WGA West Chief David Young Gives Account Of Stalled Talks With WME & CAA

WGA West David Young has given a blow-by-blow description of how talks with WME and CAA failed so far to produce an agreement. The goal was to allow the two agencies to become franchised by the guild and end their long-running legal battle over packaging fees and agency affiliations with corporately related production entities.

Young noted, however, that the WGA’s agency negotiating committee met on Wednesday to consider CAA’s latest proposal, and “is preparing its response.”

Young’s version of the negotiations are contained in a declaration he filed in federal court on Friday in opposition to the agencies’ motion for a preliminary injunction. That motion would force the WGA East and West to drop its group boycott against the agencies. His account begins earlier this summer, after UTA and ICM Partners – two of the “Big Four” agencies – agreed to the guilds’ terms.

“The signing of ICM left the two biggest agencies, WME and CAA, as the only remaining agencies not signed to a WGA franchise agreement,” Young said in his declaration. “WME and CAA are not only the two biggest, they are different from all of the other agencies in two important respects. First, both agencies own, or are commonly owned with, an affiliated production company. WME is wholly owned by a holding company that also wholly owns a production company, Endeavor Content. CAA owns a majority interest in a production company called wiip. Second, the biggest shareholders in both WME and CAA were private equity investors, Silver Lake Partners in the case of WME, and TPG Partners in the case of CAA.”

After ICM signed the franchise agreement on Aug. 5, Rick Rosen, one of WME’s partners, “contacted me and broached the idea of entering into negotiations with the Guilds for a new franchise agreement,” Young declared. “The overture was nonspecific. He did not make any concrete proposals, nor indicate whether WME was willing to address the significant conflicts of interest inherent in its business structure (e.g., the common ownership of WME and Endeavor Content by the same parent company).”

Young doesn’t mention it in his declaration, but last month, Rosen said in a declaration that Young had “repeatedly threatened to ‘kill’ me” during a heated phone conversation he had with Young on Aug. 11 as the guild and the agency were trying to work out a deal to end their ongoing legal standoff. Rosen said that he was so alarmed by the alleged threat that he called WGA West president David A. Goodman to complain about it, but didn’t get a satisfactory response. Rosen made the allegation “under penalty of perjury that the foregoing is true and correct.” A spokesman for the WGA said today that “both David Young and David A. Goodman deny Mr. Rosen’s claims.”

Young, in his declaration, said that “Representatives of the Guilds and WME met by videoconference on August 18 and September 1, 2020. I did not attend either meeting, though the WGAW representatives who did participate, including the WGAW president (David Goodman), two of the three negotiating committee chairs (Chris Keyser and Meredith Stiehm), and senior WGAW executives, had full authority to act on behalf of the Guilds. WME did not present written proposals in either meeting, nor did it propose specific modifications of the language of the UTA/ICM franchise agreement that was in its possession.

“In the first of the two meetings, the WME representatives articulated at least six demands for significant modifications to the UTA/ICM Agreement. First, WME indicated that it was not agreeable to limiting its ownership in production affiliates to 20%, but Endeavor instead was willing to reduce its ownership stake in its wholly-owned production entity, Endeavor Content, to a minority stake—presumably 49%.

“Second, WME further expressed the necessity of having a ‘sunset provision’ on Section 3.B.1.—by this, WME meant a period of time (which it did not define) it could continue to own more than 20% of a production affiliate after becoming franchised by the WGA.

“Third, WME stated it required an agreement on ‘grandfathering,’ which refers to exempting WME’s ownership interests in projects that pre-date WME’s becoming signatory to the franchise agreement.

“Fourth, WME demanded that the UTA/ICM franchise agreement be modified to exempt all of its investors from regulation under the Franchise Agreement, a radical departure from the UTA/ICM franchise agreement—and every other franchise agreement the WGA negotiated to date— which explicitly binds the franchised agencies’ shareholders to the regulations set forth in the franchise agreement.

“Fifth, WME proposed significant changes to various provisions of the franchise agreement requiring franchised agencies to share certain information or documents with the WGA concerning writers. For example, WME proposed providing itemized statements of writer compensation and agency commission to the Guild on an annual instead of quarterly basis, and writer deal memos and contracts on an annual basis instead of within 15 business days.

“And sixth, WME demanded an additional year on the packaging sunset, such that it would expire in June of 2023.”

Young said that at the second meeting, held on September 1, the WGA “explained that WME’s proposals were not acceptable, that it was holding to the UTA/ICM deal, and that ‘we’ve gone about as far as we can go.’ WME did not modify any of its proposals at the September 1 meeting.”

After the UTA and ICM agreements were signed, Young said that “there was concern on the negotiating committee and among the membership at large that the two remaining agencies (WME and CAA) would each come to the Guild demanding additional concessions. The concern focused on the two provisions of the franchise agreement where the Guilds had made concessions, incrementally, throughout the period of individual negotiations: the ‘sunset’ date for packaging, which in the UTA agreement had been delayed until June 30, 2022, and the limit on investments in affiliated production companies, which under the UTA agreement was now 20%.

“To address concerns that the key protections of the franchise agreement were being eroded, the negotiating committee, with the support of the WGAW Board and WGAE Council, elected to make a clear public statement that it was unwilling to make additional concessions in these areas. On September 1, 2020, the Guilds published a public letter to their members stating clearly that they had moved far enough.

The WGA’s letter said that “We’re not going to keep pushing back the sunset period on packaging. We’re not going to allow more than 20% ownership of a production studio.”

Then, on September 8, Young said, Rosen “left me a phone message asking if we could speak by phone. I responded by text that I would call him on the morning of September 9th, which I did. It was a short conversation, less than two minutes, but cordial. Rosen said that WME was willing to move toward the UTA/ICM deal, including an eventual acceptance of the 20% limitation on production ownership, but wanted concessions on ‘grandfathering’ of existing projects and a ‘sunset’ period to June 2022 during which time WME could possess a greater-than-20% ownership interest in a production affiliate. I requested that Rosen provide WME’s proposed modifications to the UTA/ICM franchise agreement to me in contract language and that the WGA would review the proposal.”

On September 10, he said, Courtney Braun, Senior Vice President and Deputy General Counsel for Endeavor – a the parent company of WME – sent Young an email stating: “As discussed with Rick [Rosen], below is our proposed language for Section 3.B.1. of the Franchise Agreement . . . . No Agent shall have more than a 20% non-controlling ownership or other financial interest in, or shall be owned by or affiliated with any entity or individual that has more than a 20% non-controlling ownership or other financial interest in, any entity or individual engaged in the production or distribution of Motion Pictures. WGA agrees that for purposes of this Agreement, Agent’s ownership by or affiliation with investors that own less than 20% of Agent’s parent company shall not result in any violation of this Agreement. Agent shall not have any creative, financial, or operational controls over any Affiliate Production Entity. With regard to any Affiliate Production Entity, upon reasonable written request by the Guild, Agent will provide written documentation to verify both the identity of the Affiliate Production Entity and the ownership percentage or other financial interest subject to this provision, provided that Agent may redact all confidential and/or proprietary information contained in any such documentation disclosed under this Subsection. Notwithstanding the foregoing, nothing shall preclude Agent’s continued affiliation with Endeavor Content as it relates to projects completed or commenced prior to June 30, 2022 and all subsequent extensions, modifications or renewals of commitments or agreements for such projects.”

Young said that Braun’s proposal “contained at least three significant modifications of Section 3.B.1. of the UTA/ICM franchise agreement. First, it exempted a class of its shareholders from regulation under the franchise agreement—i.e., those shareholders that own less than 20% of WME’s parent company. Second, WME proposed that the 20% cap on ownership of a production affiliation would not take effect until June 30, 2022, thus permitting WME’s parent company to wholly own Endeavor Content for nearly two years after becoming franchised by the WGA. Third, WME insisted on a ‘grandfathering’ provision that would allow it to maintain a greater than 20% ownership interest in Endeavor Content indefinitely with respect to ‘projects . . . completed or commenced prior to June 30, 2022.’ And finally, Braun’s email – which merely contained contract language for Section 3.B.1. – also failed to address whether WME had dropped the various other demands it had raised at the August 18 meeting – for example, changes to the information-sharing provisions of the UTA/ICM franchise agreement and a further extension of the sunset period for packaging.”

Upon receipt of Braun’s email, Young said in his declaration, “I requested from WME a full redline of the UTA/ICM franchise agreement so that I could determine the full extent of the modifications it was proposing. In response, Braun clarified that WME also was insisting on ‘working out an IT solution for the notification obligations in (sections) 3C3, 3D1-4, and 3F3’ of the UTA/ICM franchise agreement, which are references to several of the information sharing provisions of the franchise agreement. Braun did not provide a full redline reflecting WME’s proposals, as I requested.”

Young said that “Once the Guild announced that it was unwilling to make further concessions regarding the terms of the franchise agreement in the public statement, and Rick Rosen advised me that WME was prepared, in principle, to sign the UTA/ICM agreement, it became clear to me that the remaining negotiations would probably focus not on the terms of the franchise agreement, but on how WME and CAA would bring themselves in compliance with the agreement. In both cases this would require the agencies to divest their existing interests in affiliated production companies, at least to the extent that those interests exceeded 20%. Every other agency we had franchised was in compliance with the franchise agreement as of the date the agency became franchised.

“In approaching this stage of the negotiations, we believed that it was important to understand the complex corporate structure of each agency and to verify, for example, that none of their private equity shareholders held investments that violated the 20% limitation. These were not issues that we had been required to negotiate with any other talent agencies, none of which had such complex corporate structures or were required to restructure their business in order to comply with the franchise agreement.

“Because these were new issues for the Guilds, in late September we retained Chuck Samuelson of Hughes Hubbard & Reed in New York, a mergers and acquisition specialist, to advise us on these issues, and I communicated the same to Rosen and Braun.

“On or about September 14, I requested that Rosen explain how WME could come into compliance with the terms of the UTA/ICM franchise agreement. In response, on September 16, Braun offered to arrange a call with Endeavor’s CFO Jason Lublin. The next day, I informed Braun that the WGA was putting together a list of concerns and questions about WME’s plan to come into compliance with the terms of the UTA/ICM franchise agreement. Several days later, I offered that two WGA executive staff could speak with Lublin. Braun responded that Lublin was no longer available to meet with the WGA.”

According to Young, Braun essentially reiterated WME’s September 10 proposal by saying: “In terms of meeting the requirements of 3B1, we essentially see three options: (1) sell down Endeavor Content to bring ourselves into compliance with the 20% ownership cap; (2) create a new entity for new projects, in which Endeavor will not own more than 20%; and/or (3) cap Endeavor’s investments in new projects at 20%.”

Young said that on September 30, after consulting with the guilds’ mergers and acquisitions counsel, the guilds sent WME and CAA identical requests for information relevant to corporate structure and governance. On October 9, he said, “Braun provided a small amount of information in response to the Guilds’ information request, including a one-page ownership chart and a short description of WME’s governance structure. The information confirmed that WME was not in compliance with the terms of the franchise agreement due to its common ownership with Endeavor Content, but left many questions unanswered about what restructuring would have to take place in order to bring it into compliance. Most significant, the response provided no information about the holdings of Silver Lake Partners, the private equity investor that owns 48% of WME’s corporate parent.

“Because WME only partially complied with the Guilds’ information request, I sent a second letter to Ms. Braun on October 16 identifying the information that we were still waiting for and outlining the Guild’s positions on the modifications to the UTA/ICM franchise agreement proposed by WME. On October 20, Ms. Braun requested that I provide her ‘proposed contract language, rather than just bullet points’ – a reference to my October 16 letter. I responded the next day asking her for clarification what she was requesting from the WGA, and stated that the WGA needed the information requested from WME in order to begin preparing proposed contract language. I did not receive a response from Ms. Braun or any other WME representative. To date, WME has not provided the Guild with any information responsive to the requests outlined in the October 16 letter.”

Negotiations with CAA, Young said in his declaration, “followed a somewhat different path. On June 16, 2020, I had a videoconference with Bryan Lourd, one of the principals of CAA. The call was cordial, but nothing substantive was discussed and Mr. Lourd made no specific commitments or proposals about how negotiations might proceed. I spoke again to Mr. Lourd on July 17, about ten days after the Guild announced its agreement with UTA. Once again, the conversation was cordial but non-specific. At the end of the call, Mr. Lourd asked for a copy of the UTA agreement, which I had sent to him later that day. I had hoped that sending Mr. Lourd the executed agreement with UTA, a major competitor of CAA, might elicit a substantive response from CAA. Mr. Lourd’s statement in paragraph 7 of his declaration that I refused to discuss the UTA agreement with him as a ‘framework to reach agreement’ is untrue and belied by the fact that I sent him the agreement right after our call.”

“In fact,” Young declared, “CAA made no response to the UTA agreement for almost two months, until after September 1 when the Guilds issued a public statement that they would not negotiate any further changes to the franchise agreement, but CAA and WME were welcome to sign it as is.”

On Sept. 14, CAA said that it though it had a deal, telling staffers in an internal memo that “Today, we signed the same deal the WGA made with ICM several weeks ago. We delivered the signed agreement to the WGA, and we assume that it will be circulated to the appropriate members of the negotiating committee, as well as the membership, shortly.” The guild, however, quickly put out word that no such agreement had been reached.

“The next thing we heard from CAA was an ultimatum,” Young said. “On September 14, 2020, the Guilds received a letter from CAA’s litigation counsel, Richard Kendall, purporting to agree ‘to be franchised under the same franchise agreement that the WGA has offered to the other talent agencies’ but subject to one crucial modification. Mr. Kendall’s letter proposed to add a clause to Section 3.B.1 of the agreement providing that the 20% limit on ownership of affiliated production companies would only apply ‘following sale of existing interests to occur as soon as commercially practicable.’ The letter gave the Guilds four business days to countersign the franchise agreement as so modified.

“I viewed Mr. Kendall’s letter, which was released to the press at the same time it was sent to the Guilds, as a stunt. It was an attempt to jam the Guilds with a proposal about an extremely consequential term – the timing of CAA’s divestiture of its prohibited interest in an affiliated production company. I viewed it as bad faith for CAA to present the proposal as an ultimatum without any prior discussion by the parties of the issue. Just as important, I viewed the proposed modification itself as completely unworkable. ‘Commercially practicable’ is an indeterminate term. I knew that once CAA was franchised and had its writers back, there would be no effective way to require CAA to divest. And pending divestment, if it ever happened, CAA would be allowed to operate with the most egregious conflict of interest: majority ownership of a production entity that employs writers, including writers that CAA would represent. I knew that such a proposal would be wholly unacceptable to the WGA negotiating committee.”

The next day, September 15, Young had his first conversation with Ronald Olson, the attorney designated by CAA to negotiate over the franchise agreement. “In that conversation,” Young said, “I spoke candidly about my frustration with the Kendall letter and about the fact that CAA had waited for a year and a half to engage with the Guilds in a meaningful or constructive way. At no point did I express personal animosity towards Mr. Lourd or other CAA executives, or suggest that personal animosity would affect my efforts to reach an agreement with CAA. As a professional negotiator, I would never allow my personal emotions to guide my actions or influence my judgment about how best to achieve the policy objectives set by the Guilds’ elected leadership.

“I have continued to be in contact with Mr. Olson and his partner, Anjan Choudhury, since our first call on September 15. We followed up on CAA’s announcement and my conversation with Olson by requesting information from CAA related to its ownership and corporate governance. The Guilds received some information from CAA on October 8, from which we confirmed that a private equity investment fund, under management of TPG Partners, owns a 66% stake in CAA.

“On November 11, 2020, I received a letter from Mr. Olson. The stated purpose of the letter was to inform the Guild about the steps CAA had taken ‘to bring itself into compliance with the terms of the existing Franchise Agreement.” In that connection, the letter advised the Guilds that CAA had placed its ownership interest in wiip, the affiliated production company, in a blind trust, with instructions to sell its interest in excess of 20%. Enclosed with the letter was a 13 page Blind Trust Agreement, which Mr. Olson indicated would be signed the next day. Next, the letter acknowledged that the 20% limitation on ownership in the franchise agreement would be binding on CAA shareholders, but maintained that the shareholder bound by this limitation was a single specific TPG investment fund, identified as TPG Partners VI, L.P., not other related funds under management by TPG Partners.

“Neither the blind trust nor CAA’s position on private equity shareholders was ever discussed with the Guilds prior to delivery of the November 11 letter, nor were the Guilds given an opportunity to negotiate any of the terms of the Blind Trust Agreement. The letter was, once again, accompanied by an ultimatum, giving the Guilds just five days (including a weekend)—until November 16—to agree to all points before CAA ‘would have no choice but to ask the Court to address the Guilds’ conduct.’”

Young said that he told Ron Olson on November 18 that the WGA would review the proposal contained in his November 11 letter.

“The Guilds have carefully considered the contents of the November 11 letter and blind trust agreement,” Young said in his declaration, “and have consulted with mergers and acquisition counsel about them. While we believe they are a step forward toward resolving the divestiture question, we have concerns about the specific terms of the trust agreement. For example, there is no time limit on the trustee’s disposition of the trust asset; pending disposition of the asset, CAA will continue to be aware of its ownership interest in wiip and will continue to operate under a conflict of interest, including because it will retain the right to receive proceeds from its ownership interest in wiip (and because the ultimate value of wiip, and so the amount CAA will receive when it sells its interest, will depend on wiip’s success). The trust agreement also imposes no limitation on who may purchase the trust asset; the trustee would appear to be free to sell it to another TPG fund or to another talent agency. Nor did the Guild have any input into the selection of the trustee, who is himself a lawyer and a member of a law firm that directly represents WGA members.”

The WGA, Young said, also has “concerns over CAA’s proposal to limit the franchise agreement’s application to a specific TPG investment fund. Under this interpretation, the fund, identified in the letter as TPG Partners VI, L.P., could simply transfer ownership in wiip to another TPG fund and achieve compliance with the franchise agreement. Such a narrow reading of the scope of the franchise agreement appears inconsistent with CAA’s fiduciary obligation to avoid even the appearance of a conflict of interest.”

In the meantime, Young said, “The Guilds’ negotiating committee met on December 2 to consider the CAA proposal and is preparing its response.”

Read More About:

Source: Read Full Article