A New Sheriff's in Tinseltown

Former venture capitalist Ryan Kavanaugh has ridden into town with bags of hedge-fund cash. He may ride out with an Oscar to his credit

Here's a Hollywood story that will never make it to the silver screen: Ryan Kavanaugh, a 31-year-old onetime venture capitalist, rides into Tinseltown with a radical approach to financing films. He masterminds the latest avalanche of cash to descend on Hollywood—this time from private equity and hedge funds that have helped Kavanaugh's Relativity Media raise over $3 billion to put into movies. It's no surprise that a lot of Hollywood graybeards have this love-hate relationship with the upstart: They love his money, hate his moxie. Now they have even more to hate about Kavanaugh. He has progressed from being Hollywood's latest ATM to a producer who very likely has a hit on his hands.

On Sept. 7, Lionsgate Entertainment (LGF) will release the film 3:10 to Yuma, a Russell Crowe flick that Kavanaugh rescued from the scrap heap last year after Sony's (SNE) Columbia Pictures had given up on the project. And, well, Ryan Kavanaugh may just have produced the Best Picture of the Year.

3:10 to the Big Leagues

3:10 to Yuma, a remake of the 1957 western that starred Glenn Ford and Van Heflin, is about a down-and-out rancher (Christian Bale) who's determined to help the local authorities bring a brilliant, if twisted, desperado (Crowe) to justice. And after seeing the flick with a friend, I can tell you that it's tense, has great performances from the leads, and a bullet-flying, final shoot-'em-up scene that would make Sam Peckinpah proud. My friend, a fan of westerns, called it better than Unforgiven, Clint Eastwood's 1994 Oscar winner. And while I'm not ready to go that far, I'm willing to bet the film gets a Best Picture nomination and maybe one each for Crowe and Bale.

As for Kavanaugh, a smooth-talking guy with a head for numbers, the film will firmly establish him as a big-league producer. Two years ago, the Relativity Media guru decided to go into films, but so far has made only a couple of moderately profitable low-budget flicks. Now he's turning on the jets: this film was made for $65 million and four more are underway, including a $77 million flick starring Jet Li and Jackie Chan. Mind you, producers have come to Hollywood before with big bucks and bigger ambitions, only to get sent back to Oshkosh, or wherever, with neither. And Kavanaugh may still be headed for a crash (some of the smarter guys in Hollywood are predicting it) but for now, this kid is definitely in the picture.

Just getting 3:10 to Yuma took some slick maneuvering. Sony's Columbia Pictures had the project and wanted Tom Cruise for the bad guy role. The studio was looking at a $100 million budget from director James Mangold and producer Cathy Konrad, the husband-wife team who shepherded Yuma. Columbia balked, and Kavanaugh, who had money in the project, took it on—but only if Mangold and Konrad would make it for $65 million and film it in New Mexico, where Relativity would get a ton of tax credits. Given little choice, Mangold and Konrad relented. They found a somewhat cheaper lead in Crowe, a very inexpensive guy in Bale (Oscar winner Phillip Seymour Hoffman was initially considered), and they cut scenes, slashed the number of extras and otherwise slimmed the budget. "You have to give him tons of credit for getting that much out of the budget," says Lionsgate Chief Executive Officer Jon Feltheimer.

Waiting for the Payday All that fiscal restraint didn't hurt the movie. Reviewers love the flick, but the issue now is whether it will make any money. For starters, the film is being released a week after the summer, not usually the wisest course for a film with box-office prospects, says Brandon Gray, founder of movie tracker Box Office Mojo.

That's to give it "running room," says Feltheimer, before another western, Brad Pitt's The Assassination of Jessie James by The Coward Robert Ford (yes that's the title) opens a month later. Moreover, Feltheimer says he sees another Crash in 3:10 to Yuma, comparing it to the film that Lionsgate steered to three Oscars and a huge payday by nurturing it for months and then cleaning up on DVD sales.

That would be just ducky with Kavanaugh, of course. The financier says his films "cover most of our costs with foreign distribution and tax credit," meaning that 3:10 to Yuma is closing in on break-even before it hits U.S. theaters. That's good, because Lionsgate isn't paying Relativity Media the usual up-front sum for distributing it in the U.S.—Kavanaugh says he didn't want to "cap" his upside in case the film's a hit. But Lionsgate has pledged to spend $30 million to promote the flick, about $10 million more than it usually spends on its small-budget releases, to blanket the country with TV commercials and billboard ads.

Does that mean that Kavanaugh is sitting pretty, waiting for the bucks (and Hollywood's accolades) to come rolling in? No. I figure the film needs to do more than $25 million at the U.S. box office. That's accounting for the 20% stake that Russell and the director-producer couple likely take. And it comes after Lionsgate gets its $30 million back and a 15% distribution fee. So you know Kavanaugh will be watching opening weekend carefully. The film had better open at around $8 million on its first weekend, given the usual one-third that Box Office Mojo's Gray says a film takes in on its opening weekend.

Kavanaugh hardly sounds worried. He says he uses a database of more than 10,000 films over 10 years, cross-indexed by budget, genre, release dates, and a secret ingredient he won't disclose. "We have a creative and financial model that everything goes through," he says. "We make films we like and that fit that model. No exceptions." Sound brash? Maybe, but much as Hollywood may hate to hear this: The guy with the dough just became a big-league producer.

Grover is BusinessWeek's Los Angeles bureau chief.