Dumb Money or Shrewd Buy? Analyzing Wanda's $3.5B Legendary Deal

Illustration by: Jason Ralsh

Why would China's Wang Jianlin pay billions to control Thomas Tull's hit-and-miss company? It's either a risky move or a smart bet on a global franchise machine: "I wouldn't underestimate Wanda."

This story first appeared in the Jan. 22 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

Even Thomas Tull's detractors in Hollywood — and the producer-financier has more than a few — admit that selling a controlling stake in his Legendary Entertainment to Dalian Wanda Group for as much as $3.5 billion is a major coup. They may not view the deal — China's biggest bet by far on the U.S. entertainment industry and the first to install a Chinese executive as owner of an American studio — as the transformative event that has been heralded in some reports. But certainly it transforms Tull's company at a time he might have needed a boost.

"I don't know how you justify that valuation," says one veteran producer. "Am I jealous? Yeah." Says another longtime executive, "It's another example of Thomas being a magician."

The reason some question the deal is simple: Hollywood insiders know Tull, 46, has performed brilliantly in seizing opportunities for Legendary to invest in such studio hits as Warner Bros.' The Dark Knight and Universal's Jurassic World, but when it comes to projects initiated and financed primarily by Legendary, his record is not nearly as good. And because almost all his movies are giant swings, Tull loses so big when he misses that some industry insiders suspect his own successful films — such as Godzilla, which grossed $529 million worldwide — may not make up for losses even when counting his share of profits from the studio-generated hits.

So while in 2015 Tull reaped the benefit of backing Jurassic World and Straight Outta Compton through his partnership with Universal, he also had major losers of his own, including Michael Mann's $70 million Blackhat, which grossed only $19.6 million worldwide, and Seventh Son, a $95 million-plus fantasy that reached only $114 million. Given that track record, a top executive at another studio says the question is whether Wanda chairman Wang Jianlin is simply the latest naive investor to hit Hollywood and Legendary is "just going to burn through the money that Universal has made." This observer, like several others who are not in business with Tull, suspects he needed a deal to keep the machine running.

Those on Team Tull dispute that, arguing that his critics resent him because the former Laundromat owner is seen as an outsider and a mere moneyman, even after more than a decade investing in movies. Certainly Tull has irked his partners at both Warner Bros. and Universal by referring to studio-generated hits in which he's invested as Legendary films. The feelings only were exacerbated by the Jan. 12 press release announcing the Wanda deal, which described Legendary as having "delivered many of the world's blockbusters, including the Batman trilogy, Inception, The Hangover, Jurassic World" and more. (All those were nurtured by Warners except Jurassic, a long-standing Universal property.) But in Tull's view, if his company invested in and owns just 25 percent of those films, he's entitled to lay claim to them.

More substantively, Tull's defenders say Hollywood insiders are overlooking the popularity of Tull's films in China — even those that don't perform well elsewhere, such as Pacific Rim. They also say Hollywood skeptics don't understand the value of Legendary's analytics business and his nascent efforts in television, though admittedly the latter won't be of huge interest in China. "This has never happened before," Tull told reporters as the deal was announced. "There's no road map for this; we're putting it together as we go."

Still, the glow could quickly fade from this deal if Legendary's upcoming films fail to perform, beginning with Warcraft in June, followed by Zhang Yimou's The Great Wall, starring Matt Damon, in November and Kong: Skull Island in March 2017, the beginning of a planned three-picture "monster-verse." Though no one can predict what will work in the movie business, most of those projects — especially the video game adaptation Warcraft — are met with skep­ticism by Hollywood insiders. And, of course, they're all costly. "I would say if Warcraft and Great Wall go as badly as Seventh Son and Blackhat, it's a very bad investment for [Wanda]," says one top executive who has experience in China but no dealings with Legendary, adding that Wanda could have gotten a "distorted picture" of Tull's company given that Legendary's 2015 cash flow from Jurassic and Compton was so strong.

But a Legendary spokesperson scoffs at that, saying, "Wanda is an extremely sophisticated company that understands the assets of Legendary as part of this transaction." Wanda executives are said to have seen Warcraft and believe it will work. And even if Wang, 61, one of China's richest men, was sold largely on the sizzle of the movies made by Warners and Uni, even as he made a splashy announcement in Beijing, he alluded to the idea of taking the film company public. So if sizzle sold Legendary to Wanda, there is no reason to believe Wanda can't sell sizzle to the public. "Legendary's products are indeed legendary and will certainly boost our tourism and cultural businesses." said Wang. "We have much to learn. The Chinese film industry is 30 to 50 years behind that of the U.S."

In explaining his rationale for the deal, Wang said his company occupies an important position in the Chinese entertainment industry, which is set to outgrow the U.S. market in the next few years, but "we need a global position." Tull alluded to possible theme park attractions based on Legendary films, and Wang and his deputy Jack Gao noted that by co-producing films, Wanda, which already owns U.S. theater chain AMC Entertainment, can get more than the 25 percent of Chinese box office that generally goes to U.S. distributors. (Legendary movies have been distributed by Warners and Universal, but the company retains the right to distribute its films in China.)

Dan Clivner, an attorney at the Sidley law firm who represented Matsushita in its brief and not-especially-happy acquisition of MCA/Universal, sees the Wanda deal as "the next chapter" in the long array of foreign investors trying their luck in Hollywood. "Everyone had a different [strategy]," he says. "And mostly it didn't work out." Still, he says, Wanda could prove to be an exception. "I wouldn't underestimate Wanda," he says. "It's all in the execution, whether these dreams can be achieved."