The question of how the WGA is applying its rules for talent agencies divesting their interests in production companies is coming under scrutiny as the guild’s negotiations with WME and CAA drag on.

The WGA has made it clear in separate talks with WME and CAA that the agencies must present a plan to sell off any interests in production or distribution assets that amount to more than 20% of a given entity, and that includes holdings held by parent companies or investors in the agency. UTA and ICM Partners earlier this year agreed to those terms after a more than year-long standoff between Hollywood’s largest talent agencies and the unions (WGA West and WGA East) representing more than 11,000 writers.

It’s understood that lawyers for WME and CAA are questioning whether the guild is seeking to apply a tougher standard of divestiture to those agencies than was imposed on UTA and ICM. Sources close to the situation believe the guild is holding out for different language in the final agreements because WME and CAA, the superpowers of Hollywood talent reps, are both owned by private equity giants with broad holdings across a range of business sectors including media. The WGA’s campaign to reform the rules for how talent agents represent guild members took aim at conflicts of interest for agents involved in packaging TV shows and movies and as large agencies increasingly expand their portfolios into content production.

In the case of UTA, the final franchise agreement as displayed on the WGA.org website states: “No Agent shall have more than a 20% non-controlling ownership or other financial interest in, or shall be owned by or affiliated with any entity or individual that has more than a 20% non-controlling ownership or other financial interest in, any entity or individual engaged in the production or distribution of Motion Pictures.”

For CAA and WME, the guild has asserted that both agencies have to prove that all “parent entities, investors,
shareholders, and affiliates” have no more than a 20% interest in any production or distribution assets. The WGA flatly rejected a proposal from WME to refine those terms to cover only entities that own more than 20% of WME parent company Endeavor.

The divestiture terms present a big challenge for CAA and WME as they would have to either separate from parent companies TPG and Silver Lake, respectively, or have those private equity firms sell off any production-distribution holdings that are over the 20% threshold. CAA has a direct investment in production company Wiip. WME parent Endeavor aggressively built up its Endeavor Content unit over the past few years as it sought to diversify into content ownership and distribution. But Endeavor Content is now an albatross for WME in light of the WGA’s victory in the battle over packaging and production.

A source familiar with the WGA’s position on agency divestitures said there was no formula for calculating the size of an investment stake in an agency against the holdings of that investor in other areas, as indicated by the UTA agreement. “It’s not that sophisticated of a contract,” the executive said.

David Goodman, WGA West president, disputed the suggestion that the guild was asking for anything more from CAA and WME than it has from other agencies. ICM Partners, for example, last December sold a one-third stake in the agency for $150 million to private equity firm Crestview Partners, which has a stake in production company Industrial Media. The size of Crestview’s interest in Industrial could not immediately be confirmed but it is believed to be in compliance with WGA terms.

“The standard in our franchise agreement is that no agency, including its principals and shareholders (like the private equity owners of WME and CAA), can have an ownership greater than 20% in an entity that produces or distributes WGA covered content,” Goodman told Variety in a statement. “This is the standard to which we have held every agency that has signed our franchise agreement, and it is the standard to which we will hold any other agency that seeks to sign our franchise agreement.”

The slow pace of talks for WME and CAA is a source of frustration for both agencies, given that they cannot formally return to representing writer clients without a franchise agreement from the guild. As part of the WGA’s reform campaign, more than 7,000 scribes sent termination letters to agents to protest what the guild sees as inherent conflicts of interest in the TV packaging process and the growth of agency-affiliated production entities.

WME and CAA have pending lawsuits against the WGA, which also lobbed litigation at the agencies. UTA and WGA settled their claims when UTA struck its deal in July. As talks proceed in fits and starts for WME and CAA, industry sources say one or both agencies may opt to stay on the legal path in the hopes that a judge will find that the WGA overstepped its authority in implementing its new agency rules.

The prospect of continuing with costly litigation at a time when agency rivals can scoop up writer and showrunner clients is nerve-wracking to many at CAA and WME. The timetable for the case actually getting to a federal courtroom in Los Angeles has been postponed until August due to the pandemic. There’s also a suspicion among many at the tenpercenteries that the WGA is in no rush to reach an agreement with CAA or WME after both took so long to wave the white flag.

“It’s never been so hard to get someone to take ‘yes’ for answer,” said a lawyer close to the situation.