The Great Escape: Inside the Mass Defection from CAA to UTA

It may not have registered on the Richter scale, but Hollywood is still reeling from the earthquake whose epicenter originated on Avenue of the Stars last week.

From the top down, CAA insiders were stunned by the mass defection of 11 agents, most of whom represent comedy talent, to smaller rival UTA. The move marked the biggest blow to CAA’s image as showbiz’s most powerful talent agency in 20 years, since the 1995 turmoil created by the departures of co-founders and rainmakers Michael Ovitz and Ron Meyer.

The decamping of the agents and such high-profile clients as Chris Pratt, Zach Galifianakis and Will Ferrell will take a significant financial toll on CAA down the road, but the more immediate and potentially lasting damage may be to its reputation as an elite place that talent and their reps rarely leave. The projection of the agency’s storied power is symbolically reinforced by the imposing polished-steel-and-glass edifice of its Century City HQ.

Beyond the specific impact on CAA and UTA, a shakeup of this magnitude is sure to have a ripple effect across Hollywood’s talent houses. One veteran manager noted that in addition to bolstering UTA, the move gives WME/IMG momentum in narrowing the competitive gap with CAA. He likened it to simple math: “The No. 2 agency just got closer to No. 1, and No. 3 just got strengthened.”

Kotryna Zukauskaite for Variety

As with any major disruption, expect more client poaching and agent shuffling to ensue — not just between CAA and UTA, and not just among megastar clients. “It becomes something in the air at a time like this, and people suddenly start to feel restless,” said a seasoned agent.

Perhaps the biggest surprise, industry insiders said, was that the defection caught CAA’s leaders unaware. Industry sources said it was no secret that the top agents who left had been unhappy and were making quiet inquiries into opportunities at other shops. That CAA was caught offguard was a sign, according to industry observers, that its top brass hasn’t been minding the store as closely as it should have been amid a push to expand and diversify.

Two days after the first wave of agents left for UTA, CAA responded with a lawsuit filed April 2 in Los Angeles Superior Court accusing UTA and two agents of conspiring to interfere with CAA’s contractual relationships. Arbitration claims against three other agents, whose contracts mandated arbitration rather than a civil lawsuit, have been initiated.

The aggressive legal strategy underscored the outrage at CAA over the PR damage inflicted by the shakeup. Execs at TPG Capital, the private equity giant that has owned a majority stake in CAA since last year, were said to be unnerved by the revolt in the ranks. These are not the headlines TPG wants to see as it mulls the possibility down the road of an initial public offering for CAA.

According to two CAA insiders, TPG brass was livid with the agency’s managers after learning of the defections last week, demanding to know how it could happen at an agency thought to be impenetrable — though a different CAA source disputes this characterization. Sources said CAA’s top leaders, including Richard Lovett, Bryan Lourd and Kevin Huvane, took a coolheaded approach to addressing the issue in small-group meetings with the departments most affected by the hasty departures.

“This is not the first time that agents have changed and taken clients with them; however, the underlying causes are new,” said entertainment consultant Seth Willenson. “Any time the economic model of a business changes, the institutions change along with it. As private financing came in, the way institutions have run has changed. (The largest) agencies are not seeing pure talent representation (as) having room for growth.”

Compensation Issues
The mood of discontent among some at CAA opened the door for the exodus, led by the five agents who were the first to confirm their departures on March 31: Jason Heyman, Martin Lesak, Greg Mc­Knight, Greg Cavic and Nick Nuciforo. For Heyman and Lesak, the decision marked a homecoming to the percentery they left for CAA in 2005 amid clashes with senior agents who are no longer at UTA.

McKnight and Cavic were named as defendants in CAA’s civil complaint; Heyman, Lesak and Nuciforo will face arbitration proceedings. However, details of the trio’s contracts were included in CAA’s Superior Court filing, which painted a dramatic picture of the agents plotting a “midnight raid” against CAA. UTA declined comment on the lawsuit.

Industry insiders said the migration of prominent agents and big-name clients laid bare tensions that have been simmering among CAA’s rank and file for several years. The shift in ownership from top agency insiders to TPG Capital over the past five years, coupled with the agency’s aggressive expansion into sports and other far-flung businesses, have left some in the core film- and TV-rep arena feeling underappreciated and under-compensated. There’s also a frustration about a perceived lack of mobility at CAA.

Resentment has grown as some staffers believe CAA’s leaders have profited handsomely from the sale of equity stakes to TPG in 2010 and 2014, without allowing much of that money to trickle down to the lower rungs. The influx of private equity money in Hollywood agencies has accelerated with CAA’s TPG pact and WME’s partnership with Silver Lake, which helped fuel WME’s growth ambitions, including its $2.4 billion buyout last year of sports powerhouse IMG.

The exposure of the famously insular world of talent agencies to scrutiny by outside investors is a sea change, no matter how strongly CAA and WME/IMG maintain that it’s business as usual for the management of the agencies. Industry sources note that since TPG came into the picture, fewer CAA staffers have worked under contract than in the past.

The bold move by UTA stirred speculation that it, too, is poised to take on outside investment coin, thus allowing the agency to promise its new recruits that a hefty payday is coming soon.

For sure, the CAA defectors did not come cheap, as by most accounts part of their motivation for leaving was due to compensation. With the core five agents signing on as partners, UTA has amassed considerable overhead,, while the commissions from new clients will take months if not a year or more to flow in.
Industry sources estimated the multiyear cost of bringing on the 11 agents at upwards of $20 million, including contracts and signing bonuses for the new partners. UTA also hired two coordinators who worked with agents in the comedy group, as well as a handful of assistants.

But knowledgeable industry sources said UTA does not have an immediate outside investor deal lined up, and disputed chatter that it has been actively shopping itself for a deal. There is no dispute that the agency has had conversations with prospective investors.

UTA has been able to rely on its own resources to expand its portfolio, notably through the 2013 acquisition of N.S. Bienstock, a New York-based boutique specializing in TV news talent such as Fox News’ Bill O’Reilly and CNN’s Anderson Cooper.

Like CAA’s loss, UTA’s win comes almost as much from cementing its reputation as a strong and growing alternative to the CAA and WME/IMG superpowers. The expected influx of talent from Heyman and Lesak in particular greatly enhance UTA’s ability to package film and TV projects soup-to-nuts, pairing showrunners and screenwriters with marquee stars and directors.

A Stealthy Exit
Many in the biz expected the week of March 30 to be a sleepy frame, a spring-break getaway reprive leading into the Easter and Passover holidays.

But the morning of March 31 was anything but quiet for Heyman, Lesak, Mc­Knight, Cavic and Nuciforo. Instead of heading to their offices at CAA, the five reps each had a letter of resignation messengered to the agency at about 9:15 a.m. Once they received confirmation that their letters had been received, they headed over to UTA by 10 a.m.

There was a palpable buzz in the UTA complex as the new hires arrived, but there was no time for speeches or even a company-wide meeting — just a short email memo from UTA CEO Jeremy Zimmer and managing directors David Kramer and Jay Sures — the power triumvirate among UTA’s 46 partners — calling the new arrivals “among the most respected agents in our industry.”

UTA’s five newest hires practically sprinted to their new offices — where computers and active email accounts were awaiting them — and started calling clients in an effort to get ahead of the headlines they knew would soon leak to the Hollywood trade press. The process of contacting clients was complicated by the fact that the agents were careful not to take any paper or electronic files that could be construed as CAA property. So there were many phone calls to managers and publicists for contact information.

UTA’s leaders were overwhelmed by the response from the industry once the news filtered out. Chatter reached a roar a few hours later, when it became clear at least five more agents from CAA would follow the initial five. (Hire No. 11, Andrew Skikne, was confirmed April 6.)

Inside CAA, a scorched-earth search was mounted for clues as to how the defection plan came together over the past few months in order to build its legal brief. Toppers also moved to contain as much of the damage as possible by throwing money at and showering affection on other flight-risk agents to keep them in the fold — in fact, a handful of reps who had one foot out the door were convinced to stay. A charm offensive was launched among clients at all levels in an effort to keep further losses to a minimum.

Karma’s a Bitch

The drama instigated by the departures is far from over. UTA has every incentive to flex its new muscle by setting up splashy projects and innovative business deals. CAA will want to prove that it’s still the undisputed Big Kahuna of the tenpercent set. “CAA is not surrendering,” an experienced talent manager said. “This is a shot across their bow, and they will respond.”

The vulnerability CAA is suddenly feeling is a cautionary tale for WME/IMG. That agency is inevitably dealing with growing pains as its CEOs, Ari Emanuel and Patrick Whitesell, move the combined organization into new markets. One big difference between WME and CAA is that at WME, it’s clear the lion’s share of the private equity influx has been plowed into agency operations, through the acquisition of IMG and other deals. And among agency insiders, equity stakes are more broadly dispersed than at CAA.

Moreover, industry sources say Emanuel and Whitesell have taken pains to remain visible in showbiz circles in their traditional roles as aggressive talent reps for the likes of Larry David, Matt Damon, Ben Affleck and Charlize Theron, even as they dive into learning the ropes of IMG’s fashion, sports, marketing and event-management operations.

For CAA, there’s a touch of karma involved as well. No agency has perfected the art of poaching like the house that Ovitz built. Although all agencies try to woo the competition, CAA is renowned for its ability to use its starry allure to seduce talent and agents to sign on.

“Agents do steal from each other, and they try and weaken or destroy their enemy, which is other agencies,” said Howard Suber, former chair of UCLA’s film producers program. “This kind of thing where people leave to form their own army has been done many times before. Ironically, that’s how CAA got its start. What they did has been done to them.”

James Rainey and Ted Johnson contributed to this report.

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