TSG Entertainment, which helped co-finance hits including “Avatar: The Way of Water” and the “Deadpool” franchise for Twentieth Century Fox, is suing the studio and its parent company Disney for breach of contract.
A suit filed Tuesday in Los Angeles Superior Court by TSG alleges that the Disney-owned movie studio intentionally withheld profits and cut sweetheart deals to boost its own streaming platforms Hulu and Disney+, as well as its stock price, at the expense of its partners.
TSG also claims that the actions deprived it of cash the financier needed to exercise options to invest more in individual films and that TSG’s efforts to sell its stakes in other movies to fund more investments were hindered.
TSG said it spent $3.3 billion over the past decade co-funding more than 140 movies, including critical darlings such as “Hidden Figures,” “JoJo Rabbit,” “The Shape of Water” and “The Banshees of Inisherin.”
In the lawsuit, TSG said Disney and the studio “have tried to use nearly every trick in the Hollywood accounting book” to deprive it “of hundreds of millions of dollars.”
Representatives for Disney weren’t immediately available to comment.
Public battles between entertainment companies and actors and writers over profits are fairly common, but it is rare for a fight between a film financier and a studio to end up in court, as such disputes are normally resolved behind closed doors.
Under the terms of a deal between TSG and the movie studio, any dispute gets filed in court first before the two sides agree on a private judge. By filing in court, both sides will then have the ability to appeal that ruling if they desire.
Headed by brothers Chip and Robert Seelig, both Wall Street veterans, TSG has longstanding relations with several Hollywood studios, including Warner Bros. and Sony Pictures. Its partnership with the Fox movie studio was struck in 2012 and it has been amended several times since then.
The way such arrangements typically work is that the financier invests in a slate of films and subsequently can invest more in individual titles within a time frame determined by the terms of the deal.
TSG recently requested an audit after noticing a decline in its profits. After examining the books for three undisclosed films, TSG alleges it found “rampant self-dealing” and “accounting tricks” that showed it had been underpaid by $40 million.
TSG also claims it wasn’t credited with revenue it should have received. Additionally, it said it was charged tens of millions of dollars for distribution fees that weren’t part of its revenue-participation agreement.
The suit is similar in some respects to one that was filed in 2021 by the actress Scarlett Johansson against Disney over the company’s decision to put her Marvel movie “Black Widow” on Disney+ at the same time as its theatrical release.
Johansson argued that the move breached her contract, which guaranteed an exclusive theatrical release that factored heavily into her potential salary. That suit was eventually settled.
TSG is represented by Bird Marella partner John Berlinski, the same lawyer who represented Johansson.
In this case, TSG alleges that a recent renegotiation of the Fox movie studio’s deal with Warner Bros. Discovery’s HBO channel and Max streaming service had a similar effect on its potential profits.
Under the terms of the original agreement, HBO paid a premium for an exclusive window to carry its movies on its service.
In 2021, about two years after Disney acquired the Fox studio along with other entertainment assets, the deal was changed to give Disney the right to put films on Disney+ and Hulu at the same time as HBO. In return for HBO giving up exclusivity, the license fees it pays for the movies were reduced.
The suit alleges that the revised HBO deal cost the Fox movie studio “many millions of dollars,” a portion of which TSG would otherwise have received.
TSG also said it tried to exercise a right to sell its stake in other films it had funded back to the movie studio or to a third party. Disney refused to engage and challenged what films TSG believed it had the rights to sell off, the suit said.
As a result, TSG claims it didn’t have the resources to invest more in certain films, including the massive hit “Avatar: The Way of the Water,” the suit said.