When news surfaced that Michael Ovitz, the once powerful boss of Creative Artists Agency, was planning to open a management company with two of the hottest young personal managers in show business, it sent shock waves through Hollywood.

Suddenly Ovitz, who had been fired from the presidency of Walt Disney Co., was poised to make a high-profile comeback as a power player with partners who controlled such stars as Cameron Diaz and Leonardo DiCaprio.

“The day that Ovitz makes that move into Hollywood as a management company and does all the work of an agent, it’s going to start a war,” said Vince Gerardis, a former agent who runs the Los Angeles office of a literary management company, Created By, which specializes in science fiction.

But why would an executive who became Hollywood’s top talent agent want to become a manager?

Ovitz declined to comment, but for many people in Hollywood, the answer is simple. These days, managers, not agents, have moved to the center of the action in Hollywood.

“He’s coming in at the beginning,” said Joan Hyler, a former agent who is now a manager. “He correctly knows the temperature of the times. I think he will transform personal management just as he did the talent agency business.”

The key is in the product itself. Unlike agents, managers can establish partnerships with their clients to become producers of their TV programs and films. That means millions of dollars in production revenues go to them instead of outside producers.

“It’s a bona fide way of creating great wealth,” Hyler said.

And unlike an agent’s standard 10 percent commission, a manager’s fee can soar to 15 percent, sometimes 25 percent. There even have been instances in which half of a client’s check has gone to a manager.

Talent agents, unlike managers, are licensed by the state of California and only agents can make employment deals. But they claim that managers are poaching on their turf.

“That’s illegal,” said one agency official. “They are supposed to guide a career but when they procure employment, they are interfering in our business.”

It may be illegal, but such transgressions are the way business is being done in Hollywood, where not only personal managers make deals but so do entertainment attorneys.

“The laws serve a good purpose, but it ignores the realities of the entertainment industry,” said attorney Rick Joseph. “If there weren’t managers and lawyers making deals, a lot of young talent wouldn’t have any representation.”

Because he controls top stars, a manager can leverage himself into a production position, even if he is not qualified. Managers also can shop for the best deal not for the client, but for themselves.

“We have allowed this infection to afflict the business,” said a TV producer who declined to be named. “Actors and writers and directors are being sold down the river by people who are paid to represent their best interests.”

Such tactics have become the focal point of a $100 million lawsuit filed by Garry Shandling against his former manager Brad Grey, whose long client list of top stars has made him one of the most powerful managers and producers in Hollywood. At one point, Grey had eight TV series on the air, including two current shows, “NewsRadio,” which starred his client Phil Hartman, and “Politically Incorrect,” which stars another client, Bill Maher.

Grey also was executive producer of “The Wedding Singer,” which starred his client Adam Sandler.

In his suit, Shandling alleges that Grey hurt “The Larry Sanders Show” by raiding its staff of writers for “NewsRadio.”

Moreover, the suit alleges that Grey, as Shandling’s manager, negotiated excessive fees for himself and did little as a producer.

Grey, who declined comment, has denied the charges and filed a $10 million counter suit charging Shandling with causing delays and firing valuable writers. Shandling declined comment.

Jose Millan, California state labor commissioner, said through a spokesman that he has no jurisdiction to regulate personal managers. Even so, if a personal manager were caught obtaining employment for a client, he or she would be forced to return all commissions to the client, according to California law.

Why have personal managers gained such clout? They filled a void.

“Agents abdicated a certain aspect of the business, personal guidance for the client,” said one former agent turned manager. “They have created a role for the managers.”

The key attraction is the personal attention a manager gives his client. That can be accomplished because managers have small client lists and are willing to gamble on young stars whose careers have not yet taken off.

“In the late ’80s and early ’90s, managers went to film schools and Sundance (film festival) and signed people who none of the big agencies would touch,” said Hyler. “They were too busy with the Stallones and Schwarzeneggers.”

Entertainment attorney Joseph said managers surfaced because many young performers can’t get agents until they become successful. “Agents don’t want to know about talent until they reach a certain level,” he said. “They don’t want to know about a band until they have a record deal.”

A TV producer who specializes in movies of the week said managers are often helpful in jump-starting careers that have stalled, something that a busy agent might not be able to do. “If you are stuck in the mud and someone gets you out, it is worth paying them their percentage,” he said.

Ironically, managers’ and agents’ goals are supposed to be similar the client’s career and most work together for that goal.

“The optimum is that you all work in concert the lawyer, the business manager, the agent, the manager to create the best circumstance for the client,” said another former agent turned manager who asked not to be named. “It breaks down when one party is not doing his job and that creates the friction.”