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Disney sued over accounting by film financiers

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Summary

Disney is facing a lawsuit from TSG Entertainment, a film financing firm, claiming Disney used "nearly every trick in the Hollywood accounting playbook" to underpay them by at least $40 million. The suit also claims Disney negotiated "sweetheart" deals to maximize their own profits and minimize those of TSG. Jason Cherubini, an expert in accounting, believes the bigger implications of the suit will come from the additional allegations, such as self-dealing. He believes this situation has wider implications for industries outside of film and TV, as it shows the need for performance bonuses to be based on more than just financial metrics.

Q&As

What are the allegations against Disney and its subsidiary, 20th Century Studios?
The allegations against Disney and its subsidiary, 20th Century Studios, are that they used “nearly every trick in the Hollywood accounting playbook to deprive” TSG Entertainment, a film financing firm, “out of hundreds of millions of dollars.”

How much money does TSG allege Disney deprived them of?
TSG alleges Disney deprived them of at least $40 million.

What is the purpose of the Revenue Participation Agreement between TSG and 20th Century Studios?
The purpose of the Revenue Participation Agreement between TSG and 20th Century Studios is to outline how TSG would profit from selected films’ revenue in exchange for its financing commitments, including production and marketing costs.

What are some of the “other allegations” mentioned in the lawsuit?
Some of the “other allegations” mentioned in the lawsuit include that Disney negotiated “sweetheart” deals in which TSG-backed films boosted Disney’s subscriber numbers, while minimizing “the profit payments to stakeholders like TSG,” and that there was around $40 million “that should have been accounted for that wasn’t there.”

What potential implications could the lawsuit have for the film and TV industries?
The potential implications of the lawsuit could be that it could disrupt the way profit shares are calculated for actors, writers, and investors, as well as lead to a shift in the way performance bonuses are structured in other industries, with a focus on KPIs beyond just financial metrics.

AI Comments

👍 This article provides a great insight into the current issues surrounding Disney and their lawsuit. It also provides a great example of how finance pros in other industries can use this to learn and grow.

👎 This article fails to provide any real perspective on the lawsuit, instead simply repeating the allegations from the lawsuit without providing any real analysis or insight.

AI Discussion

Me: It's about Disney being sued by one of its major financial partners for using "nearly every trick in the Hollywood accounting playbook to deprive" them out of millions of dollars. The suit claims that Disney underpaid the financier by at least $40 million using various accounting tricks.

Friend: Wow, that's a huge amount of money. What do you think the implications of this lawsuit will be?

Me: Well, the bigger implications will likely stem from some of the additional allegations against Disney, such as negotiating "sweetheart" deals that benefit Disney while minimizing the profits for their stakeholders. It could also cause a ripple effect with regard to the demands of the writers and actors strikes. This lawsuit could be a wake-up call to other industries to consider performance bonuses and profit sharing beyond just financial metrics.

Action items

Research the revenue recognition process and the implications of self-dealing in the entertainment industry.
Consider implementing a balanced scorecard approach to performance bonuses and profit sharing in order to account for non-financial metrics.
Monitor the developments of the Disney lawsuit and the ongoing labor unrest in the entertainment industry to stay informed of potential changes in the industry.

Technical terms

Accounting: The process of recording, classifying, summarizing, and interpreting financial information.
Revenue Recognition: The process of recognizing revenue when it is earned, rather than when it is received.
KPIs: Key Performance Indicators, which are metrics used to measure the performance of a business.
Self-Dealing: A situation in which a person or entity takes advantage of their position to benefit themselves, rather than the organization or group they are representing.
Scorecard: A tool used to measure and track performance against predetermined goals.