Sources: Universal, Elliott Management in Legal War Over Film Slate Profits (Exclusive)
The New York-based hedge fund claims it's the victim of fraudulent accounting.
This story first appeared in the Sept. 27 issue of The Hollywood Reporter magazine.
After securing a new financial partner and enduring a leadership shake-up, Universal Studios surely would prefer to be looking ahead. But THR has learned that the studio is fighting in arbitration with Elliott Management, the New York-based hedge fund that provided a big chunk of its movie financing for the past eight years.
According to sources, Elliott initiated the dispute claiming it was the victim of fraudulent accounting, though the specifics are under wraps and both sides declined comment. Legal wars over profit participation on film slates have become common. In 2012, Paramount Pictures settled a lawsuit filed on behalf of a Wall Street investment fund -- dubbed Melrose 2 -- which alleged that after making a $375 million investment in 2006 for 29 films that grossed $7 billion, it hadn't seen a dollar of profits. Coincidentally or not, the same lawyer, Mark Holscher at Kirkland & Ellis, who represented the plaintiff in that case is now repping Elliott.
The Elliott-Universal relationship began in 2005, when the deep-pocketed hedge fund led by billionaire Paul Singer began investing in Relativity Media's Gun Hill I Fund, which covered such Universal films as Nanny McPhee and Inside Man. The investment wasn't unusual at the time. Between 2005 and 2008, hedge funds and major Wall Street banks put up an estimated $15 billion for film slates of studios like Universal, Paramount, Sony and 20th Century Fox.
Then, the financial crisis hit and credit froze, and it became much tougher for Hollywood to get Wall Street to absorb its risks.
In 2008, Elliott nevertheless put hundreds of millions of dollars more in the Relativity-managed Beverly 2 fund, which was responsible for covering half the budgets for 75 percent of Universal's slate through 2011, including hits like 2009's Fast and Furious and big misfires like Land of the Lost.
Relativity is careful to distance itself from what's happening between Universal and Elliott, which had been one of its major stakeholders until shares were sold to supermarket magnate Ron Burkle.
"This issue is between Universal and Elliott Management, not Relativity," says a Relativity spokesperson. "In 2011, the Beverly 2 slate was transferred entirely to Elliott in order to allow Relativity to focus on the production and distribution of its own films. It is our understanding that this case is focused on movies produced after that time."
If so, the dispute would cover such hits as Bridesmaids, Les Miserables and Fast & Furious 6 as well as bombs like Battleship and Tower Heist. It would also extend to pricey mid-performers like Oblivion starring Tom Cruise, one of the latest fruits of the Uni-Elliott partnership.
There won't be too many more films shared by the two companies as the deal between them is winding down and Elliott is said to be exiting the movie business altogether. Meanwhile, Universal recently picked up a new partner – Legendary Entertainment, which ended its own multiyear relationship with Warner Bros. in July.
But as Universal moves forward, it must also reckon with the past. Earlier this year, the studio was sued by StudioCanal over allegations it failed to account for "tens of millions of dollars and likely more" from films developed by the Working Title label during a joint venture from 1999 through 2009. In response to that lawsuit, Universal claimed it had re-examined its accounting and had overpaid StudioCanal, which the plaintiff's lawyer characterized as "horrifying."
The Elliott dispute adds to Universal's problems and is another example of a colder relationship these days between Hollywood and Wall Street. Some tensions have been resolved including the aforementioned Melrose 2 dispute and litigation between Joel Silver and Goldman Sachs. Other cases survive including a dispute over Paramount's Melrose 1 slate and heated one that recently proposed a JPMorgan-led financial conspiracy.