“No Conflict, No Interest” –Ari Emanuel, WME co-CEO, 2015 How the Major Hollywood Talent Agencies Put Their Interests Ahead of Their Clients’ Interests Introduction Talent agencies have represented Hollywood actors, writers, and directors for almost a century. But what began as a service to artists in their negotiations with film studios has become a cartel dominated by a few powerful agencies that use their control of talent primarily to enrich themselves. Today, the major Hollywood agencies make money not by maximizing their clients’ earnings and charging ten percent commission, but through direct payments from studios known as “packaging” fees, which are unrelated to their clients’ compensation and come directly from TV series and film production budgets and profits. More recently, an even more overt form of conflict has taken root. The largest talent agencies have themselves formed production entities that hire and employ their own clients. These conflicted practices systematically favor the interests of the major agencies at the expense of their clients, and constitute a violation of fiduciary duty under multiple bodies of law. During a period of unprecedented prosperity for the major media companies, these conflicts have contributed to declining writer pay. In each of the last three years, the companies that dominate the entertainment industry—Disney, Fox, Time Warner, Comcast, CBS, and Viacom—generated more than $50 billion in operating profits. Meanwhile, television writer-producers’ median weekly earnings declined 23 percent between 2014 and 2016. Conflicted practices have driven agency profits, attracting billions in investments from private equity firms and institutional investors that now own majority stakes in the two largest agencies, William Morris Endeavor (WME)1 and Creative Artists Agency (CAA), and have a minority stake in the third, United Talent Agency (UTA). The influx of capital has fueled expansion efforts into sports ownership, marketing and advertising, investment banking, and content production and distribution. With these agencies increasingly representing companies that employ clients, and even becoming the employer themselves, conflicts of interest are at the heart of the dominant agencies’ business model. This fact is not in dispute, as 1 co-CEO of WME Ari Emanuel said in 2015 of his agency’s operations, “No conflict, no interest.”2 More recently, Emanuel was quoted in The Telegraph stating, “If you don’t have a conflict you don’t have a business.” 3 While the major agencies have pursued growth through conflicts of interest, these practices contravene how agents are required to act under state and federal law. When representing clients, agents act as fiduciaries, who have specific responsibilities under the law in California and virtually every other state. A fiduciary is a person to whom power is entrusted on behalf of a client, giving the fiduciary a duty “to act loyally for the principal’s benefit” and requiring that the fiduciary “subordinate [its] interests to those of the principal and place the principal’s interests first.”4 Whether negotiating directly with a studio for their own compensation or becoming a producer-employer, the major agencies are clearly not abiding by the standard of fiduciary duty required under the law. This report provides an overview of talent agency representation in Hollywood and details the extent to which the major agencies’ business model is based on conflicts of interest that harm their clients and violate the law. It shows how, by maximizing their own profits and now the profits of their outside investors, these agencies have strayed from their core purpose of representing the interests of their clients. 2 Talent Representation: Conflicted Agencies In Control The primary responsibility of talent agents in Hollywood is to help clients procure employment and to negotiate an individual client’s compensation above the minimum rates established by an applicable collective bargaining agreement.5 In a freelance industry, where talent may hold multiple jobs in a single year and work on dozens of television and film projects over their careers, agents help identify job opportunities. What Is a Fiduciary? What is the role of a fiduciary? u To represent the interests of a client (or “principal”) with a legal and moral obligation to put the client first. What are a fiduciary’s obligations regarding conflicts of interest? u A fiduciary is expected to refrain from acting for his/her private advantage or otherwise contrary to the interests of his/her client; the fiduciary should fully, without compromise, assert the complete and unmitigated interest of the client. How are agents fiduciaries? u Talent agents owe fiduciary obligations to their clients under state and common law principles. What are the penalties for violating fiduciary duty? u Penalties can include compensatory and punitive damages, as well as professional sanctions such as loss of license. In California, only agents who are licensed by the state can legally help individuals procure employment in the entertainment industry. Talent agents are “fiduciaries” under general agency principles found in the common law and in the statutes of virtually every state, including California 6 and New York.7 Fiduciaries are required to refrain from acting for their own advantage, or otherwise contrary to the interests of their client, and to assert, without compromise, the complete and unmitigated interest of the client. The laws governing this relationship prohibit fiduciaries from having any self-interest adverse to a client’s interest, unless the conflict is fully disclosed and the client chooses to accept it. Hollywood talent agencies today engage in pervasive practices that place the agencies’ interests in conflict with their clients’ and rarely, if ever, disclose the existence or extent of the conflicts, thereby violating their fiduciary obligations. Talent Agencies Today Over 100 agencies represent members of the Writers Guild of America West and its sister union, Writers Guild of America East (jointly, WGA), but consolidation among several large agencies over the past two decades has created an oligopoly of four agencies that control the representation business in Hollywood. Together, William Morris Endeavor (WME), Creative Artists Agency (CAA), United Talent Agency (UTA), and International Creative Management Partners (ICM) account for more than 75 percent of WGA member earnings. It is also the case that the largest talent agencies are no longer primarily owned by their agent-partners. Their control of the rep3 “The light went off for me that this is not only an agency, it is a content play because of their extraordinary access to a very large pool of content.” 8 Investment Board (PSP Investments), a pension investment manager, had invested $200 million into the agency.17 Jim Coulter, TPG co-founder resentation business, their access to key film and television talent, and the lucrative revenue stream of packaging fees have attracted outside investors. As a result, the largest outside shareholders of the top three agencies are now private equity firms that expect strong returns on their investments. This trend began in 2010, when private equity firm Texas Pacific Group Capital (TPG)9 purchased a 35 percent stake in CAA for $165 million.10 TPG then invested an additional $175 million, with $50 million more committed for further acquisitions, increasing its stake to over 50 percent.11 Foreign investors added more than $100 million, for a total of over $440 million invested to date in CAA.12 Using this new cash, the two largest agencies have accelerated expansion and diversification, transforming themselves from businesses focused on client representation into global media and entertainment conglomerates. WME and CAA now own or have stakes in investment banks, consulting firms, venture capital firms, marketing and advertising agencies, production companies, and sports leagues and tournaments. They negotiate licensing agreements in sports, sell feature films, and work with corporations and celebrities to manage and license their brands across various platforms. The capital from private equity and other investors has also facilitated WME’s and CAA’s expansion into content production and ownership. Both CAA and WME are now financing and producing feature films and scripted series for television and online platforms, either through direct investment or partnerships with traditional content producers. UTA is the latest entrant, announcing a joint venture to finance and produce TV series with Valence Media and its subsidiary, Media Rights WME has followed a similar path. In 2012, private equity firm Silver Lake Partners acquired 31 percent of WME for $250 million, and has subsequently invested approximately $500 million more.13 WME has also received approximately $1.8 billion in investments from pension funds, institutional investors, and sovereign wealth funds,14 including a $400 million investment from Saudi Arabia that WME announced it would return following the murder of Washington “We were intrigued by CAA because they’re in Post journalist Jamal Khashoggi.15 the middle of the ferment that’s going on in this In total, roughly $3 billion in outside industry, but they’ve been brokers instead of capital has been invested into WME principals, and we think they have plenty of opand CAA.16 More recently, UTA has portunities to be principals.” 18 followed suit, announcing in August 2018 that private equity firm InvestDavid Bonderman, TPG co-founder corp and Public Sector Pension 4 Conflicted Representation: Packaging Capital, in October 2018. As a result of this expansion, three of the four biggest agencies have now become content producers, in effect employers of their own clients. The result of this outside investment and expansion is a representation business dominated by talent agencies that are focused on increasing agency and affiliated operations’ revenue and profit for the benefit of private equity owners, a pursuit that is far afield from the fiduciary duty owed to agency clients. the show.22 This model is known as 3/3/10: 3 percent of the series license fee upfront (an amount which may be negotiated or imputed), 3 percent of the license fee deferred, and 10 percent of defined profits. Agencies Paid Directly by Their Client’s Employer Packaging is an historical practice with roots in radio and the early days of television, when agencies provided both talent and program sponsors and took a percent of revenue. The WGA has long had concerns about the conflict of interest inherent in an agency receiving compensation directly from a client’s employer and expressly reserved its objections to the practice in its 1976 Artists’ Managers Basic Agreement (AMBA), which regulates the way agencies represent TV and film writers. Since that time, however, agency consolidation and the increased market power of the oligopoly agencies has led to the packaging of nearly all television and online series. According to WGA research, almost 90 percent of scripted series in the 20162017 television season were packaged, with WME or CAA involved in 80 percent of those packaged series.23 When a writer creates a television series, instead of the agency commissioning ten percent of the writer’s pay, the agency negotiates its own compensation directly from the studio producing the series through what is known as a “package” or “packaging fee.” The standard packaging fee consists of three parts: an upfront fee of approximately $30,000 to $75,000 per episode that is paid out of the production budget; an additional $30,000 to $75,000 per episode that is deferred until the series achieves “net” profits, if any;20 and a percentage of the TV series’ “modified gross” profits 21—usually ten percent—for the life of Through packaging, an agency can collect tens of millions of dollars from a successful series it played little to no role in creating or producing. The agency collects its packaging fee regardless of how much its clients make, and even collects higher profits if the series’ costs—including its own clients’ compensation—are lower. This practice leaves the agency with significantly less incentive to increase any individual client’s compensation or otherwise advocate on their behalf. Writers have felt the consequences of this conflict through declining compensation. WGA surveys have “So they hated when [an agent] sold a writer to somebody that wasn’t a package, even though selling a writer to somebody else might have been better for the client’s career… Inside CAA it was always about package über alles [translation: package above all]—that was literally a phrase.” 19 David Greenblatt, former CAA agent Packaging: 5 found that the median weekly compensation for writer-producers declined 23 percent between 2014 and 2016. The surveys have also revealed declines in the per-episode fees that agents negotiate for television writer-producers. According to WGA data, these per-episode fees are barely higher than they were in the late 1990s, and have actually declined when adjusted for inflation. fees from some producers, financiers, and film sales companies for access to agency clients’ projects, or demand the right to represent the project for distribution and collect another fee for that service. A packaging fee of five percent of the film’s budget or a cut of the film’s distribution sales can substantially outweigh agency income from the ten percent commission, which provides the agency with a greater incentive to ensure the project Once an agency has negotiated its pack- moves forward rather than to increase their aging fee, the agency collects the fee for the client’s compensation. life of the series and sometimes from spinoffs or related productions. For example, in a Conflict of Interest in Practice recently filed lawsuit over packaging fees on Packaging is harmful to clients and viothe new MacGyver series, the successor to lates agents’ fiduciary duty. The key incenthe agency that packaged the original 1985 tive for an agency to increase its clients’ series (Major Talent Agency, or MTA) claims pay is the alignment of agency and client it is owed a percentage of the network li- pay through a ten percent commission cense fee on the rebooted series, despite structure; because agency packaging fees acknowledging that “there is no requirement are unrelated to their clients’ compensain the 1984 agreement that MTA perform any tion, that incentive is substantially weakservices, or be requested to perform any ened. Instead of negotiating for the client, service, in order to receive the payments.” 24 as a proper fiduciary should, packaging The major agencies have made packaging their introduces direct negotiations between dominant form of compensation in television the agency and the client’s employer over because the practice can generate significantly how much the agency will be paid. Talent more money than a traditional ten percent com- agencies use their representation of televimission.25 As former CAA agent David Green- sion series creators as leverage to improve blatt noted regarding the agency, “They were their own compensation, a fundamental via big fan of packaging, because packaging [is olation of the agent’s fiduciary duty. Clients where] you make all your money.”26 are told few, if any, details about their agency’s packaging compensation, another asThe practice of packaging is not limited to pect of the system that violates fiduciary television. The major agencies also extract obligations. Several lawsuits and numerous packaging fees from independent films, tak- writer accounts have revealed information ing a percentage of the film’s budget or fi- about these opaque practices and brought nancing, in addition to charging ten percent the harms of packaging to light. commission on their clients’ earnings. On top of this, the agencies seek to charge retainer 6 CAA and Head of the Class Michael Elias and Richard Eustis, creators of the hit 1980s television series Head of the Class, sued CAA in 2011 for breach of fiduciary duty when they discovered that the agency had received a greater share of the TV series’ profit than they had. In the lawsuit, Elias and Eustis stated that after the initial success of the show, they had asked CAA to renegotiate an improved profit definition for them, one based on a percentage of “gross” profits (as opposed to a “net” profits definition which deducts more costs). According to the writers, CAA reported it was unable to make that gain. The lawsuit revealed that CAA had a superior profit definition, which actually reduced the profit available to the show’s creators.27 According to Elias and Eustis, CAA never disclosed these facts, but was nevertheless paid more than $12 million in upfront fees and profit payments and received more in profit than the creators CAA Receives More Than Clients in Profit Participation CAA’s profit participation statement from June 2009 for the Head of the Class pilot and series reveals that the agency received over $12 million, including $8.8 million in profit compared to the $8 million received by the creators. 7 who worked on the series’ five seasons series, as well as on the spinoff Fear the and were responsible for its success.28 Walking Dead.29 CAA and The Walking Dead Emails produced in subsequent litigation CAA represented Frank Darabont, a well- reveal that before Darabont’s contract for The known writer-producer, in his deal with AMC Walking Dead was finalized and signed, CAA Network to develop, write, direct, and pro- representatives were negotiating on their duce The Walking Dead, which he did until own behalf with AMC over the amount of he was fired during production of the second CAA’s package fee and whether they would season. CAA leveraged its representation of receive a package fee on future subsequent Darabont to secure a packaging fee on the productions.30 The correspondence puts 8 the lie to the notion that packaging is done for the benefit of agency clients. Instead, it confirms that packaging allows the major agencies to use demand for their clients for their own financial benefit. it definition that is based on its client’s MAGR (modified adjusted gross receipts) definition, but the agency’s share of profits is actually paid before its client’s as an “off-the-top deduction.” This means that CAA’s share of profits reduces the pool of profit available to The emails (below and on preceding page) its client. Further, CAA’s client receives no lay bare the conflict inherent in packaging. benefit if the agency negotiates a packaging Not only does CAA get to benefit from a prof- fee on a spinoff of the series. 9 In addition, Darabont’s profit participation deal required him to “vest” his share in stages by working on the series for a prescribed period of time.31 No such requirement applied to CAA. Moreover, CAA continued to profit from their packaging fees, even negotiating for increased fees in subsequent seasons after Darabont was fired from the show.32 William Morris Agency and Who Wants to be a Millionaire Packaging, and the conflict of interest inherent in the practice, is harmful to agency clients across the board—including production companies—as demonstrated by the lawsuit over the ABC game show Who Wants to Be a Millionaire. When UK company Celador sold the North American rights to its successful game show Who Wants to Be a Millionaire? to ABC and Buena Vista Television (two Disney subsidiaries) in 1998, WME-predecessor William Morris Agency (WMA) represented both Celador and the two Disney entities in the negotia- 10 tion without informing Celador, and negotiated a packaging fee for itself.33 The lack of disclosure likely constituted a violation of WMA’s fiduciary duty. Once the show became a huge hit, however, WMA negotiated an increase to its own packaging fee, reportedly without informing Celador or offering to renegotiate Celador’s deal.34 Despite the runaway success of the American version of the game show, Celador received little in profit and was ultimately forced to sue the Disney subsidiaries for breach of the agreement negotiated by WMA. A jury awarded Celador more than $300 million after it was revealed that ABC had paid its related company Buena Vista Television an artificially low license fee in order to retain more of the show’s profits and deprive Celador of its appropriate share.35 During the court case, the lawyer representing the Disney companies stated, “If [Celador is] unhappy with the deal that was negotiated on their behalf, the answer lies in William Morris.” 36 Writer Stories In addition to these lawsuits, numerous writers have shared experiences that demonstrate how packaging drives agencies to put their own interests first, to the detriment of their clients at all levels of the industry—from series creators to writers working on the staff of a TV series. These experiences reveal that packaging not only takes money away from the TV series but can even lead agencies to drive down their clients’ compensation.37 u “I put an entire show together, but I didn’t want my agency to get the package. In the end, they held the deal hostage and I had to cave to get the project through. Every network I showed the project to made a bid on my show. I wanted it to go to one network, but my agent thought they’d get a bigger package if they went with another network, so they sold the package to them. My agent told me that there was a bigger penalty [guaranteed payment if the show isn’t made] with the network they preferred, but I found out later that wasn’t true. Then, a network executive told me that my agency was holding the project hostage with the packaging fee. My agency was not representing my best interest—they were representing theirs.” —WGA Writer, 2018 u “My agency did nothing to help me get my project going. They didn’t even set the meeting at the company I sold my show to. I had no idea it was packaged until I saw the line item in my budget and I was totally taken aback. I had been struggling to figure out how I could hire more writers and compensate them fairly and the agency packaging fee could have paid for three more writers. My budget was stretched so thin that I could only hire a skeleton crew and shoot in a warehouse with questionable conditions. It was so bad that I cut my own fees to put money on the screen and better take care of my crew. And as I was doing this, I found out from the studio that my agency had been calling to improve their own compensation. While I was working more for less, the agency wanted a bigger packaging fee.” —WGA Writer, 2018 u “My current show is not packaged. One of the producers on the show is represented by an agency who assumed they would split the packaging fee.38 When this other agency found out they wouldn’t be getting a package fee, the agent called to scream at me. He said, ‘We don’t make our money off the ten percent.’ He went on to assure me that they ‘earn’ their share of the package, citing the fact that he had gotten his client (not a writer) to accept a fee substantially below his quote. The agent was bragging about harming their own client. That’s what the incentives created by packaging and conflicts of interest do to writers.” —WGA Writer, 2018 u “As a showrunner, I have had my agent come to me and say, basically, ‘Since we’re packaging this, we can help you out with some of our clients. This writer has a $20,000 quote, but I think I could get them for $14,000.’ And then the agency would turn around and sell it to that writer by telling them they’re saving money not paying commission, or that the writer will get a title bump in the second year. But it’s because the agency is taking out their packaging fee that there isn’t more room in the budget.” —WGA Writer, 2018 11 Conflicted Representation: Producing Producing: develop, and produce scripted series. Endeavor Content is set to be the producer or Your Agent Becomes Your Employer Fueled by billions of dollars from pri- co-producer for at least ten scripted televate equity and other investors, the three vision and online series such as Are You largest talent agencies—WME, CAA, and Sleeping on Apple and Half Empty on AmUTA—have recently expanded into pro- azon, and has produced or financed films 41 ducing and owning content. No longer such as Book Club and Icebox. satisfied with collecting lucrative packCAA and its private equity owner, TPG, aging fees, these agencies now intend to develop, finance, and produce series for are similarly expanding into content protelevision networks and digital platforms duction. In 2017, CAA launched a $150 like Netflix and Amazon. Doing so would million film fund with Chinese company 42 allow the agencies to capture an even Bona Film Group and established a studio 43 greater share of profits while at the same called Wiip, which is producing several 44 time increasing the conflicts between scripted series for Facebook and Apple. agencies and their clients, who will now TPG is invested in a TV studio called Plat45 become employees of their own agencies’ form One Media, digital media company 46 production arms. This is a clear violation Vice, and STX Entertainment, a film and 47 of the fiduciary duty owed to clients, who TV finance and distribution company. simply cannot be properly represented in contract negotiations by an agency that is affiliated with their employer. UTA is the most recent agency entrant into content production following private equity investment in August 2018. In October 2018, UTA announced a joint venture Agencies As Producers In 2014, WME acquired Internation- with independent studio Media Rights Capal Management Group (IMG), a glob- ital (the producer of House of Cards) called al sports and entertainment company Civic Center Media, which will develop, 48 that represented athletes; staged sport- produce, and finance television series. ing, arts, and fashion events; and produced and distributed sports, reality, and entertainment programming.39 “Who are you representing? Do This acquisition marked WME’s entry into you have [the writer’s] back or content production and distribution. In 2017, WME announced the creation of a your back?... How do you have new division, Endeavor Content, which both backs?” 49 finances and produces content.40 Also in 2017, WME acquired a majority stake Bryan Besser, Verve co-founder in Bloom, a film production, finance, and and partner sales company and announced a partnership with Chernin Entertainment to finance, 12 Conflict of Interest in Practice In addition, talent agency expansion Talent agencies launching production into production raises a number of unfair companies that employ their own clients competition concerns, the very concerns creates an indefensible conflict of interest. that lay at the heart of the Justice DepartActing as an employer and representing a ment’s 1962 antitrust case against MCA, client in salary negotiations are fundamen- the largest agency-producer of its day. tally at odds: an employer’s incentive is to An agency that produces content can use maximize its profits and keep labor costs the leverage it gains from this vertical inlow, while the agency is duty-bound to get tegration to harm both agency and producing competitors. For instance, talent the best deal it can for its client. represented by competing agencies may be Agencies as Producers Creates Numerous foreclosed from access to employment at the Conflicts that Harm Talent: agency-produced projects. As a result, talent u An agency-producer has the incentive to keep may leave competing talent costs low in order to increase profits, in diagencies for fear of losrect violation of an agent’s fiduciary obligation to ing job opportunities, negotiate the best compensation possible for the further increasing the client. While the agency-producer may decide to power of these domigive a TV series creator a more lucrative deal to nant agencies. Studios ensure the project is produced by the agency, the and production compaincentive to control costs will put pressure on comnies could find thempensation for the rest of the writing staff and others selves in direct competiworking on the series. tion with the entities that control access to the u An agency may not present outside employtalent needed to make ment offers to its client because it wants the client film and television projto work on an agency production. ects. Agency-producers have a strong incentive u If an agency-producer has a dispute with a clito withhold talent from ent—over pay, hiring, or creative differences—the competing employers client has little recourse or protection. because it will benefit their own production u An agency-producer may compete against its business. own clients for access to intellectual property, key talent, or funding from a television network or online platform. 13 Agency Producing Prompts Federal Action: The Case of MCA MCA (Music Corporation of America) began as a music talent agency in the 1920s, and expanded into representing film talent in the 1930s. Over the next several decades, it grew through acquisitions of competing agencies until it was judged to have “the largest list of the most important name talent in the United States and…Great Britain.” MCA also expanded into producing television and film, eventually try- Conclusion The fundamental duty of a talent agency is to represent the interests of its clients. This report reveals how far the dominant agencies have strayed from this mission. With private equity owners that demand strong growth and sizeable returns on their investments, the largest agencies are focused on increasing their bottom lines, often at the expense of their clients. As the agencies expand and diversify, conflicts compound. ing to acquire 80 percent of Universal Studios’ parent, Decca Records. MCA’s growth and dominance attracted the attention of the U.S. Department of Justice, the government agency responsible for enforcing federal antitrust laws. The Justice Department filed an antitrust lawsuit against MCA, alleging that MCA’s dominance as both a talent agency and a producer constituted an unlawful restraint of trade, harming competing agencies, competing producers, and talent, including MCA’s talent, “by virtue of MCA’s conflicting interests arising from its dual position as talent agency and television film producer.” In order to resolve the case, MCA agreed to divest its talent agency business in 1962.50 14 For film and television writers, this system of conflicted representation is no longer acceptable. Under federal labor law, the WGA has the exclusive right to delegate representation of writers to talent agencies, meaning the union has the right to regulate how agencies represent its members. The WGA has proposed terms of a new agency agreement that would restore the proper fiduciary relationship between talent agencies and their writer-clients by tying agency compensation to client compensation through a ten percent commission structure, and by prohibiting the conflicted agency practices of packaging and producing. The current authorization for WME and CAA and other franchised agencies to represent WGA members expires in April 2019. The talent agencies will soon have to choose between their conflicted practices and representing talent for the proper ten percent commission. Endnotes 1 This report refers to the holding company currently doing business as Endeavor and its subsidiaries collectively as WME, except where a specific subsidiary is identified by name. 2 Christopher Clarey, At Wimbledon, a Power Broker Gambles to Reassert Its Marketing Magic, The New York Times (June 28, 2015), https://www.nytimes. com/2015/06/29/sports/tennis/at-wimbledon-imggambles-to-reassert-itself-with-william-morris.html. investor/TWMconsolidated_106Q1_e.pdf. 13 William D. Cohan, The Inside Story of Ari Emanuel’s Big, Risky WME-IMG Merger, Vanity Fair (Mar. 2015), https://www.vanityfair.com/news/2015/02/ wme-img-merger-ari-emanuel; Matthew Garrahan, Silver Lake looks to turn WME into gold, Financial Times (Nov. 21, 2014), https://www.silverlake.com/ Images/Uploads/docs/Silverlake20111709432928705.pdf. 14 3 Christopher Williams, Endeavor’s Ari Emanuel goes from Tinseltown power broker to global mogul with deal after deal, The Telegraph (Oct. 7, 2018), https://www.telegraph.co.uk/business/2018/10/07/endeavors-ari-emanuel-goes-tinseltown-power-broker-global-mogul/. 4 Restatement (Third) Of Agency §8.01 (2006). 5 Every three years, the WGA negotiates a collective bargaining agreement with major Hollywood studios to establish minimum rates of pay for television and feature film scripts as well as residual compensation, health care and pension benefits. Gene Maddaus, WME-IMG to Receive $1.1 Billion Cash Infusion, Variety (Aug. 2, 2017), https://variety.com/2017/biz/news/silver-lake-wme-img-1-1billion-investment-1202513182/; James Rainey, WME-IMG Lands $55 million Investment from Fidelity, Variety (Apr. 20, 2016), https://variety.com/2016/ film/news/wme-img-fidelity-management-investment-1201757635/; Press Release, Canada Pension Plan Investment Board, Canada Pension Plan Investment Board Invests US$400 Million in WME-IMG (Aug. 2, 2017), https://www. cppib.com/en/public-media/headlines/2017/cppib-wmeimg/; Ann Williams, GIC, Canadian fund to invest US$1b in powerhouse Hollywood agency WMEIMG, The Straits Times (Aug. 3, 2017), https://www.straitstimes.com/business/ companies-markets/gic-canadian-pension-fund-to-invest-us1b-inpowerhouse-us-entertainment. 15 California Civil Code §2322(c) and California Probate Code §16002; see also Arnold, et al. vs Triad Artists, Inc., No. TAC 40-91 at 6-7 (Cal. DLSE Feb. 20, 1992). Trey Williams, Endeavor to Exit $400 Million Saudi Arabia Investment Deal, The Wrap (Oct. 15, 2018), https://www.thewrap.com/endeavor-exit-400-million-saudi-arabia-investment-deal/. 7 16 6 See ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995 (2d Cir. 1983). George Harrison’s business manager was found to have acted as his agent, indicating a fiduciary obligation under New York law. This total includes the $400 million from Saudi Arabia, which WME has announced it will return. 17 James Andrew Miller, Powerhouse: The Untold Story of Hollywood’s Creative Artists Agency at 619 (2016) (“Powerhouse” ). Cynthia Littleton, UTA Sells Minority Stake to Investcorp and PSP Investments, Variety (Aug. 7, 2018), https://variety.com/2018/biz/news/uta-jaysures-david-kramer-1202896205/. 9 18 Powerhouse at 617-18. 19 Powerhouse at 169. 8 This report refers to TPG and its various investment arms and funds collectively as TPG unless otherwise noted. 10 Content regarding private equity and other investments is based on available information and may be incomplete; financial information is approximate. 11 Josh Rottenberg, Wall Street Investors to Hollywood Talent Agencies: ‘Show Us the Money’, The Los Angeles Times (July 10, 2015), https://www.latimes. com/entertainment/envelope/cotown/la-et-ct-talentagencies-private-equity-20150710-story.html; Moody’s Investors Service Rating Action, Creative Artists Agency, LLC: Moody’s assigns Creative Artists Agency a B2 CFR and assigns ratings to new credit facility; outlook stable (Nov. 21, 2014), https:// www.moodys.com/research/Moodys-assigns-Creative-Artists-Agency-a-B2CFR-and-assigns--PR_313397; Moody’s Investors Service Credit Opinion, Creative Artists Agency, LLC: Update to Discussion of Key Credit Factors (Nov. 9, 2017). In 2014, TPG invested another $75 million into CAA and committed another $150 million for possible acquisitions; $50 million remained on standby as of November 2017. 20 “Net” profits generally refers to gross receipts after the deduction of costs including the cost of production, distribution fees, distribution expenses, interest, overhead, and third party participations. The fees associated with distribution, interest, and overhead are typically higher under a net profit definition than a gross profit definition, thus reducing the likelihood of a profit. 21 “Gross” profits generally refers to modified adjusted gross receipts, which is computed by deducting distribution fees, distribution expenses, the cost of production and other expenses from gross receipts. 22 This is referred to as the 3/3/10 model: 3 percent of the series license fee upfront, 3 percent of the license fee deferred, and 10 percent of profits. 23 Out of more than 300 WGA-covered scripted series. 12 Lisa Wang, Taiwan Mobile Co Invests in Creative Artists Agency, Taipei Times (Oct. 6, 2017), http://www.taipeitimes.com/News/biz/archives/2017/10/06/2003679790; Taiwan Mobile Co., Ltd. And Subsidiaries, Consolidated Financial Statements for the Six Months Ended June 30, 2017 and 2016 and Independent Auditors’ Review Report, https://english.taiwanmobile.com/english/upload/investor/TWMconsolidated_106Q2_e.pdf; Taiwan Mobile Co., Ltd. And Subsidiaries, Consolidated Financial Statements for the Three Months Ended March 31, 2017 and 2016 and Independent Auditors’ Review Report, https://english.taiwanmobile.com/english/upload/ 24 Complaint, Hanzer Holdings and Arlita, Inc. v. CBS Studios, Inc. (Cal. Super. Ct. 2018). 25 Powerhouse at 168-169. 26 Powerhouse at 168. 15 27 Exhibits 16 and 18 to the Plaintiff’s Compendium of Evidence (July 11, 2011) in Elias v. Creative Artists Agency (Cal. Super. Ct. 2011). 28 Exhibit 18 to the Plaintiff’s Compendium of Evidence (July 11, 2011) in Elias v. Creative Artists Agency (Cal. Super. Ct. 2011). 29 Sept. 25, 2015 Deposition of Daniel Grover, CAA Co-Head of Business Affairs at 16-19, 53, 81-83 in Darabont v. AMC Network Entertainment LLC, 128 A.D.3d 472 (N.Y. 1st Dep’t 2015) (“Grover Deposition”). 30 Exhibit AAA to the Affidavit of Aileen Candace Frazier In Support of Defendants’ Motion for Summary Judgment (July 12, 2017) in Darabont v. AMC Network Entertainment LLC, 128 A.D.3d 472 (N.Y. 1st Dep’t 2015). 31 Ted Johnson, ‘Walking Dead’ Lawsuit: Frank Darabont Can Move Forward on Added Claim, Variety (Feb. 9, 2016), https://variety.com/2016/tv/news/walking-dead-lawsuit-frank-darabont-1201701086/. 32 Grover Deposition at 61-63, 80-87. 33 Transcript of June 3, 2010 Trial Proceedings, Celador CEO Paul Smith in Celador Int’l v. Walt Disney Co., 347 F.Supp.2d 846 (C.D. Cal. 2004). 41 Mike Fleming Jr., Endeavor Content Bolsters TV & Film Ranks, Fully Integrates Global Sales Company Bloom; Alex Walton is EVP, Dan Guando Sr Veep, Deadline (Oct. 10, 2018), https://deadline.com/2018/10/endeavor-content-bloom-alex-bloom-dan-guando-david-greathouse-patrick-mcdonald-lorenzode-maio-1202479929/. 42 Ryan Faughnder, CAA and China’s Bona Film Group Create $150-Million Film Fund, The Los Angeles Times (May 25, 2017), http://www.latimes.com/business/hollywood/la-fi-ct-caa-bona-film-fund-20170525-story.html. 43 Abbreviation of “word.idea.imagination.production.” Rebecca Sun & Jonathan Handel, As Talent Agencies Push to Own Content, Some Creators Cry Foul, The Hollywood Reporter (Sept. 12, 2018), https://www.hollywoodreporter.com/features/talent-agencies-push-production-rankles-wga-someclients-1142009; Delaware Department of State, Division of Corporations Website, Entity Details for “Wiip Development, LLC” (last visitedw Feb. 6, 2019). 44 Joe Otterson, Apple Orders Emily Dickinson Series With Hailee Steinfeld Set to Star, Variety (May 30, 2018), https://variety.com/2018/tv/news/emily-dickinson-series-apple-hailee-steinfeld-1202825290/. 45 Press Release, TPG, TPG Growth and Liberty Global Launch Independent Television Studio, Platform One Media, (July 17, 2017), http://press.tpg.com/ phoenix.zht l?c=254315&p=irolnewsArticle& ID=2286787. 34 Transcript of June 8, 2010 Trial Proceedings, Former WMA Agent Greg Lipstone in Celador Int’l v. Walt Disney Co., 347 F.Supp.2d 846 (C.D. Cal. 2004). 35 Ted Johnson, Court Won’t Consider Disney’s Request for ‘Millionaire’ Verdict Review, Variety (Feb. 26, 2013), https://variety.com/2013/biz/ news/court-won-t-consider-disney-s-request-for-millionaire-verdictreview-1118066585/. Verdict affirmed in Celador Int’l v. Am. Broad. Cos., 499 Fed. Appx. 721 (9th Cir. 2012). Press Release, TPG, TPG Growth to Acquire TRACE, Africa’s Leading Music and Entertainment Company (Jan. 19, 2018), http://press.tpg.com/phoenix.zhtml?c=254315&p=irolnewsArticle & ID=2327496; Michael J. de la Merced, Vice Shows the Perils of the ‘Greater Fool’ Theory, The New York Times (June 11, 2018), https://www.nytimes.com/2018/06/11/business/dealbook/viceshowsthe-perils-of-the-greater-fool-theory.html. 46 47 36 Transcript of June 29, 2010 Trial Proceedings, Attorney Marty Katz on behalf of Walt Disney Co. in Celador Int’l v. Walt Disney Co.(C.D. Cal. 2004). Investors, STX Entertainment, https://stxentertainment.com/investors (last visited Jan. 8, 2019). 48 37 All emphasis added. 38 Sometimes, when different agencies represent the key elements of a package (eg. writers, directors or actors), they share the packaging fee among themselves. 39 Our Story, Endeavor, http://www.endeavorco.com/story/ (last visited Feb. 6, 2019). 40 David Ng, Talent agencies are reshaping their roles in Hollywood. Not everyone is happy about that, Los Angeles Times (Apr. 6, 2018), https://www.latimes. com/business/hollywood/la-fi-ct-talentagencies-20180406-story.html. 16 David Hayes, UTA and Valence Media’s MRC Form TV Production and Finance Venture Civic Center Media, Deadline (Oct. 10, 2018), https://deadline. com/2018/10/uta-valence-media-media-rights-capital-tvproductionfinancing-venture-civic-center-1202480359/. 49 Rebecca Sun, Jonathan Handel, As Talent Agencies Push to Own Content, Some Creators Cry Foul, Hollywood Reporter (Sept. 12, 2018), https:// www.hollywoodreporter.com/features/talent-agencies-pushproduction-rankles-wga-some-clients-1142009. 50 Complaint, United States v. MCA Inc., No. 62-942-WM at 12 (July 13, 1962).