Hollywood's talent agencies have long had a reputation, in the public's imagination at least, as a world of fast cars, rooftop bars and foul-mouthed, phone-throwing power brokers who will stop at nothing — and spare no expense — to advance their clients' interests. Or their own, for that matter.
The high-flying, go-go culture of the agencies has given way to a more restrained, fiscally disciplined one in recent years, however. That evolution has only accelerated as private equity firms have swooped into the business.
These Wall Street investors — who have poured more than $1 billion into the two largest talent agencies, William Morris Endeavor and Creative Artists Agency, over the last five years — are helping to bankroll those agencies' expansion into new arenas outside Hollywood including sports, technology, fashion and food.
But they've also put a fresh focus on driving profits, insiders say — essentially flipping the script on the famous talent-rep mantra from the film "Jerry Maguire" and saying, "Show us the money."
It wasn't long ago that talent agencies were facing an uncertain future, as film studios scaled back their slates, the TV industry fragmented and audiences scattered. But where many saw an industry in crisis, some investors saw opportunity, particularly as digital players including Netflix, Amazon and Google opened new channels for the distribution of entertainment. In a digitally wired world, they theorized, the role of deal makers in the ecosystem would become only more important.
"We are technology investors at heart," said Egon Durban, managing partner at the Silicon Valley-based private equity firm Silver Lake Partners, which owns a controlling interest in WME. "It's less about investing in a talent agency per se and more of a macro thesis that content is king and WME represents a critical mass of the world's most outstanding creative artists generating that content."
In the last decade, as talent paydays have come down, agencies across the board have tightened their belts. Travel and entertainment budgets have been squeezed. Bonuses have shrunk and some highly compensated older agents have been nudged out in favor of younger, cheaper ones. (Agents, who receive a 10% commission on work they book for clients, typically start out earning about $60,000 a year but with commissions and bonuses can eventually pull down $200,000 to well into the millions.)
With the influx of private equity, observers say, the focus on the bottom line has only intensified, changing ways of doing business that go back decades — and, in some ways, changing the very definition of a talent agency.
"What we're seeing is a fundamental shift in the agency landscape," said former International Creative Management agent David Unger, who is now co-chief executive of the music and entertainment management firm Three Six Zero Group. "Private equity has encouraged the agencies to diversify into other areas, and agents are forced to adapt to these new factors that are changing the way clients are being represented. And it's not easy."
The much-publicized defection of 12 agents from CAA to rival United Talent Agency this spring was seen by many as emblematic of the industry's shifting landscape. Some industry insiders say that CAA's expansion under private equity ownership has left some traditional film and TV agents feeling undervalued — a narrative that CAA strongly disputes.
CAA filed a lawsuit against UTA over what it called the "lawless midnight raid," and neither side is talking about the specifics.
That skirmish aside, some observers believe it is inevitable that talent agencies will become bigger and more buttoned-down as they evolve within a rapidly changing global entertainment industry.
"These agencies want to grow and make investments and own things," said Larry Auerbach, a former agent and now associate dean at the USC School of Cinematic Arts. "You need dollars to do all of it."
In 2010, TPG Capital, one of the largest private equity firms in the world with $67 billion under management, spent roughly $165 million for a 35% stake in CAA. In October, TPG kicked in an additional $225-million investment, giving it a 53% stake. TPG has backed CAA in a series of acquisitions that includes the purchase last month of two corporate hospitality companies, Beyond Sports & Entertainment and Goviva.
In 2012, Silver Lake, best known for its investments in tech firms including Skype and Alibaba, acquired a 31% stake in WME for $200 million, then followed that up last year with a $500-million investment that increased its stake to 51%. With Silver Lake's backing, in 2013 WME acquired New York-based sports and media group IMG Worldwide Inc., a $2.4-billion deal that vaulted the agency over CAA in scale.
The WME-IMG merger dramatically illustrates that, with paydays for all but the top film and TV stars well below the salad days of the 1990s, agencies are looking to expand into potentially lucrative new businesses. That drive for diversification has spurred a kind of arms race in the fiercely competitive industry, with the deep coffers of private equity shops providing much of the firepower.
"For nearly five years, TPG has been a fantastic partner, giving us both independence and resources for future growth," said Michael Rubel, managing partner at CAA.
Some in the agency world, however, argue that Wall Street makes for a problematic partner. When investing in a company, private financiers typically put down as little of their own money as possible and borrow the rest, then take often aggressive steps to cut costs and increase revenues to pay off their debt and make the business more profitable in advance of a public offering or sale.
"Private equity comes in and says, 'We have to squeeze out every ounce of profit, and we have to grow, grow, grow,'" said one former agent. "Well, that takes a lot of fun out of being an agent. It used to be this very artisanal and personal thing. Now it's these monolithic entities."
Given the pressures that can come with outside investment, talent agencies need to carefully weigh the upsides against the costs, said ICM Partners founding partner Chris Silbermann, whose agency had its own bumpy history with private equity.
"You have to find the right partner because, when you want to reinvest in the business, hire people, compensate people in a motivational manner and find other opportunities for expansion, you need to be aligned in those interests," Silbermann said. "Otherwise, there is a conflict as you're supporting disparate business and financial goals."
Indeed, some point to the experience of ICM as an illustration of the uncomfortable fit between private equity and talent agencies. In 2005, Michigan-based private equity firm Rizvi Traverse Management bought a controlling interest in ICM for more than $75 million. The partnership proved fraught, as executives at the agency felt pressured by Rizvi's relentless focus on the company's cash flow, according to several accounts.
In 2011, ICM executives announced they were buying out Rizvi and converting back to a partnership structure to exert more control over the agency's destiny.
Top executives at CAA and WME insist that, under private equity ownership, they've been left alone to run their businesses day to day as they see fit, and both Silver Lake and TPG say they are far more interested in reinvesting than cutting costs, as evidenced by the agencies' continued acquisitions.
"In the early days of private equity, people generally thought of it as cutting your way to glory — that's never been the case for us," said TPG co-founder and chief executive James Coulter. "We believe in growth and in trying to figure out how to help our companies through transition."
Nevertheless, one veteran talent rep says any increased attention to the bottom line is bound to rankle some agents.
"Agents are inherently anti-establishment or they wouldn't be an agent — you'd go work at a studio or a network," said the agent, who requested anonymity out of a concern for being seen to bad-mouth private equity. "You have to want to fight the man to a certain degree."
According to some industry insiders, the agents who defected from CAA to UTA were rankled by changes in the company's corporate culture under private equity ownership. Others say the defectors wanted a bigger piece of the agency's expanding pie than they were being offered.
Still others contend that the defections speak more to the perennially ruthless nature of the industry than to any particular issues with CAA or its relationship with TPG.
UTA has itself explored the possibility of taking on a private equity partner in recent years, though the company says it is maintaining a wait-and-see approach.
"We don't want to demonize private equity," UTA managing director David Kramer said. "We've had offers, but ... we've been able to grow in dramatic fashion and do all the things we want to do without it."
Wherever there is private equity investment, the question of an exit strategy arises. Private equity firms typically cash out of their investments within 10 years.
With both TPG and Silver Lake several years into their investments, many have speculated that WME or CAA — or both — would go public in the not too distant future, a prospect that would raise thorny questions for agencies that have always been privately held.
But in the near term at least, neither firm says it is looking for the exit out of the agency world.
"We're not in any hurry," Coulter said. "This is a really interesting industry evolution."