Hollywood financer TSG Entertainment has taken legal action against Disney, filing a lawsuit in Los Angeles Superior Court for breach of contract. The suit alleges that Disney and its studio 20th Century Fox engaged in a series of wrongdoings, including withholding profits and striking deals to boost their streaming platforms and stock price. TSG claims that these actions deprived them of necessary funds to invest in individual films and sell their stakes in other movies. Disney has not yet responded to CNBC’s request for comment.

TSG is known for co-financing the production and marketing costs of films in exchange for a share of the defined gross receipts after the film’s release. They have co-financed approximately 140 films produced by 20th Century Fox, including blockbusters like “Avatar: The Way of Water.” The company has invested around $3.3 billion in the studio’s content since 2012. However, TSG’s profits began to decline, prompting them to request an audit of three films they financed for 20th Century Fox. The audit allegedly revealed “rampant self-dealing” and “accounting tricks,” leading TSG to believe they had been underpaid by at least $40 million.

Hollywood Financer TSG Entertainment Files Lawsuit Against Disney for Breach of Contract

Hollywood financer TSG Entertainment has filed a lawsuit against Disney, alleging breach of contract. The lawsuit, filed in Los Angeles Superior Court, accuses Disney and its studio 20th Century Fox of various transgressions, including withholding profits and making deals to boost their streaming platforms and stock price. This, according to TSG, deprived them of cash to invest in individual films and sell their stakes in other movies.

TSG Entertainment co-finances the production and marketing costs of films in exchange for a share of the defined gross receipts after a film’s release. The company has co-financed around 140 films produced by 20th Century Fox, which Disney acquired in 2019. Notable films include “Avatar: The Way of Water,” “The Menu,” “Jojo Rabbit,” “The Greatest Showman,” and “Gone Girl.” TSG has invested approximately $3.3 billion in the studio’s content since 2012.

TSG noticed a decline in profits and requested an audit of three films it had financed for 20th Century Fox. The audit allegedly revealed “rampant self-dealing” and “accounting tricks” that resulted in TSG being underpaid by at least $40 million. The lawsuit describes this as an example of “Hollywood Accounting,” where major studios use various tactics to deprive financiers of their rightful earnings.

One specific incident mentioned in the lawsuit involves the film “The Shape of Water,” which won the Best Picture award at the 2018 Academy Awards. TSG claims that Fox licensed the film to FX, a channel owned by the studio, for $4 million less than what was agreed upon in the output agreement. The audit also revealed that TSG had not been credited with revenue it should have received and was charged millions of dollars for distribution fees that were not part of their revenue-participation agreement.

TSG is represented by John Berlinkski of the law firm Bird Marella, who previously represented Scarlett Johansson in her lawsuit against Disney regarding the release of “Black Widow” on Disney+ simultaneously with its theatrical release. TSG alleges that Disney’s recent deal with Warner Bros. Discovery, which waived exclusivity to HBO and the Max streaming service in exchange for smaller license fees, directly impacted TSG’s potential profits. Furthermore, TSG claims that when they tried to sell their stake in other films they had funded, they were denied the right to do so, resulting in a reduced share of defined gross receipts and a loss of liquidity for future productions.

Disney has not yet responded to the lawsuit, but it remains to be seen how this legal battle will unfold in the coming months.

Short Takeaways:

• Hollywood financer TSG Entertainment has filed a lawsuit against Disney, alleging breach of contract.
• TSG claims that Disney and its studio 20th Century Fox withheld profits and made deals to boost their streaming platforms and stock price, depriving TSG of cash to invest in films and sell their stakes in other movies.
• TSG has co-financed around 140 films produced by 20th Century Fox, including “Avatar: The Way of Water,” “The Menu,” “Jojo Rabbit,” “The Greatest Showman,” and “Gone Girl.”
• An audit conducted by TSG revealed alleged self-dealing and accounting tricks, resulting in TSG being underpaid by at least $40 million.
• TSG is represented by John Berlinkski, who previously represented Scarlett Johansson in a lawsuit against Disney.