The Risks of Ubiquitous Private Equity Investment in Sports and Entertainment

HEATHER BRAVERMAN—Today’s entertainment, sports, and media landscape is multifaceted and complex. Traditional divides between agents and production companies or sports teams and media companies are rapidly evolving into far-reaching partnerships with involvement in every angle of the business. Fueled by private equity, this expansion across disciplines raises potential risks like conflicts of interest and unclear fiduciary duties for firms and executives.

In September of 2023, Wasserman, a renowned agency and entertainment company that “powers the business of sports, music and culture,” acquired Brillstein Entertainment Partners, a leading Hollywood management company. The acquisition firmly expanded Wasserman into production, allowing Brillstein access to more resources, a larger platform, and the ability to “play a lot of instruments in the orchestra,” including building digital talent representation and growing an endorsement group.

This wider footprint seems to benefit all parties, but Wasserman’s multiple roll-ups have also required shifts in its investors to avoid conflicts. In 2023, Wasserman acquired U.K.-based sports marketing agency CSM Sports & Entertainment and Caric Sports Management. Because two of Wasserman’s investors, RedBird Capital and Madrone Capital Partners, gained some ownership in sports teams, they could not continue their involvement in Wasserman, which owned sports talent agencies, and other investors bought them out.

These defensive shifts will likely continue as companies grow into new verticals, and agent/client relationships are especially vulnerable. Private equity investment in agencies escalated in 2010 when TPG Capital’s investment in Creative Artists Agency grew to $500 million and a majority stake. Investors encouraged agencies to step beyond their antiquated footprint as the “agency business is a nice little business, but it’s not going to make everyone’s dreams come true. If we want to grow, we need to move our model from pure agency commissions and towards ownership.” However, this broad approach threatens the legitimacy of the agent and client relationship when companies are obligated to negotiate on their client’s behalf while simultaneously hiring them on the production side.

In California specifically, the standard of fiduciary behavior is even higher than general marketplace expectations, and it requires not just honesty but “the punctilio of an honor the most sensitive is then the standard of behavior.” Private equity involvement in agencies and their subsequent strategic moves conflict with that delicate honor.

Endeavor, a global sports and entertainment company and home to a well-known talent agency, ultimately settled with the Writers Guild of America over these issues and, as part of the settlement, sold an 80% stake in its content studio behind the show “Killing Eve” for $785 million to entertainment company CJ ENM.

Many sports leagues have eased restrictions, allowing for a significant influx of private investment triggering potential conflicts. Major League Baseball (MLB) jumpstarted this shift by allowing investment funds to hold interests in multiple teams in 2019 if each ownership interest is passive, non-controlling, and less than 15%. In 2022, Endeavor sold its professional development league business, Diamond Baseball Holdings (DBH), to private equity firm Silver Lake, prompted by concerns from the MLB Players’ Association (MLBPA) regarding possible conflicts arising from Endeavor’s ownership in teams and athlete representation via its sports agency.

Beyond the agent and client relationship, sponsors may have to make difficult decisions favoring competing portfolio companies and implicating fiduciary duties. RedBird Capital Partners committed at least $100 million to fund Ben Affleck’s and Matt Damon’s venture, Artists Equity, the production company behind “Air,” the 2023 film about the legendary history of Nike and Michael Jordan. However, RedBird is behind other production companies like LeBron James’ Springhill Media and David Ellison’s Skydance Media. When these portfolio companies need funding for future projects, who will determine which company gets funding, especially as RedBird’s founder has known Affleck and Damon for 20 years?

Further, with control comes potential liability if private equity sponsors designate their members as board directors for portfolio companies. When the interests of the fund and the portfolio company diverge, conflicts may arise for sponsor-designated directors as it might be unclear if they owe duties to LPs of the fund or the portfolio company. Plaintiffs who disagree with company decisions may take advantage of that perceived conflict.

As private equity continues to permeate the entertainment, media, and sports industries, potential portfolio companies and private equity firms should ensure they are deliberate in their planning and well-versed in the legal obstacles that come with innovation and growth.