Disney, 20th Century Studios Accused of Cheating Film Financier TSG Entertainment Out of $40 Million

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TSG Entertainment Finance, a key 20th Century Fox partner after the exit of Dune Entertainment, is accusing the studio and its new owner Disney of a “Hollywood accounting” swindle that cheated the film financier out of possibly hundreds of millions of dollars, according to a lawsuit filed Tuesday in Los Angeles Superior Court.

The lawsuit cites an independent audit of three films it financed, including Oscar winner “The Shape of Water,” which found $40 million in unrealized revenues. More audits across all TSG investments over the past decade could reveal hundreds of millions in underpayments, according to the lawsuit acquired by TheWrap.

Fox, now known as 20th Century Studios, and Disney did not immediately respond to a request for comment Tuesday.

When Dune concluded its financing deal with Fox in 2012, founding co-partner Chip Seelig established TSG, which has funded more than 100 mostly live-action Fox films including worldwide hits “Planet of the Apes,” “Deadpool,” and “Bohemian Rhapsody.” Frequent moviegoers would recognize TSG’s bumper, with an archer shooting an arrow through several axe heads, in front of movies whose marketing and production costs it helped pay for in exchange for a piece of revenues.

Seelig’s company lawyers write that “Disney (and the executives running it) had and continue to have every incentive to do anything and everything they can … to attempt to boost Disney’s share price at the expense of TSG and other profit participants.”

“It’s a chilling example of how two Hollywood behemoths with a long and shameful history of Hollywood Accounting, Defendants Fox and Disney, have tried to use nearly every trick in the Hollywood Accounting playbook to deprive Plaintiff TSG — the financier who, in good faith, invested more than $3.3 billion with them — out of hundreds of millions of dollars,” the lawsuit states.

The suit says its investment returns dwindled dramatically as Disney was building up Disney+ and Movies Anywhere. Extrapolating from the auditors’ sample, TSG lawyers believe the financier could be owed as much as $54.5 million for electronic sell-through distribution, and were improperly charged $35 million in Movies Anywhere-related costs – a nearly $90 million swing in just two categories.

Auditors examining the three films discovered tens of millions in unpermitted distribution fees, revenue that was never accounted for, and rampant self-dealing, or using license partners to deflate the value of participant revenue, the lawsuit alleges. As an example, it says Fox did a “secret side deal” with FX Networks to distribute “The Shape of Water” for a “fraction of what the parties had previously agreed was fair value.”

The lawsuit seeks unspecified damages to be determined at trial, including punitive damages and legal fees.

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Pamela Chelin contributed to this report.

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