"If You're Going to Do a Party, Do It Right!"

By RICHARD BEHAR

Budget? What budget? When mogul Mario Kassar threw a party at the Cannes Film Festival last year, he spent $200,000 to charter a 203-ft. yacht and used fireworks to light up the sky with the titles and stars of his studio's new films. "It's a competitive market," explains Kassar. "If you're going to do % a party, do it right! The whole world was talking about this one."

With his gold jewelry, corporate jet, Beverly Hills compound and walkie- talkie-toting bodyguards, Kassar is the picture of Hollywood happiness. The industry's overpaid stars love him. But the 39-year-old chairman of Carolco Pictures, the father of the lucrative Rambo series, is coming under fire from investors for squandering money on his films and himself. And major studio bosses claim that his extravagance is hurting the business. For Sylvester Stallone's role in Rambo III, Kassar handed the star $16 million, more than the entire budget of First Blood, the series' opener. The cumbrous Arnold Schwarzenegger raked in $10 million from Carolco, plus a cut of the film's profits, for his role in last year's hit Total Recall. Kassar then bought Schwarzenegger an $11 million Gulfstream G-III jet for the forthcoming Terminator II.

Kassar lavishes cash on behind-the-scenes talent as well. He paid a record $3 million last June for writer Joe Eszterhas' thriller Basic Instinct. "It's not just the money," says Michael Douglas, whom Kassar is reportedly paying more than $10 million to star in and produce Instinct. "When you visit the head of a major studio, it feels like you're going to the principal's office. With Mario, you're with one of the guys." Kassar says his motto is simple: "I try and gain their trust."

Yet Wall Street investors are losing patience with Carolco (estimated 1990 revenues: $300 million), which comprises a web of subsidiaries and global interconnections that are too perplexing for even stock analysts to follow. The arcane structure is the work of Carolco's president, Peter Hoffman, a brilliant tax attorney. By keeping almost half the company's profits in the Netherlands Antilles, Hoffman holds Carolco's total tax rate on movie earnings to 22%, vs. the typical 34% corporate tax rate. Even so, Carolco's profits in 1990 stalled at an estimated $15 million, barely an increase from 1989.

Beirut-born Kassar and his partner Andrew Vajna were successful foreign distributors when they launched Carolco in 1976. They hit pay dirt with Rambo's debut in 1982 and eventually took the studio public at $9 a share. In 1989 Vajna sold most of his 36% stake to Kassar in a complex deal involving shell companies in Panama and the Netherlands Antilles. Last October Kassar resold some of his shares to Carolco for $13 each, or 60% higher than the market price. That brought him $11 million, or 80% of the studio's 1989 net income, which prompted angry shareholders to file a class action. In December state-court judge John Zebrowski in Los Angeles froze 2.2 million of Kassar's shares and said the court may force the mogul to disgorge his profits. Kassar claims that he was entitled to the money.

Shareholders also attack Kassar for taking interest-free loans from Carolco to supplement his $1.25 million salary. In 1988 he and Vajna borrowed $8 million. The terms: if the stock topped $11 by August 1989, the loan would be forgiven. Presto! The stock nipped $11 in June before tubing again (it now trades at $8). "The stock was manipulated," charges shareholder lawyer William Lerach. Carolco disputes the allegation.

Carolco's worst problem may be a dwindling public appetite for its stock-in- trade, violent action films. And the studio's failure to reform its free- spending ways has sparked rumors that it may soon be forced into a merger or even bankruptcy. The budget for Carolco's Terminator II is reputed to be an eyeball-gouging $70 million. Since the company presold the lucrative distribution rights, to break even the film will have to be one of the few to gross $200 million. Shooting began in October, not long after Carolco's Hoffman was quoted as saying the viewing public wants "crap." But Carolco is learning that the investing public does not.