The Amazing Merrill Lynch Deal That Made The Avengers Possible

How to make a huge change, and succeed.
Sept. 28 2012 3:30 AM

Avengers Assemble!

How Marvel went from Hollywood also-ran to mastermind of a $1 billion franchise.

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Perlmutter was intrigued but not immediately convinced it could work. Maisel was hired as chief operating officer, and with the help of financier Ryan Kavanaugh, a furious process of number-crunching began—a search for the magical financing formula.  Now they worked to build on Arad’s successes. “Without that track record,” says Maisel, “it would have been hard to get people to listen.”

Still, many of the board members were hesitant to take the plunge. In five years, Marvel had already gone from bankruptcy to a market capitalization of more than $600 million; stock was at $17 a share. Maisel’s insistence that they could take it to $50 a share seemed, to some, an unnecessary gamble. “I remember making a 30-page PowerPoint presentation,” says Maisel, “outlining with a huge amount of detail what the movies could be worth.” He hammered the point that a gross deal was nothing more than an option, and that even if an optioned film does get made, the timing of release—an element of control highly desired by shareholders in a public company—is up to the studio, not Marvel. But Marvel management was famously conservative, beginning with Isaac Perlmutter, who sent out memos about recycling paper clips and writing on both sides of notepad paper. “A lot of the ways movies are made was almost anti-cultural to the way Marvel was run,” says Arad. “It can be like a bottomless pit until you get the right script, and even then, production and marketing are expensive.”

Throughout 2004, Maisel made his case while also putting out feelers for the financial backing Marvel would need to make its own movies. Merrill Lynch’s Jeff Kaplan, who’d once worked at Marvel, made introductions to ML’s Globally Structured Finance group. By early 2005, when Perlmutter and the board finally gave the go-ahead, Merrill Lynch was ready to get on board. 


But the final piece of the puzzle involved both math and some creative curating. The innovative deal that Marvel and Merrill Lynch slowly put together, and finally announced in April 2005, was nonrecourse financing. That meant that Marvel wouldn’t have to put up any cash, but would receive $525 million over an eight-year period to make movies from 10 characters: Ant-Man, the Avengers, Black Panther, Captain America, Doctor Strange, Hawkeye, Nick Fury, Power Pack, and, lastly, Shang-Chi, the Master of Kung Fu. Unless you’re a comic-book fan, chances are that you’ve never heard of half those characters. That’s because Marvel’s collateral to their financial backers, if the first four of the films failed, was simply the movie rights to the remaining six characters. (Even if Marvel lost those rights, they’d still retain merchandising revenues.)  “If [the backers] wanted to make films of those characters, they still had to pay a service fee of 5 percent of the gross,” says Maisel. So even if the plan failed entirely, “we were no worse off than current situation.”

And although the Avengers were on that list, Marvel wasn’t risking them, not really—in fact, the rights to Iron Man, Black Widow, Thor, and the Hulk were already tied up with other studios. This was just a nice little sleight-of-hand: the super-team had included so many B-list members over the years that, Marvel could argue, the lien was actually only for a lineup of, say, Jack of Hearts, Two-Gun Kid, Tigra, and D-Man.

Of course, it never came to that, and even before it was time for the first film to go into production, New Line’s option on Iron Man expired, Lionsgate gave up its claim on Black Widow, and Marvel reacquired Thor from Sony and the Hulk from Universal. Maisel and Arad both agreed to push for Iron Man—a favorite of both men since childhood—as the first film. Just as had happened 40 years ago in the comics of Stan Lee and Jack Kirby, the Avengers began assembling again, setting the stage for a franchise synergy Hollywood had never seen before.

To invert an old Stan Lee phrase, Marvel would never have had such great power without taking on such great responsibility. Instead of the relentlessly lucrative juggernaut that Iron Man kicked off, in which every film made more than $100 million and fed into the success of the next, the alternate-universe Marvel movies would probably be defined by flops (like Lionsgate’s Punisher: War Zone) and development-limbo phantoms (like Fox’s long-delayed Daredevil reboot).

Certainly we never would have seen Marvel’s $4.3 billion sale to Disney. “It’s almost laughable,” says Arad. “People were saying, ‘Wow, that’s a high price.’ It’s a cheap price! It’s nothing! It’s a very strong brand, and we planned on this brand. It wasn’t a fluke.”

Sean Howe is the author of Marvel Comics: The Untold Story. You can follow him on Twitter here and on Tumblr here.