WME Nears Deal With Writers Guild

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Almost 22 months after 7,000 scribes parted ways with their reps amid one of the biggest showdowns in recent Hollywood history, all of the town’s major agencies have now made peace with the Writers Guild of America. The lone holdout, WME, has agreed to terms with the guild.

The deal will allow the Beverly Hills-based talent firm, led by president Ari Greenburg, to represent writers for the first time since April 2019, when the franchise agreement with the guild expired. Endeavor, the parent company of WME, will reduce its ownership stake in film and TV company Endeavor Content down to 20 percent. The talent agency will sunset the practice of packaging fees — in which an agent is paid directly by a studio for attaching talent to a writer’s pitch — by June 30, 2022. Additionally, legal claims that WME has made against the guild will be withdrawn.

“WME and the WGA have agreed to a new franchise deal that addresses writers’ core concerns while recognizing the unique aspects of our business,” stated Endeavor CEO Ariel Emanuel. “Writers have been a part of this agency since our inception, and they will continue to be a part of the lifeblood of WME. We look forward to once again serving as their advocates during this unprecedented time in our industry.”

Writers Guild West president David A. Goodman described the deal as a win for the union, ending “problematic” business practices with regard to its writer clients.

“I’ve said repeatedly no one wanted the agency campaign over more than me, and I’m very pleased that we’ve achieved our goal,” Goodman stated, “the agencies who represent us now have their financial interests aligned with their writer clients, and the agencies problematic business practices such as packaging fees and agency-owned production entities are at an end.  As difficult as this battle was, the simple and just clarity of the goal, that a writer’s agent should make more only when his client does, is what helped us succeed.”

The guild has been striking deals with smaller and midsized firms — as well as major WME rivals like UTA, ICM and Paradigm — over the past year. On Dec. 16, CAA became the latest major talent agency to make a deal, agreeing to reduce its ownership stake in film and TV studio wiip to 20 percent and pledging to provide evidence of the sale to the guild.

Central to the standoff had been the practice of packaging fees as well as affiliate production, in which firms owned by agencies’ parent companies wade into film and TV production. Both practices have been criticized as conflicts of interest by the guild.

WME had been seen as reluctant to agree to terms with the guild given that its parent company, Endeavor, owns film and TV company Endeavor Content. On Sept. 2, the Writers Guild negotiating committee told its members that it was seeking a deal that would require an agency to have no more than 20 percent ownership in a studio. “To be blunt, we’re not going to give them a different and better deal because they waited,” the guild said at the time.

Endeavor, a sprawling sports and entertainment conglomerate which has a 7,500-person workforce, also owns modeling firm IMG, mixed martial arts league UFC and Professional Bull Riders as well as live-events company On Location Experiences. The guild had also been looking for disclosures on how WME and CAA operate with regard to their private equity investors. Private equity firm Silver Lake Partners holds the majority stake in Endeavor.

The move toward an agreement with the Writers Guild follows fellow major talent firm UTA striking a deal with the guild on July 15 and ICM Partners agreeing to terms with the union on Aug. 5. The pacts will sunset the practice of packaging in two years, although UTA kept its involvement in its affiliate production entities but will not exceed a 20 percent cap in ownership. The guild has also made new deals with Verve, A3 Artists Agency, Gersh and other boutiques.

WME, and its parent Endeavor, are operating in a far different landscape in February 2021 than when the standoff began in April 2019. Endeavor CEO Emanuel’s calculations for potentially dealing with the guild may have changed when the firm scuttled its effort for an initial public offering in 2019, after earlier hoping to raise $600 million to pay down its debt burden. As part of its deal with writers, if Endeavor does plan to go public again, “any investor that owns 5% or more of the publicly-traded company will be required to abide by the 20% production cap,” the guild states.

After dropping its intent to go public in October 2019, Endeavor’s representation and live events business took a financial hit last year amid Hollywood’s pandemic-related film and TV production shutdown that began in mid-March.

Last April, S&P Global Ratings downgraded Endeavor’s credit from a “B” to a “CCC+” score with a negative outlook, and Moody’s changed its forecast from “stable” to “negative.” The same month, the company revealed layoffs, furloughs and pay cuts that would impact one-third of its employees. Endeavor made separate cuts of 110 and 83 staffers in Beverly Hills alone this year, the firm disclosed in filings with the California Employment Development Department.

WME stated on May 7 that it would lay off or furlough 20 percent of its workforce, with a spokesperson saying the agency was “making these difficult decisions now to safeguard our business.” Days later, Endeavor lined up a $260 million term loan to bolster its financial flexibility and the S&P then issued a forecast that the loan “likely extends its liquidity runway to 2021, when operating conditions could improve and enable the company to begin to generate positive cash flow.” On Dec. 16, Endeavor publicly disclosed that employees that had salaries cut amid the pandemic would see compensation restored as of January 2021.

The full Writers Guild note to members on the Feb. 5 deal is below:

Dear Members,

The WGA and William Morris Endeavor Entertainment, LLC (WME) have reached a deal on a franchise agreement. Therefore, effective immediately, WME may once again represent Guild members for covered writing services. WGA and WME have also agreed to withdraw the legal claims each has brought against the other in federal court.

The WME franchise agreement contains the same terms as those set forth in the UTA/ICM/CAA deals and protects writers in the three fundamental areas that the Guild has emphasized since the beginning of the campaign: 

Contract, deal memo, and invoice information will be provided to the Guild, allowing the WGA and the agency to partner in systematically addressing late pay and free work.

Strict 20% limitation on agency ownership of production entities.

A sunset period that ends the practice of packaging by June 30, 2022.

The WGA also negotiated a side letter with WME, its parent company Endeavor, and Endeavor’s private equity owner Silver Lake that contains the protections previously negotiated with CAA, as well as additional terms. The purpose of the WME side letter is to address two complicated conflict of interest issues, one that is currently in play and one that is prospective. Specifically, WME is currently majority-owned by Silver Lake, and WME hopes in the future to become a publicly-traded corporation. Both of these circumstances required complex negotiations in order to ensure one thing: that WME be required to behave as a proper fiduciary, putting writer clients first regardless of the agency’s ownership structure. WME, Endeavor and Silver Lake have worked with the WGA over the past month to craft an agreement that achieves this objective.

WME/Endeavor agreed to a mutually-chosen third-party monitor, Louis M. Meisinger, a retired judge and mediator, to ensure that the agency sells down its interest in Endeavor Content to the required 20% or less in compliance with the Franchise Agreement. The side letter provides a deadline for the sale of Endeavor and Silver Lake’s interests in Endeavor Content down to the permissible level.

During the divestment period, WME will escrow all after-tax gross profits, writer commissions and packaging fees related to WGA-covered projects produced by Endeavor Content. Judge Meisinger will also oversee all writer deals negotiated by WME with Endeavor Content to make sure the agency is properly carrying out its fiduciary duties for writer clients.The side letter imposes serious consequences if the sale is not completed by the agreed deadline, including the right for the WGA to suspend WME’s ability to represent writers and an enhanced obligation to escrow profits, package fees and commissions WME/Endeavor receives related to WGA-covered projects produced by Endeavor Content until the sale is complete.

Consistent with the CAA agreement, the side letter ensures that WME/Endeavor and any Silver Lake entity will not jointly have a greater-than-20% ownership interest in any affiliate production company. The Silver Lake fund that owns WME/Endeavor will not have a greater than 20% ownership interest in any affiliate production company, regardless of whether WME/Endeavor also has an interest in the entity.

The side letter provides that small (de minimis) shareholders of the agency are exempt from the 20% production ownership cap. This exemption applies only if the shareholder owns 5% or less of the agency and has no control over its operation or management.

As long as WME remains a privately-held agency, the exemption will apply only to a limited group of institutional shareholders whose small stake confers no say over agency operations. WME must disclose those shareholders, and is also required to disclose to its writer clients the investor’s greater-than-20% ownership interest in any production company that makes an offer of employment. WME must also provide the WGA the offer and final deal terms. If WME/Endeavor becomes a publicly-traded company, it has agreed to publicly disclose the obligations shareholders have under the Franchise Agreement to prevent potential violations, including the fact that any shareholder who owns more than 5% of the public company would be bound by the Franchise Agreement. Thus, even in the event that WME/Endeavor goes public, any investor that owns 5% or more of the publicly-traded company will be required to abide by the 20% production cap.

As in the CAA agreement, the side letter contains protections in the event a Silver Lake investment fund, other than the fund that has a direct interest in WME/Endeavor, acquires a greater than 20% interest in a production company. Silver Lake has agreed, going forward, to identify any such production company (as of today, there is none). If WME were to negotiate a deal with such a company, the agency would be required to disclose to its writer clients the existence of Silver Lake’s ownership and to provide to the Guild a copy of the offer and final deal points.

This transparency will allow the Guild to make sure that WME is negotiating appropriate deals for writers in these circumstances, and that Silver Lake’s ownership interest is not suppressing the value of writers’ services. If there are patterns in the writer deals—such as below-market pilot script fees, for example—the Guild will have the information it needs to investigate and take any necessary corrective action with WME.The Guild appreciates the efforts of WME and Endeavor in working through the complicated issues involved in this negotiation.

You can read a red-lined version of the WME franchise agreement here. The WME/Endeavor/Silver Lake side letter is here. Click here for the list of all franchised agencies.

This agreement concludes the negotiation phase of the agency campaign. The agreements expire on April 12, 2025 unless mutually extended on a year-by-year basis. 

Congratulations are in order to the entire membership. Since saying thank you at the end of a long technical email is insufficient to recognize the member contributions and sacrifices this effort entailed, we will be back in touch soon with a wrap-up.