Why Talent Management Firms Could Be the New Prize Asset
Direct access to Anne Hathaway and "True Detective"-style packages could spur a new boom in private-equity deals on the heels of investor stakes in Hollywood's agencies.
This story first appeared in the May 23 issue of The Hollywood Reporter magazine.
Private-equity firms already have placed big bets on talent agencies, scooping up stakes in CAA and WME. The next Hollywood frontier for deep-pocketed investors appears to be management companies.
Sources say all of the big management firms -- including Brillstein Entertainment, Management 360, Anonymous Content, Principato Young and 3 Arts -- are looking at private money to expand their businesses. Although no deals have closed, a handful of moneymen such as venture capitalist Mark Patricof -- a CAA alum and co-founder of entertainment ibank and fund MESA+ -- and SFX Entertainment's Robert Sillerman are said to be eyeing management companies because of their stable cash flows and growth potential. Azoff MSG Entertainment, the new partnership between Irving Azoff and James Dolan, also is said to be hunting for players in a bid to merge them into one superfirm.
The reason management companies are so attractive is their access to that rarest Hollywood commodity: talent. Like agents, managers guide the careers of actors, writers and directors in exchange for 10 to 15 percent of earnings. But unlike agents, managers can produce projects with their clients, which has become a flourishing business. Management, once the domain of small, often single-employee outfits, has matured into a sophisticated business with around 10 major players guiding thousands of talents.
"What is attractive to private equity about the larger management companies is that we not only represent but are also generating content with our clients," says Management 360's Guymon Casady. "Our business has increasingly become originating, developing, packaging and producing film and television, which in turn allows us to capture more of the upside for our clients."
Management 360, which reps Anne Hathaway, Channing Tatum and Game of Thrones creators David Benioff and D.B. Weiss, recently co-financed the horror film Superstition with Blumhouse Productions. Similarly, Anonymous, whose roster includes Steven Soderbergh and Emma Stone, spent $200,000 of its own money to pay client Nic Pizzolatto for two scripts of True Detective. That allowed Anonymous to attach director client Cary Fukunaga and actors Woody Harrelson and Matthew McConaughey before selling the package to HBO, putting Anonymous in a more advantageous position as producers.
"If you have a solid plan and you run a big company, there's a lot of capital out there right now," says Anonymous founder and CEO Steve Golin, confirming that he has talked with investors but has yet to take the bait.
Brillstein, which handles Brad Pitt and Adam Sandler, would not confirm investor talks, but CEO Jon Liebman says there is a confidence in the capital markets about the talent business. "As the distribution options that consumers can access become so much wider, there are a lot of companies that are trying to figure out how to work directly with great talent," says Liebman. And the fact that managers can produce -- which generates fees and backend -- means the payoff can be much bigger than a commission-only business. 3 Arts is a producer on clients Amy Poehler's Parks and Recreation and Louis C.K.'s Louie. If 3 Arts, for example, had access to $100 million, it might develop more hits directly with clients.
Private-equity firms already enjoy a strong foothold in agencies. In 2010, CAA sold a 35 percent interest to TPG Capital in a deal that created a $500 million investment fund, helping the agency expand. Silicon Valley-based firm Silver Lake now owns 51 percent of WME, which allowed the agency to absorb IMG. Rizvi Traverse bought a controlling interest in ICM in 2005 for $75 million until its agents bought it back in 2012.
By contrast, management companies largely have avoided private money. The last time an outsider made a big splash was in 1997, when ad giant Interpublic Group bought 51 percent of Addis/Wechsler for an estimated $25 million to $30 million. Interpublic nabbed a firm with Leonardo DiCaprio and Cameron Diaz as clients. But manager Rick Yorn soon left and took the duo and others, leaving Interpublic with a devalued asset. "The service business is very tricky," says a top manager who isn't involved in acquisition talks. "What you're really buying is the people who work in the building. And they can leave."
But that is true only under the old model that placed little emphasis on self-financing. The more money a management company brings to a project, the more it can negotiate leverage from a network. Insiders say the holy grail is retaining rights to sell a TV series internationally, where the real money is.
Of course, bringing in an investor forces thriving managers to share commissions, producing fees and backend. But the lure of flush development and production coffers is tough to resist when clients are demanding to work (and get paid) and managers are trying to keep them happy (and sign new clients). After all, the number of top stars with studio discretionary funds is dwindling. Consider that neither Sandler nor Reese Witherspoon -- both busy producers -- enjoy first-look film deals. To whom else will an actor be able to turn to develop ideas other than his or her well-funded manager?