
By Katrina Brooker Research Associate Joan Levinstein

(FORTUNE Magazine) – The night before he was arrested, Merv Adelson couldn't get to sleep. It was an early summer evening in Aspen. Adelson--the legendary producer of such TV hits as Dallas and Falcon Crest--had gone there to relax at his ranch, the Lazy A. Normally the ranch, a spectacular 27-acre spread overlooking Castle Creek and Mount Hayden, was his escape, a haven from his hectic life as a Hollywood mogul. The Lazy A has three hot tubs, a golf hole, and a horse barn so luxurious it was once featured in Architectural Digest. Physically fit and still vital at 73, Adelson would spend days riding horses, swimming, practicing his putting. In the evenings he would party with such famous friends as Michael Douglas, Goldie Hawn, and Don Johnson. Once he sang with Beverly Sills at his living room piano.

Tonight was different, though. Earlier in the evening, he and his wife, Thea, had had a terrible fight. A few months before, Thea, a pretty lawyer 33 years his junior, had told him she was leaving him, and the couple were in the midst of a divorce. But it wasn't just Thea on his mind that night. For many months now, money troubles, big money troubles, had been plaguing Adelson. Years of borrowing to keep up life as a Hollywood tycoon were catching up with him. Indeed, the beloved ranch in which he paced that night was in hock to the tune of $31.5 million, and in danger of foreclosure. He stood to lose the other hallmarks of his high style too--the luxury cars, the private planes, his house in Malibu. In all,

Adelson owed his creditors $112.5 million. The big Hollywood life he had spent so many years building was in danger of collapse. So that night, friends say, Adelson--anxious, upset, and depressed-- took a pill and fell asleep.

Everything that happened the following morning is a matter of public record: At 7:36 A.M. on June 8, 2003, Adelson was driving his Chevy Suburban through the intersection of East Main Street and South Monarch in Aspen with his 2-year-old daughter, Ava, in the back seat. The truck jumped the curb and hit two cars, a street sign, and two trees. Adelson was arrested and charged with driving under the influence, reckless driving, and child abuse. His lawyer says that no drugs were found in his blood and that Adelson had had a mini-stroke. No one was injured in the incident, but it seemed to knock the fight out of Adelson. Three months later the man whose fortune was once reportedly valued at $300 million filed for personal bankruptcy. The ranch is for sale, listed at $19.25 million.

"Why are you calling about Merv? What's happening?" Bernie Brillstein, the agent and movie producer, demands when I call to talk about his former boss. "He's bankrupt?" Brillstein, who has known Adelson for nearly 20 years, pauses after hearing the news, and then says, "I am shocked."

Among the Hollywood elite Adelson's crash has come as a blow. For the most part he has managed to keep his financial woes out of the Hollywood buzz. There has been no mention of them in Daily Variety, no story in the Los Angeles Times. Not even his friends knew. Terry Semel, CEO of Yahoo and one of Adelson's closest pals, learned about the bankruptcy from a small item in a local business journal. "I did not realize the extent," Semel says. "He was always someone who's been so successful." Says a former studio chief: "I always thought he had so much money."

What is astonishing about Adelson's story is the heights from which he has crashed. "It's like a bad Hollywood movie, what's happened to him," says Burt Bacharach, the legendary pop composer, who has known Adelson "through all of our wives." (They have each had four.) Says Brillstein: "Merv is the last person I'd think would go broke." For more than 25 years, Adelson has been a Hollywood heavy-hitter. Once named to FORTUNE's list of the 50 Most Fascinating Business People, he built one of the most successful television production companies ever created, Lorimar Telepictures. In addition to Dallas and Falcon Crest, it produced a string of other hits, including Eight Is Enough, The Waltons, and Knots Landing. In 1989, Adelson made a fortune selling Lorimar to what is now Time Warner (parent of FORTUNE's publisher), and he sat on the board until his retirement in 2000. When he left, his Time Warner stock was worth more than $100 million. By any measure, Merv Adelson was set for life.

So what happened? Where did the money go? Only Adelson knows for sure, and he's not talking--he declined to speak with FORTUNE. But through dozens of interviews with friends and former business associates emerges a story that indeed reads like a Tinseltown screenplay. A simple boy claws his way to the top of the Hollywood heap. Along the way he meets mobsters and movie stars, presidents and kings. He marries glamorous women. He lives in beautiful houses. He becomes rich and powerful----or so it seems. "It was a financial stack of cards," says one former business associate. Maintaining the life of a Hollywood mogul--the wives, the cars, the planes----took more cash than Adelson had. So he built it on credit, pledging much of his biggest asset, Time Warner stock. But over the past four years----since his retirement--his delicately constructed stack of cards has collapsed. Now, at age 74, in the waning of his days, the erstwhile tycoon has lost it all--the women, the power, the money. It's a true Hollywood tale.

"You want to know about Merv?" muses Lee Rich, who co-founded Lorimar with Adelson in 1969. The old partners are on the outs. They had a bitter split in the 1980s. Neither man will say what caused the fight, but their friendship never recovered. Rich, who worked with Adelson for 17 years and knows his history better than most, says, "Go to Las Vegas. You'll learn all about Merv Adelson."

Vegas is where it all began. As a young man in the 1950s, Adelson, the son of a Russian immigrant, moved there from California to find his fortune. His first business was a 24-hour grocery store. Next he was building houses around a casino, which soon led to more real estate projects. His biggest and most successful real estate venture was La Costa, the famed California resort.

During that time Adelson began to be dogged by rumors that he was in or associated with the Mob. "There was always that question about Merv: Is he or isn't he connected?" says Michael Fuchs, the former chief of HBO. The Wall Street Journal in a 1986 expose cited a 1966 FBI report describing Adelson as being in "close association with the hoodlum element." In the 1980s Adelson sued and settled with Penthouse magazine over an article that connected him and his partner, Irwin Molasky, with the Mob. Penthouse never printed a retraction, but it sent them a letter saying it had not intended to suggest that they were members of organized crime. "Look, it's all trash: I can tell you absolutely 100% Merv was never in the Mob," insists Molasky, who has remained Adelson's friend and business partner for 50 years. "Merv wouldn't know a mobster if he sat next to one." For all the rumors, no one has proved that Adelson was ever involved in organized crime.

Still, in his day Adelson rubbed shoulders with plenty of colorful characters. One of his La Costa partners, Moe Dalitz, was a former bootlegger and had been described in a Senate investigation as a "charter member of the national crime syndicate," according to the Wall Street Journal. La Costa was built on money borrowed from the Teamsters Central States pension fund, which once was controlled by Jimmy Hoffa. Many of La Costa's guests were well-known underworld characters. Famed gangster Meyer Lansky reportedly vacationed there. Says Molasky: "Certain people who registered at La Costa might have had unsavory reputations, but I could say the same thing about the Hilton."

Of course, it wasn't just mobsters who were attracted to La Costa. Celebrities flocked there. In its heyday during the '60s and '70s, everyone from Ann-Margret to Mickey Mantle lounged poolside. "I got to know Merv at La Costa," says Burt Bacharach. "We played tennis; we went to the racetrack." It was during that time that Adelson caught the Hollywood bug.

In 1969 he, along with Molasky and Rich, started Lorimar (named for Adelson's first wife, Lori). Almost from the beginning, they seemed to have the Midas touch. Starting with The Waltons, Lorimar began producing hit after television hit. By the mid-1980s it had nearly $700 million a year in sales. Adelson's position as a heavy-hitter in the glittery world of TV was secure. He oversaw a team of producers who have since become some of the most powerful people in entertainment: Les Moonves, now head of CBS; Brad Grey, producer of The Sopranos; Bernie Brillstein; Peter Chernin, COO of News Corp.

Adelson loved the Hollywood life. Perennially tanned and fit from swimming in his pool at home and playing golf at the Brentwood Country Club, the silver-haired Adelson always looked the part of a Hollywood tycoon. And he relished it. "It was like he was trying to be one of the original Hollywood moguls--I mean Louis B. Mayer and those guys," recalls Brillstein. Adelson even bought the old MGM studio lot and worked out of Louis B. Mayer's former office. Once Lew Wasserman, the legendary agent and studio head, needed to get to New York, and Merv flew him on his plane. "It made Merv's week," recalls one former employee. "All we heard around the office was, 'I gave Lew a ride.' "

With houses in Bel Air and Malibu, as well as his ranch in Aspen, Adelson put himself at the center of the Hollywood scene. The biggest TV stars of the day--Dallas's Larry Hagman, Hart to Hart's Robert Wagner--were among his closest friends. He married Barbara Walters in 1986. Friends describe Adelson as witty and charming, always ready to take a twirl around the dance floor. "We used to do duets together," recalls Beverly Sills.

Adelson was something of a thrill seeker. He would spend holidays in the mountains, helicopter-skiing or riding horses. Once, when he was yachting in the Red Sea, his boat was caught in a hurricane and ran aground on a coral reef. In danger of a pirate attack, Adelson called in some favors and got the Israeli air force to rescue him and the crew.

Despite all his success--the hits, the money, the glamorous friends--there were cracks in Adelson's veneer. "He was always very insecure," explains one former TV executive who has known Adelson for close to 20 years. "He's one of those guys who never feel they really belong--always on the outside looking in." In Hollywood at that time, TV guys weren't the real players ----movie people were. So to join that club, Adelson began investing Lorimar's profits to churn out such forgettable films as Dead Bang and The Last Starfighter. At the same time, he expanded into two other businesses, advertising and selling videos. The results were disastrous: By the end of the 1980s Lorimar was losing hundreds of millions of dollars.

Still, Adelson, who has been called "very lucky" by friends and associates, recovered spectacularly. He wangled a deal to sell Lorimar to Warner Communications for $1.2 billion in 1989. "He was a very tough negotiator," recalls Bob Daly, now CEO of the L.A. Dodgers, who ran Warner at the time and negotiated the deal with Adelson. Adelson ended up with a $32 million stake, a seat on the board, and a commitment to pay the expenses of an investment firm he was setting up. Around the same time, he and his old partner Molasky sold La Costa to a Japanese company for $250 million.

So at the start of the roaring '90s, Adelson, then age 60, was nicely set up: He had money and power and plenty of time to put them to use. Adelson was feeling so flush that he started giving his money away by the millions. During the past decade he has donated and raised tens of millions of dollars for charitable causes. His Adelson Foundation gave away close to $1 million in both 1998 and 1999--and that does not include amounts he gave outside his foundation, which friends say are substantial. He has sat on the boards of numerous charities--everything from the Aspen Institute to the Museum of Tolerance in Jerusalem to Michael Milken's CaP CURE foundation for prostate cancer research. Former tennis champ Andrea Jaeger, who runs the Silver Lining Ranch in Aspen for children with cancer, credits Adelson with helping get her charity off the ground. "I stand on what he's done for us," she says.

A devout man, Adelson also became a major fundraiser for Jewish and Israeli causes. "He's a strong advocate for there being a close relationship between the U.S. and Israel," says Rabbi Marvin Hier, head of the Simon Wiesenthal Center, which once held a tribute gala in honor of Adelson. He cultivated relationships with political leaders in the Mideast and the U.S. Former Israeli Prime Minister Benjamin Netanyahu is a personal friend. Adelson once held a lunch for King Abdullah of Jordan. He spent the night at the White House during Bill Clinton's presidency.

Adelson's business life was just as busy. After selling Lorimar, he had set up a venture capital fund called East West Venture Group. Between 1997 and 2001, East West invested some $75 million, more than half of it Adelson's money. Even more than most VCs of the day, Adelson threw himself into technology and Internet businesses with a convert's zeal. Just as he once favored Hollywood actors, now dot-com CEOs were his stars. He coddled them and acted as their mentor. He introduced them to his circle of rich and powerful friends. "He'd have events at his house for people running the companies," recalls Yahoo's Semel. "I went to one event like that at his home and met the mayor of Los Angeles," gushes Tony Naughtin, former CEO of Internap, one of Adelson's investments.

During the bubble several of Adelson's startups went public and had huge gains for a while. Digital River saw its stock shoot up to $57. Internap jumped to $106. According to sources familiar with the fund, by 2001 East West had distributed over $200 million to its investors. If Adelson had sold his holdings, he would have made at least $150 million in cash.

But Adelson didn't sell. Business associates who have worked closely with Adelson on his Internet deals say he didn't cash out. He still owns stakes in at least six technology companies, according to his bankruptcy filing.

It wasn't just dot-bombs that got Adelson into a hole, however. He made a series of other bad investments throughout the '90s. In 1997 he lost tens of millions of dollars in a real estate development, the Ritter Ranch, he had invested in with his old La Costa partner Molasky. He also lost millions investing in insurance trusts. The real pinch, however, has been the downfall of AOL Time Warner, now Time Warner.

As with the startups he had invested in, Adelson was a true believer in the merger of AOL with Time Warner. Voting to approve it was one of his last actions as a board member. "He was always saying he thought it was a $100 stock," recalls a business associate. "When the stock started crashing, he said, 'Now's the time to buy more.' " Between 1996 and 2000--the last date for which public records on Adelson's Time Warner trading are available--he did not sell a single share of Time Warner stock, according to Thomson Financial. People who have worked closely with Adelson say he hasn't sold any since. If that's true, then Adelson's shares would now be worth around $20 million. That's down from the $100 million they were worth when he left the board, but still plenty to retire on.

The trouble is, Adelson has borrowed heavily against his Time Warner stock, according to at least three close business associates. And that, those people say, has gotten him into real trouble. As long as AOL Time Warner's stock stayed up, Adelson could always draw on it to raise cash. But of course it hasn't stayed up. Now, according to his business associates, Adelson owes more than his stock is worth.

For now, the bankruptcy filing has forestalled Adelson's lenders. "He just needs time," says his lawyer, David Levene. "We don't want to sell at fire-sale prices." Adelson is hoping that the stock market will rebound and that he'll be able to take public some of the private technology companies that he currently owns. "He's waiting for the market to come back," says Molasky. The question is, Will his creditors wait? For now, that is for the bankruptcy courts to decide. At presstime Adelson's case was pending.

Adelson's other troubles still loom. He is going through his fourth divorce; he is facing charges in Aspen; he is being treated for prostate cancer. Still, he has been trying hard to put his best foot forward. In October he attended the wedding of his old friend Robert Wagner's daughter. He lunched at the Grill in Beverly Hills----home of the Hollywood power lunch--with Bob Daly and Terry Semel. Recently, at dinner in Malibu, he and Bacharach discussed meeting women. "We were saying, 'How do you start dating again at this age?' " says Bacharach with a chuckle.

So will Adelson win back his ranch from the bank? Meet a new girl? Make another fortune? If this were a movie, now would be the moment when Adelson's luck changes. He would win the lottery or find some old stock certificate that's worth millions. Hollywood seems to be rooting for that to happen. "He's going to come out okay," insists Daly. MADtv producer David Salzman, who worked for Adelson at Lorimar, says, "He's a lion of a man. I think he has the goods to come back." On the other hand, Salzman observes, "If you've fallen from a skyscraper, it's going to hurt a lot."