WGA Doubles Down On Endeavor IPO Criticism With Letter To Investors

The WGA on Tuesday warned potential investors in Endeavor’s new IPO that they “should be aware of serious conflicts of interest inherent in Endeavor’s key operations, which have caused substantial client loss and put the company’s representation revenues at risk.”

The warning comes as the guild and Endeavor subsidiary WME and the other major talent agencies are locked in a protracted battle in which the guild is trying to reshape the agenting business.

Last week, the guild told the SEC that Endeavor’s IPO registration filed in May inaccurately reported WME’s client numbers, a claim Endeavor has rejected. (Endeavor responded by saying that “Once again, in an attempt to disrupt our business, WGA leadership is misrepresenting the facts.”)

To make its point today, the WGA cited the S-1 document, which acknowledged that “Different parts of our business may have actual or potential conflicts of interests with each other, including our client representation, media production, events production, sponsorship, and content development businesses. Although we attempt to manage these conflicts appropriately, any failure to adequately address or manage internal conflicts of interest could adversely affect our reputation and the willingness of clients and third parties to work with us may be affected if we fail, or appear to fail, to deal appropriately with actual or perceived internal conflicts of interest, which could have an adverse effect on our business, financial condition and results of operations.”

The guild said that “Endeavor has lost 1,400 television and film writer clients since April 13, 2019,” when the WGA ordered its members to fire all of their agents who refuse to sign the guild’s new Agency Code of Conduct, which bans packaging fees and agency affiliations with corporately related production entities.

“Endeavor is engaged in several conflicted business practices—namely the negotiation of direct payments from clients’ employers in the form of ‘packaging fees’ and expansion into content production and employment of clients—which have led 1,400 television and film writer clients to leave the agency since April and prompted the filing of a lawsuit alleging violations of fiduciary duty and California’s Unfair Competition law,” the guild said in its letter (read it in full here).

Packaging fees, the guild said, “are payments Endeavor’s talent agency negotiates for itself directly from the studios employing its clients. Endeavor leverages representation of its clients—primarily writers—to negotiate its own compensation, which includes upfront fees, paid out of the production budget of each episode, and a percentage of the TV series’ profits, rather than the traditional 10% commission on clients’ earnings. In violation of its fiduciary duty, Endeavor competes with its clients for payment from the budget and the profits of TV series. Because Endeavor’s compensation comes directly from the studio rather than as a percent of its client’s compensation, the agency’s incentive to increase its client’s pay is significantly reduced, or even eliminated.”

The creation of Endeavor Content, which produces film and television projects, “is a conflict of interest because it combines a talent agency with an employer of the talent agency’s clients within the same corporation,” the guild said. “Acting as an employer and representing a client in salary negotiations are fundamentally at odds: an employer’s incentive is to maximize its profits and keep labor costs low, while the agency is duty-bound to get the best deal it can for its clients. The last time a major talent agency crossed the line into production was in the early 1960s, when the U.S. Department of Justice filed an antitrust lawsuit that forced the company, MCAUniversal, to exit the agency business.”