Disney Faces Lawsuit for Withholding Profits from 'Avatar' Sequel Financier
Accusations of Breach of Contract and Financial Deception
TSG Entertainment, a prominent Hollywood financer, has filed a lawsuit against Disney, alleging breach of contract and financial transgressions. The lawsuit, filed in Los Angeles Superior Court, claims that Disney and its subsidiary, 20th Century Fox, withheld profits and engaged in deals to boost their streaming platforms and stock price, depriving TSG of necessary funds for film investments and stake sales.
Co-Financing Films and a Significant Investment
TSG Entertainment is known for co-financing the production and marketing costs of films in exchange for a share of the defined gross receipts after the film's release. Over the years, TSG has co-financed approximately 140 films produced by 20th Century Fox, including the highly anticipated "Avatar: The Way of Water." Since 2012, TSG claims to have invested around $3.3 billion in the studio's content.
Allegations of Underpayment and Accounting Tricks
Concerned about declining profits, TSG requested an audit of three films it financed for 20th Century Fox. The audit allegedly uncovered "rampant self-dealing" and "accounting tricks" within the books, leading TSG to believe it had been underpaid by at least $40 million. The lawsuit characterizes this as an attempt by Disney and Fox to deprive TSG of hundreds of millions of dollars.
Questionable Licensing and Distribution Fees
TSG claims that Fox licensed the Academy Award-winning film "The Shape of Water" to its own channel, FX, for $4 million less than the agreed-upon output agreement. Furthermore, the audit revealed that TSG had not been credited with the revenue it should have received and was charged millions of dollars in distribution fees not covered by its revenue-participation agreement.
Representation and Impact on Potential Profits
TSG is represented by John Berlinkski of the law firm Bird Marella, known for his involvement in high-profile cases. The lawsuit argues that Disney's recent deal with Warner Bros. Discovery, which waived exclusivity to HBO and the Max streaming service for smaller license fees, directly impacted TSG's potential profits. Additionally, TSG claims that its attempts to sell its stake in other funded films were denied, leaving them without the financial resources to invest further.
Consequences and Alleged Scheme
As a result of these actions, TSG asserts that its share of defined gross receipts was significantly reduced, hindering its ability to generate liquidity for future productions and undermining the benefits of its agreement with Fox. The lawsuit alleges that this scheme triggered a provision entitling Fox to a 50% share of TSG's profits after the winding-up of TSG's investment vehicle.
In summary, TSG Entertainment's lawsuit against Disney sheds light on allegations of profit withholding and deceptive practices. The outcome of this legal battle could have significant implications for the entertainment industry and the relationship between financers and studios.
Implications for New Businesses: A Hot Take
The lawsuit filed by TSG Entertainment against Disney presents a stark warning for new businesses entering partnerships or contracts. The allegations of breach of contract, financial deception, and profit withholding highlight the importance of transparency, ethical business practices, and maintaining a strong legal framework.
Importance of Clear Contractual Agreements
TSG's experience underscores the necessity of clear, comprehensive contractual agreements. New businesses must ensure their contracts are well-drafted, outlining all terms and conditions, including profit sharing and licensing agreements, to avoid potential disputes.
Financial Transparency and Ethical Practices
The allegations of underpayment and "accounting tricks" emphasize the need for financial transparency and ethical practices. New businesses should prioritize maintaining clean financial records and conducting regular audits to ensure fair dealings.
Impact on Business Relationships and Reputation
The legal battle between TSG and Disney could potentially damage both parties' reputations. New businesses should be aware of the long-term impacts of such disputes on their relationships with partners and their overall market reputation.
In conclusion, the TSG-Disney lawsuit serves as a lesson for new businesses on the importance of contractual clarity, financial transparency, and ethical business practices. It's a reminder that while pursuing profitability is important, maintaining integrity and fairness in all dealings is crucial for long-term success.