Avatar 2 financier dues Disney for “chilling” accounting “cheating” with millions

TSG, one of the financiers behind Avatar 2, has filed a lawsuit against Disney and accused the company of hoarding profits in a “chilling” example of Hollywood accounting.

TSG Entertainment Finance alleges it’s owed more than $40 million following an independent autit of three movies, including Best Picture winner The Shape of Water. The firm has invested more than $3.3 billion into over 100 films for 20th Century Studios, including Deadpool, The Banshees of Inisherin, and Bohemian Rhapsody.

The suit, filed on August 15 in Los Angeles Superior Court, accuses Disney and its former Fox studio of using “nearly every trick in the Hollywood Accounting playbook” to withhold profits and cut deals that leverage its streaming portfolio and stock price.

This also comes after Scarlett Johansson’s suit over Black Widow’s contentious day-and-date release on Disney+ and the Bones team suing Fox over the show’s profit sharing.

Disney sued and accused of “cheating” financiers out of millions of dollars

John Berlinski, TSG’s attorney who also represented Johansson, wrote (as per The Wall Street Journal): “Disney (and the executives running it) had and continue to have every incentive to do anything and everything they can, including manipulating distribution of the Qualifying Pictures and preventing TSG from liquidating its interests in certain tranches of Qualifying Pictures, to attempt to boost Disney’s share price at the expense of TSG and other profit participants.

“At its root, it is 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.”

20th Century Studios

The lawsuit claims the returns on TSG’s investments have “decreased dramatically” over the years, and an independent audit is said to have revealed enormous reductions and improper charges amounting to as much as $35 million. This led to the discovery of “uncovered rampant ‘self-dealing,’ the practice by which a studio enters into ‘sweetheart’ deals with its licensee affiliates to artificially minimize the profit payments to stakeholders like TSG.”

For example, TSG has accused 20th Century Studios of bypassing a deal with FX Networks that would have made licence fee costs dependent on how much money Avatar: The Way of Water made at the box office. Instead, the studio allegedly “did a secret side deal for a fraction of what the parties had previously agreed was fair value.”

The suit also takes issue with the controversial changes to theatrical and distribution windows, with Disney accused of forcing 20th Century Studios to renegotiate with HBO to strengthen Disney+ and Hulu’s streaming portfolios – which directly impacts TSG.

“On information and belief, these deviations from the traditional windowing of Fox’s films — in spite of Fox’s express and implied obligations to TSG — were a direct result of Disney’s interference with the RPA in pursuit of its ultimate goal: to prop up its wholly- or majority-owned streaming platforms and the share price of its stock using content from other divisions of the company,” Berlinski added.

Berlinski also cited the recent price hikes and said CEO Bob Iger has “pursued this strategy recklessly and with little forethought.”

Disney has yet to comment on the lawsuit. In the meantime, you can find out more about the Hulu and Disney+ price increases here.