Film Financier TSG Entertainment Sues Fox And Disney For Breach Of Contract, Claims They Have “Tried To Use Nearly Every Trick In The Hollywood Accounting Playbook To Deprive Us Out Of Hundreds Of Millions”
In yet another blow to the House of Mouse’s already shaky financial standings, Hollywood financier company TSG Entertainment has officially accused the 20th Century Fox and Walt Disney Company of having used a myriad of dirty accounting tricks to deprive them “out of hundreds of millions”.
Conceived in 2013 as an answer to 20th Century Fox’s then-lack of a long-term film financing partner and later expanding its operations in 2015 thanks to a multi-million dollar investment into the company from Chinese film studio Bona Film Group, TSG Entertainment has been the wallet behind a number of the studio’s recent productions.
From every X-film produced since 2013 – The Wolverine, X-Men: Days of Future Past, X-Men: Apocalypse, Deadpool – and Alita: Battle Angel to non-nerd hits as The Martian and Ford v. Ferrari, if a film was coming from Fox, regardless of the genre, TSG more than likely had a hand in it.
Following Disney’s 2017 acquisition of 20th Century Fox – now 20th Century Studios – TGS’ contract was likewise placed under Mickey’s management, where they would continue to finance projects developed by the newly-crowned subsidiary.
During this period, TGS would help and Disney produce such films as Free Guy, Dark Phoenix, The New Mutants, and even Avatar: The Way of Water.
However, though some of the films they backed would go on to make significant amounts of money – particularly the aforementioned Avatar sequel – TSG has claimed that, due to underhanded dealings from Fox and Disney, they never received their fair share of these profits.
“[This case] is a chilling example of how two Hollywood behemoths with a long and shameful history of Hollywood Accounting, Defendants Fox and Disney have tried to use nearly every trick in the Hollywood Accounting playbook to deprive Plaintiff TSG—the financier who, in good faith, invested more than $3.3 billion with them—out of hundreds of millions of dollars,” declared the financier in the introduction to their suit, as obtained by Deadline.
According to TSG, suspicions regarding their agreement with Fox first arose when the company noticed that their “return on its investments in Fox films decreased dramatically”.
TSG then proceeded to launch an independent audit of Fox’s books, wherein they discovered “that Fox had employed a number of underhanded Hollywood Accounting tricks in order to underpay TSG by at least $40 million.”
Further, the auditors also reportedly “uncovered rampant ‘self-dealing,’ the practice by which a studio enters into ‘sweetheart’ deals with its licensee affiliates to artificially minimize the profit payments to stakeholders like TSG, who generally share only in the revenues received by the studio, excluding the revenues received directly by these licensee exhibitors”
One particular instance of self-dealing that was allegedly brought to light related to “an ‘output’ agreement with FX, which promised that FX would have the right to exhibit reruns of subsequently-released Fox films in exchange for pre-established license fees based on the domestic box office performance of each film.”
“TSG learned that Fox had ignored the terms of its own output agreement and licensed at least one film—The Shape of Water, which won Best Picture at the 90th Academy Awards—to FX in a backroom side deal that appallingly shaved nearly $4 million off of the parties’ previously agreed-upon price,” explained the financier. “Thus, Fox simply ignored its existing output agreement and renegotiated a sweetheart deal for an Oscar-winning Qualifying Picture to enrich its affiliate FX”.
And unfortunately for TSG, it appears that (unsurprisingly) Fox’s self-dealing did not stop once they were bought out by Disney.
Rather, TSG believes that the two entities conspired to undercut their profits from home video sales by making certain films “available on Disney+ and HBO Max the same day they were released on home video.”
“[The result was] that consumers with access to these streaming platforms would have no incentive to buy the Qualifying Pictures on Blu-ray or via digital stores,” said the financier’s legal team.
“On information and belief, the ability to offer films for streaming so soon after release was tremendously valuable to Disney+ and Hulu (and, by extension, to their owner Disney) and massively boosted the subscribership of these streaming platforms while reducing canceled subscriptions, known as ‘churn’,” the company continued. “However, Fox allowed its sister-company Disney to
take all of this upside without sharing any of it with Fox, and therefore TSG received none of the upside either.”
To this end, TGS believes that these contract breaches “were a direct result of the interference of Disney, which induced Fox to disregard its obligations to TSG in order to promote Disney’s wholly-owned or majority-owned streaming platforms.”
“For fiscal year 2021, that proportion increased further, as Mr. Chapek received equity grants of 5.6 times his salary for, in the words of the 2022 Annual Report, “[s]uccessfully increas[ing] subscribers to Disney+ [and] Hulu”, recalled TGS. “When Mr. Iger was reinstated as CEO in November 2022, he received a compensation package including potential performance-based stock grants valued at $15 million, with a base salary of $1 million.”
“In short,” they then declared, “Disney (and the executives running it) had and continue to have every incentive to do anything and everything they can, including manipulating distribution of the Qualifying Pictures and preventing TSG from liquidating its interests in certain tranches of Qualifying Pictures, to attempt to boost Disney’s share price.”
Additionally, TGS also believes that “Fox also improperly charged TSG millions of dollars in purported ‘distribution expenses’ associated with the operation of a service called ‘Movies Anywhere’,” as “Fox reports no receipts to TSG in connection with this Movies Anywhere service, yet Fox has allocated to each Qualifying Picture a portion of its costs associated with operating this entity.”
Yet, perhaps TGS’ most damning complaint regards their belief that following the Fox acquistion, a number of films “were effectively abandoned in bad faith” by Disney, thus “leading to a significant decline in audience awareness and market positioning for Fox’s films.”
“The mismanagement of the Qualifying Pictures that followed Disney’s overhaul of Fox’s film division has been significant and demonstrable,” they said, “even after adjusting for the downturn at theatres during the Covid-19 pandemic.”
All this considered, TGS is seeking “monetary damages” and “punitive damages” in amounts to be proven at trial, as well as payment of all “pre-judgment interest” and “attorneys’ fees and costs” related to the case.
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