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CAA evolves into capital

Agency partners with former Merrill Lynch bankers

In the latest example of Hollywood talent agencies reinventing their businesses, CAA has quietly extended its reach into the financing arena on a range of media and showbiz ventures pulled together through a partnership with a group of former Merrill Lynch bankers.

CAA has acknowledged publicly for the first time that it is a co-owner of Evolution Media Capital, a venture the agency formed a year ago with the core members of Merrill Lynch’s media and sports structured-finance group, Bob Stanley, Pat Lampe and Dave Pagoda.

Getting more deeply involved in funding and seeding productions and business ventures is clearly a way forward for percenteries. Even before it cut its merger agreement with WMA, Endeavor set up its own plan to form an offshoot company with ex-Goldman Sachs banker Joe Ravitch and former UBS Warburg banker Jeff Sine.

EMC has put together a number of sizable financing deals, most of them involving domestic or international film production and distribution. It recently closed a deal with a consortium of outside investors to create a revolving tentpole fund to finance up to half the budget of event movies budgeted at $80 million or more. Talks are under way for the first project to tap into the fund’s coffers.

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Being a partner in EMC’s slate of deals is a way of expanding CAA’s revenue base, and helps make it a bigger player in the film biz than it could be as a tenpercentery. The financing pacts through EMC have the potential to give the agency a stake in pics and businesses that could pay dividends far beyond 10% commissions or packaging fees, at a time when those traditional sources of agency revenue are under extreme pressure.

“It was a natural innovation for us,” said CAA managing partner David O’Connor. “We’d been at the center of so many deals bringing together individual financiers and institutional investors with entertainment and sports properties.”

Based out of CAA’s Gotham office, EMC has six full-time employees who work closely with all CAA’s departments. EMC is compensated through advisory fees, and CAA is compensated through its ownership stake, the size of which the agency would not disclose.

Even with the gyrations of the financial markets, EMC has found fertile ground for deals, thanks in part to its association with CAA.

“Hollywood had a relationship with outside capital that was something less than positive,” said CAA agent Rick Hess, the percentary’s representative to EMC. “It made no sense. The guys at CAA agreed and said, ‘Let’s create a business where we actually have a fiduciary relationship with the investors.’ ”

The trio of Merrill Lynch alums teamed with CAA a year ago on the heels of a slew of Hollywood deals, including running point on raising $1 billion in funding for Summit Entertainment, helping to raise $525 million for Marvel Entertainment and generating $500 million for United Artists and CAA client Tom Cruise.

CAA reps had worked closely with them on the UA deal. When Stanley and his team were ready to start their own company, he instead quietly formed EMC with the talent agency last spring.

“A talent agency is, in part, a creator of opportunities,” EMC’s Stanley said. “Coupling CAA’s reach and relationships in Hollywood and sports with our experience in structured finance makes great sense.”

In the past year, deals that EMC has been involved with include:

  • Advising Philippe Rousselet in his $250 million funding and formation of production/financing venture Vendome Pictures Intl.

  • Consulting for Steve Samuels when he became lead investor in foreign sales company FilmNation.

  • Structuring and advising Overbrook Entertainment’s Will Smith, James Lassiter and Ken Stovitz and Diana Jenkins’ D Media on the formation of Red Pearl, the joint venture to distribute Western films throughout the Middle East.

  • Advising National Geographic and helping to raise the senior debt financing for its joint venture with Abu Dhabi-based Imagenation.

  • Consulting for Illumination chief Chris Meledandri as he raises capital for the family film/animation banner formed at Universal Pictures as a joint venture.

  • Advising Bill Pohlad as the lead investor in a domestic distribution company being formed by ex-Picturehouse chief Bob Berney.

  • Representing the Participant Media/Imagenation film fund that is in the formation stage.

“EMC operates similarly to a boutique investment bank where they have the mandate to advise clients, structure and arrange transactions, advise clients on all financial services on capital raised,” Hess said. “For instance, EMC consults to UA almost in a chief financial officer capacity. For National Geographic, it supports the staff and runs models on movies.”

Hess said while EMC’s activities are a departure from the traditional talent agency model, it operates within the confines of the agency franchise agreement that tenpercenteries once had with the Screen Actors Guild, which limited agencies’ ability to own interests in film and TV production-distribution companies.

Still, EMC is the CAA’s most significant expansion of its core business since creating CAA Sports three years ago, and it is growing its portfolio at a time when high-net-worth individuals continue to step up to replace the hedge funds and other funding sources that are falling by the wayside.

Hess said the agency toppers are very sensitive about mitigating against potential conflicts of interest that might arise.

“This is a totally separate company, with a credit committee run by banks and investors,” he said of EMC. “It is another service the agency can offer its clients, but it’s an arms-length relationship and we are careful to act within those confines.”

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