Withdrawal symptoms: Sheen contracts could mean costly exit

By Matthew Belloni and Eriq Gardner

The future of CBS' "Two and Half Men" has become Topic A in Hollywood since production on the series was put on hold yesterday 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.

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. But we've talked to a bunch of legal specialists in this area who offered their informed speculation. Here are some predictions for how this might play out.

First the morals clause:

Sheen likely has some kind of 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 #1 star to get fired, but morals clauses often include liquidated damages provisions, meaning an unruly star can be responsible for losses incurred due to his unruliness. Sheen reportedly earns more than $900,000 per episode, making him the highest-paid actor on TV. If he 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, says Aaron Moss, a litigator at Greenberg Glusker, "then the network may be able to file a lawsuit for breach of contract."

Sheen checked himself into rehab in 1990 and eight years later was hospitalized after "consuming excessive amounts of drugs and alcohol." But notably, when he went to rehab Tuesday, his press statement did not specifically mention alcohol or drugs. In addition to trying to avoid violating his bail in Colorado (which prohibits alcohol or drug use),this silence could be a signal of what's in his morals clause, meaning Sheen's reps might be trying to avoid any possible trigger.

Now 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 -- like, say, the star -- is not available due to some unforeseen event.

We haven't seen the insurance policy, of course, nor have any of the experts we talked to. But risk allocation is always subject to conditions and exclusions, and cast coverage typically requires medical disclosures.  

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

Sheen's past drug and alcohol issues were certainly known. "The insurance company reps read the papers just like everyone else," says Calkins. "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 agrees that any insurance carrier covering the show would have "insisted upon protections."

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

Something else to consider: Producers are spending a fortune paying Sheen for his services. Some lawyers we talked to believe this ordeal could be a good excuse to reopen contract negotiations with him. Risky? Of course.

But WBTV and CBS could potentially shave tens of millions of dollars off the cost of the series if they were to waive this over Sheen's head.