Sheen contracts could mean costly exit

Who's responsible for any financial hit from his absence?

The future of CBS' "Two and a Half Men" has become Topic A in Hollywood since production on the series was put on hold Tuesday after star Charlie Sheen checked himself into rehab.

Attention is focusing on Sheen-related contracts for the show. Two important deal provisions -- the "morals clause" in Sheen's contract with producer Warner Bros. TV and the "key man" language in the show's insurance policy -- might be driving forces behind what happens next with the sitcom.

As TV's top-rated comedy, "Men" is a cash cow, so CBS and WBTV have an incentive to keep the show going as long as possible. But Sheen, who also faces charges stemming from a Christmas Day arrest for assault in Aspen, Colo., might not return as quickly as the net and production company would like. Which raises the question: Who's responsible for any financial hit from Sheen's absence?

WBTV and CBS declined to comment on Sheen's deal.

Here are some predictions for how this might play out:

First, Sheen likely has a morals clause in his contract. Standard language allows employers to alter or terminate an employee's deal for bad behavior that harms the production. It would take a prolonged absence for TV's highest-paid star to get fired, but morals clauses often include liquidated damages provisions, meaning an unruly star can be responsible for losses incurred because of his unruliness.

If Sheen violated his morals clause, the show's producers might go after him to recoup some of the money it loses when he's away.

"If the conduct is considered a material breach of his deal, then the network may be able to file a lawsuit for breach of contract," Greenberg Glusker's Aaron Moss said.

Sheen checked himself into rehab in 1990 and eight years later was hospitalized after "consuming excessive amounts of drugs and alcohol." Notably, when he went to rehab Tuesday, his media statement did not specifically mention alcohol or drugs. This could be a signal of what's in his morals clause, meaning his reps might be trying to avoid any possible trigger.

Regarding the "key man" language: Film and TV productions routinely buy insurance to protect against the unexpected. As part of that coverage, a "key man" provision would spell out what happens if someone instrumental to the production is not available because of some unforeseen event.

"I would expect any policy for a show to have certain exclusions raising known issues," said Mary Craig Calkins, an insurance-recovery specialist at Howrey in Los Angeles. "Certain lifestyle choices might be in that contract."

Sheen's drug and alcohol issues certainly were known.

"The insurance company reps read the papers just like everyone else," Calkins said. "I would expect some aspect of this risk would have been written into coverage and the production agreement as well."

Sharon Gold at Troy Gould agreed that any insurance carrier covering the show would have "insisted upon protections."

In other words, an insurance policy might not cover Sheen going to rehab again, potentially leaving WBTV and/or CBS on the hook for losses incurred while the show is dark.

One thing is inarguable: Producers are spending a fortune paying Sheen for his services -- reportedly close to $900,000 an episode. Thus, several lawyers suggested that this ordeal could be a good excuse to reopen contract negotiations with him. In such a case, WBTV and CBS potentially could shave tens of millions of dollars off the cost of the series if they were to wave these losses over Sheen's head.
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