Enron Corp. - University of California | Office of The President

522. In order for Enron to accrue revenue under this scheme, it had to be able to consider
Braveheart an independent entity. This meant the Enron Defendants had to find an independent party
to contribute 3% of the equity in the project. Enron convinced nCube, an entity controlled by Larry
Ellison, to contribute $2 million to the Braveheart venture, with the assurance that the $2 million
would be returned in early 01. To obtain the rest of the 3%, Enron had to put together a complex
arrangement with an entity named SE Thunderbird LLC to invest $1.74 million. CIBC loaned
$115.2 million to Braveheart which was used to acquire EBS's interest in the Blockbuster venture.
CIBC's loan, however, was secured by Enron's promise of 93% of the cash flow for the first ten years
of the project and, in the event the partnership failed to generate enough income to repay CIBC,
Enron would repay the full amount of the loan. Due to these guarantees and the lack of any true
independent ownership, the independence of the Braveheart entity was a sham from day one. EBS
transferred its interest in the Blockbuster deal to Braveheart, which it valued at $124.8 million. This
value was completely phony. The figure was purportedly based on projections of future revenue and
earnings to be derived from the Blockbuster venture. There was no basis for this projection. When
negotiations had begun in 3/00 with Blockbuster, a product development manager asked developers
how much it would cost to do VOD per subscriber. They came up with a figure out of thin air –
$1.20. There was no basis for the amount. However, it was used to calculate future profits to be
derived from the project. Moreover, Blockbuster did not even have the legal right to distribute the
movies in this format.
523. In addition, at the time the deal was announced, Enron was technically unable to do
what was promised. Defendant Rice personally told an engineer he was recruiting that "we can't
deliver the Blockbuster deal." Cable operators would not cooperate, as they saw this as competition
and telephone carriers were less desirable for delivering video into homes. McKinsey Consulting
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