance Universal’s movies, fared disastrously. (Elliott would reportedly later go into arbitration with Universal over the studio’s accounting.)

Meanwhile, once-lean Relativity had packed on pounds. Every new asset required staff to run. Kavanaugh had three assistants, a private-jet habit, and also a penchant for making lavish gifts to actresses, including leasing a horse for Kate Bosworth for six months so they could ride together and buying a rare, $65,000 edition of The Diary of Anne Frank for Natalie Portman. A dining partner recalls a meal at Ago where Kavanaugh added, to the $3,500 bill, a $20,000 tip. (A Relativity spokesperson denies this.) Kavanaugh’s expenses, indulged in good times, were becoming harder to justify. By early 2010, Elliott had decided to exit the investment soon after bankrolling Relativity’s most expensive film to date: The Immortals.

Internally, Kavanaugh spun the Elliott divorce as a milestone. “It was put as: ‘We’re moving on,’ ’’ an executive recalls. But in fact, Relativity was in a corner. Kavanaugh had been crowing publicly about an imminent investment by JP Morgan Chase, but CEO Jamie Dimon told his bankers in Los Angeles that JP Morgan would never buy equity in Relativity given that it didn’t deem the studio creditworthy even for senior debt. In the end, Relativity only managed to release the films it already had in the can with the help of a lending fund at Colbeck Capital backed by investor Ron Burkle. And what appeared to be merely a change in backers glossed over a profound shift in Relativity’s financial health. To extract itself from Elliott, the ­company had become saddled with hundreds of millions of dollars in high-interest loans. Now the studio needed its model to work not simply to generate attractive investor returns but to produce enough cash to avoid defaulting on its obligations.

After Immortals, Relativity put out a burst of films — Limitless, Act of Valor, Safe Haven — with relatively high grosses. But a growing number of powerful people in Holly­wood would no longer do business with Kavanaugh, who had developed a reputation among some producers for welshing on deals. Shortly before the Relativity movie Mirror Mirror went into production, Kavanaugh told Brett Ratner, who’d brought him the film and been promised a $1.5 million fee, that Relativity would pay him only half that amount. Ratner acquiesced after Kavanaugh told him Relativity would give him a $5 million overall consulting deal, but Ratner ended up not receiving the overall deal.

And Kavanaugh was increasingly distracted by matters not directly related to the running of Relativity. There was a quixotic campaign to build a $400 million film-production facility in Hawaii, which arose after Kavanaugh got red-tagged for unpermitted construction at his Maui vacation home and went to the ­county’s mayor seeking to make a deal for the needed permits. In L.A., he had recently obtained his commercial-helicopter-pilot’s license (“faster than anyone else,” as he liked to say, to some passengers’ alarm), and taken to aero-commuting from his Malibu home. In the fall of 2010, according to several Relativity sources, he spent months fighting to preserve a deal he’d made with the Sofitel near Relativity’s offices to land his helicopter on its roof, which was normally reserved for emergency landings. His efforts included having Relativity take a long-term lease on a six-story billboard affixed to the side of the hotel, and Kavanaugh’s taking a suite there, before the California Department of Transportation finally banned the landings.

Kavanaugh wasn’t coming to the office on Beverly Boulevard as much, preferring a 20,000-square-foot hangar at Santa Monica Airport that Relativity paid the lease on. Besides it serving as Kavanaugh’s office, the hangar housed a luxury RV, huge sectional sofas facing big movie screens, exotic cars, old arcade video games, a boxing ring, a climbing wall, and an archery range.

The hangar was also convenient, as Kavanaugh now spent much of his time flying around the world seeking new investors to relieve Relativity’s debt burden. He announced a joint venture with a distributor in China, but he spent more time there looking for money. “He’d just live there, push himself like a crazy person, meet with everyone, keep the jet in China six, eight weeks,” a colleague recalls. “There wasn’t a hand in China he wouldn’t shake. The wining and dining was epic.”

In 2012, according to sources close to Relativity’s lenders, the company lost $85 million on $331 million in revenues. In 2013, it lost $135 million on revenues of $379 million. In 2014, it lost $118 million on revenues of $507 million. This was a difficult environment in which to raise money, but valuation was for Kavanaugh a creative medium. He would often offer a prospective investor some side deal, such as distribution rights in the investor’s territory, to get them to publicly buy into a high valuation. “Every deal came with some cherry on top,” an executive recalls. “We didn’t do clean equity deals, ’cause no one would do one.”

Some offers never sold, like a chance to join a $1 billion raise in what Kavanaugh called a “pre-IPO placement,” anticipating a near future when Relativity would be a public company valued at up to $10 billion. Kavanaugh’s aspirational arithmetic also put him in a bind when buyers did make genuine offers. The one solidly profitable part of Relativity was its mostly unscripted TV division. In 2014, Kavanaugh told investors he’d received several offers in excess of $100 million for the division, but he’d turned them down because he believed it to be worth several times that amount. (Also: Making the loan payments would have been all the more difficult without it.)

But the increased financial pressure did not temper Kavanaugh’s instinct for growth. Relativity kept launching new divisions — Relativity Digital Studios, Relativity Middle East, a “branded entertainment agency” called Madvine, Relativity Education (a high school). In the spring of 2014, Relativity made an unsuccessful “$1 billion” all-stock spoiler bid for Maker Studios, a network of YouTube channels that had already received a $500 million cash offer from Disney. “They all seemed like additional successful revenue streams that could potentially save the core business,” a film-division ex-employee says. “But if you don’t have your core business in line, nothing’s going to save it.”

Kavanaugh had an expanding view of his own place in Hollywood, too. Deepening his and Relativity’s philanthropic involvement, Kavanaugh was fêted by a number of charities and became chairman of the Art of Elysium, a nonprofit organization, popular among celebrities, that sends performers into hospitals to spend time with sick children. He also started giving more talks and keynotes. In a 2014 Variety profile, Kavanaugh likened himself to Mark Zuckerberg and Thomas Edison and again claimed that “85 to 90 percent of our movies have made a profit.” With increasing frequency, he articulated a “next-generation,” “360-degree content engine” vision of how the sum of Relativity added up to more than its parts.

Kavanaugh had, by this point, opened a “family office” called Knight Global, run by his brother, Matthew, out of the hangar, which took stakes in a miscellany of companies, including ones that made hangover patches and vapes. This expanded empire contributed to his landing on the Forbes billionaires list for the first time in 2013, with a purported net worth of $1 billion; two years later, the Los Angeles Business Journal would peg his wealth at $1.6 billion. In 2015, he announced that an investment in a biotech company formed by his father had turned into a $150 million windfall. Talking with Haute Living Los Angeles about his commitment to innovation and philanthropy, Kavanaugh mentioned he was enrolled in a Ph.D. program in physics at USC. (He is not, though the dean of the film school says Kavanaugh has expressed a keen interest in physics.)

Last March, a thicker, bearded ­Kavanaugh was wed for the third time (he’d briefly been married to a dancer named Britta Lazenga), marrying a South African swimsuit model named Jessica Roffey in a small ceremony on the beach in Malibu. At the larger reception, attendees were required to wear all black, and they received samples of the hangover patch and the vape pen. Aerosmith’s Steven Tyler, a Maui neighbor of Kavanaugh’s, sang “I Don’t Want to Miss a Thing” for the first dance, and a barge offshore spangled the night sky with fireworks. Less than two months later, readers of “Page Six” learned that Ryan and Jessica Kavanaugh had a baby on the way, to be named after the Russell Crowe ­character in Gladiator: Maximus.

To work at Relativity in the last several years was to live in the palace of a magical-realist king. Visitors to Kavanaugh’s private bathroom in the Beverly Hills office were often taken aback to find that his toilet paper featured the face of Barack Obama. Kavanaugh would zoom around the hallways on a Razor scooter and later on a Segway. Later still, a Segway with a two-way video screen mounted on it patrolled the halls; Kavanaugh could control it remotely to communicate with employees when he was away from the office. After Kavanaugh heard from Bradley Cooper about working with a capuchin monkey on The Hangover 2, Relativity staff were deployed to obtain one for Kavanaugh until research revealed that the animals are illegal to own in California. Eventually, Kavanaugh brought a baby wolf to the office instead. “That was the kind of thing he’d do. Bring a wolf around for a week,” says a former executive who, like most of the people interviewed for this article, would speak only on the condition of anonymity. (Relativity made employees sign nondisclosure agreements. During the reporting of this article, as I spoke to more than two dozen former and current executives and board members, several former executives received letters from the company reminding them of the penalties for violating these agreements.)

Sometimes those in Kavanaugh’s inner circle suspected that strategic business decisions were made for less obvious reasons. Multiple ­executives believed, for instance, that the $1 billion spoiler bid for Maker Studios came out of a deal Kavanaugh had made with Danny Zappin, Maker’s ousted CEO. “Had anyone accepted that offer, Relativity couldn’t have made good on it, didn’t want it, wouldn’t have known what to do with it,” one of those executives explains. “But it allowed Danny to go to his former partners and say, ‘I can make it go away if you give me a reasonable settlement.’ Ryan agreed to help fuck up the Disney deal so this kid would get paid and make a Relativity investment. There was a lot of that.” Zappin and Relativity reject the implication of a quid pro quo, and Zappin insists that it was only after the Maker bid failed that he considered (and ultimately passed on) investing in Relativity.

There was also a constant churn of staff at Relativity, as successive waves of employees lost faith in Kavanaugh’s math. “It’s just ridiculous that anyone would even believe it,” says another former Relativity executive. “I can remember after one meeting, he talked so quickly, and he had the numbers and was selling some guy. And the guy left the room. I said, ‘Jesus, Ryan, that was amazing.’ He goes: ‘Wasn’t it?’ He’s a little kid. He’s very persuasive in the moment. But if you had a video and went through it in slow motion, you’d realize those numbers don’t add up.”

Relativity’s films’ performance did not improve. Paranoia, a $35 million–budget film starring Liam Hemsworth, Gary Oldman, and Harrison Ford, tanked with a $3.5 million opening weekend. Out of the Furnace, on a budget of $22 million, ultimately grossed just $11 million in U.S. theaters. Relativity could no longer afford to make enough movies to meet its distribution quotas, so it pivoted to acquiring more. It didn’t have enough money to compete seriously in the space, however, and Relativity’s distributors became increasingly disenchanted, as did people who worked in Relativity’s film division. “We realized there was nothing we can do,” a film executive recalls. “It got negative and dark, like, Why are we reading these scripts and taking pitch meetings?

Kavanaugh was always on the verge of getting the money Relativity needed, and life at the company became a roller coaster of near misses and 11th-hour saves. Sometimes a cash infusion did arrive — IDG Capital became an investor, as did ex–Goldman Sachs banker Steven Mnuchin — but over and over, it didn’t. In one case, “the Chinese, they were signing agreements, doing ribbon-cutting ceremonies with the head of the bank, and then they never funded,” an executive says. “But they were Chinese. Who knows what they were saying?”

Kavanaugh expected his executives to back up what one refers to as Kavanaugh’s penchant for describing “what he wanted to be true or believed was about to be true.” As the company’s financial performance declined and Kavanaugh’s valuations rose, his executives cringed in silence. “We’ve all sat in the meeting where numbers were put out,” one says. “We’re like, ‘Sports is not worth $700 million.’ ” Kavanaugh’s presentation to investors came to include very particular “adjusted ebitda” numbers, which in this case meant earnings adjusted as if Relativity still owned the film library it had ceded to Elliott. “But they did give their library back,” an investor points out. “It’s like saying: ‘If I had wings, I could fly.’ ”

Essential to Kavanaugh’s pitch was a luster of success, one he worked hard to brighten. According to several people who inspected Relativity’s books, at least $16 million of the company’s $90 million in overhead was directly traceable to Kavanaugh, who in addition to receiving $11.7 million in compensation in 2014 incurred millions more in expenses. His private-jet reimbursements and hotel bills were legendary, like when, according to one former executive, he booked the most expensive suite at the Hotel du Cap-Eden-Roc for two weeks during the Cannes Film Festival, then never used it. Other expenses were less obvious. “For Ryan, expense reporting was an art form,” a former member of his team says. “He realized quickly that rookies charge a lot of stuff to the company.” His beach house in Malibu, during a period when he was trying to sell it, was rented to Relativity Sports to lodge visiting athletes. According to a former executive, Kavanaugh would lease a car for himself at a discounted long-term rate, drive it for six months, then “get bored, gift it to an executive, and charge it to Relativity. These were Ryan cars. Nobody even wanted them.” Tucker Tooley, given a McLaren, drove it for one day before turning it over to Sports for use by its clients. Robbie Brenner, the mother of two young children, received a two-seat Mercedes-Benz SLS.

Kavanaugh continued to pledge large charitable gifts, often billing the company for them later, according to former executives. Between July 2014 and June 2015, Relativity made more than $2 million in donations to 35 charities and foundations. In September 2014, after a spike in global anti-Semitism following Israel’s military action in Gaza, Kavanaugh put out a press release that he was making four $25,000 “personal donations” to four Jewish groups. At least three of these donations appear, from later court filings, to have been paid by Relativity. “Investors were begging him to stop in the final days,” says someone with knowledge of the conversations.

Estimates of Kavanaugh’s own wealth were undermined by his apparent liquidity issues. Staff at the Art of Elysium became frustrated by its chairman’s foot-dragging about honoring pledges he’d made to the organization, and Variety would later report that Kavanaugh had never made good on his $1 million pledge to Habitat for Humanity. (Relativity did ultimately make two donations totaling $35,000.) During a 2012 fraud trial in which a jury found Jack and Leslie Kavanaugh liable for selling a $2 million fake Picasso to a friend (Jack had taken an $800,000 kickback from the gallery dealer who commissioned the painting for $1,000), Jack testified that his son Ryan had recently stopped sending his parents hundreds of thousands of dollars a year.

Within Relativity, the company’s problems bubbled up in ways that became more and more difficult to ignore. In 2013 and 2014, promised year-end bonuses never materialized. Vendors increasingly complained about not getting paid. Most concerning, the film studio stopped making films. Employees noticed, during the production of Masterminds in the summer of 2014, that for the first time no new start dates were being added to Relativity’s production schedule. The company was running out of time. A $316 million debt bill was going to come due in May of 2015.

This past spring, Relativity imploded in slow motion. While the company continued to acquire movies — a lawsuit by one of its lenders would contend that it did so only to use them as collateral to raise marketing funds, which it then diverted to paying salaries — Kavanaugh announced a series of would-be saviors: hedge-fund money, Indian money, Chinese money, Russian money. Financial advisers whom Relativity’s lenders installed at the company to prepare Relativity for bankruptcy were admonished by a Kavanaugh deputy never to use the B-word in conversation with him. Another Relativity executive recalls Kavanaugh bringing a Chinese investor around: “Ryan said, ‘I’m telling you right now, we’re going to turn this company around.’ He was probably a believer until they filed for Chapter 11,” which Relativity did on July 30.

Since then, many of Relativity’s employees have been laid off or have left the company. The fashion division was shut down, the bankruptcy judge ordered the company to stop paying for the hangar, and Kavanaugh’s salary was dropped to $1. A number of Relativity movies scheduled for release, including Masterminds, starring Kristen Wiig, Owen Wilson, and Zack Galafianakis, were suddenly put on ice. When no bidders stepped forward to buy the whole company, a group of Relativity’s largest creditors, led by Anchorage Capital, acquired the television business, the company’s only widely desired asset, for $125 million.

To Hollywood’s more sophisticated power players, Relativity’s declaration of bankruptcy was less intriguing than how long Kavanaugh had been able to stave it off, reeling in money over and over again despite mountains of evidence that the product he was selling was not what he claimed it to be. “You have to give him credit for keeping it going as long as he did,” says an old hand at a major talent agency. “The people inside the system were in on the joke.” Adds a senior studio executive: “I was always amazed. His track record never would have dictated that he’d get that kind of money.”

On February 1, Relativity will ask a Bankruptcy Court judge in lower Manhattan to approve Kavanaugh’s reorganization plan to bring the film division and other surviving assets out of Chapter 11. When the plan was filed in November, it promised that Relativity would raise $100 million in new equity, as well as secure a $250 million loan to fund the release of the films that have been in limbo. To achieve this, Kavanaugh will need to have found investors unversed in his history of extreme optimism. Even if the judge approves the company’s exit from bankruptcy, Kavanaugh will face long odds of success. A post-bankruptcy Relativity will have to overpay, and pay up front, to attract A-list talent and vendors who got burned. On January 21, Netflix asked the bankruptcy court to release it from its deal with Relativity, which would deprive Kavanaugh’s studio of one of its most valuable assets. Kavanaugh may also find it difficult to convince the industry that his company’s recent trials have converted him to fiscal modesty and curbed his knack for self­sabotage: Days before Relativity laid off 75 employees last July, his wife Instragrammed a photo of a new Mercedes with a bow on it that Kavanaugh had just given her. Then, a month after Relativity entered bankruptcy, Kavanaugh got into another legal flap when, as he later explained to the police, he accidentally shot himself in the left calf as he prepared to oil a .44 caliber handgun he owns (a misdemeanor charge was later dismissed).

Which isn’t to say he couldn’t do it again. There is no story Hollywood loves selling as much as a story of reinvention, and no story it would rather watch than the return of a movie mogul with deep pockets. In a world where studios that used to make around 20 movies a year now make half that number, one man, even if his name is Kavanaugh, can change the equation of an industry. “He’s a young man with ambition who got knocked on his ass,” says Mark Canton, who was on Relativity’s board until a few months ago. “People are always happy to have another buyer.”

In early January, Relativity surprised Hollywood: Kevin Spacey and his producing partner Dana Brunetti had agreed to become chairman and president of the company. While Spacey and Brunetti, who announced the sale of their production company to Relativity as part of the deal, may have had a financial incentive, it was exactly the kind of bold development at which Kavanaugh excels — one which, at a desperate moment, might well help woo new investors. (Just weeks later, Relativity announced that Google’s Eric Schmidt’s TomorrowVentures fund was going to invest.) “It did the trick,” a former Kavanaugh colleague says of the Spacey news. “It got the town talking. Probably so Ryan can be invited to Oscar parties.”

*A version of this article appears in the January 25, 2016 issue of New York Magazine.