Russia-born Tycoon Tries “Land Grab” of WME Clients In Legal Battle Over IMG Artists

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As a seasoned business analyst with decades of experience under my belt, I find myself intrigued by this complex saga unfolding between IMG Artists and WME. Having navigated through numerous corporate battles myself, I can empathize with both parties to some extent.

A dispute over legal matters has arisen between businessman Alexander Shustorovich and IMG Talent (with their subsidiary WME potentially being affected), with the possibility that they may be required to sell off a part of their music portfolio from IMG Artists due to a compulsory sale of the top classical music management company, IMG Artists.

As a devoted fan, I’m sharing some intriguing news: A company led by a U.S. citizen of Russian origin has instigated a lawsuit, aiming to execute an arbitration decision that mandates IMG Talent to sell its share in IMG Artists to Shustorovich. The agreement reportedly incorporates a non-compete clause, which could potentially restrict the activities of WME (owned by Endeavor) in the realms of classical, jazz, world music, and festivals for a span of three years. Interestingly, IMG Talent, another Endeavor-owned entity, has balked at signing the 2021 purchase agreement.

Last year’s arbitration ruling determined that the noncompete clause in question was an essential part of the agreement and required compliance from both IMG Talent and their associated entities.

Shustorovich explains to The Hollywood Reporter that even if WME’s artists are available, it doesn’t guarantee we’ll acquire them all, but we’re certainly going to make an attempt. Shustorovich aims to grow the music management company, and currently, IMG Artists manages talents such as pianist Evgeny Kissin, soprano Renée Fleming, violinist Joshua Bell, among others. Additionally, they hold the rights for live concert performances of Superman, The Addams Family, and Back to the Future.

The noncompete could impact WME’s operations as it prepares to go private in a deal with Silver Lake valuing the company at $13 billion. The provision prohibits the major talent agency from engaging, “directly or indirectly,” anywhere in the world in the “business of a management agency” with respect to classical, jazz or world music, dance artists or festivals. Across three years in those areas, WME had $1.39 billion in gross revenue and $108 million in commissions, according to an analysis of 26 agency artists conducted by an outside firm commissioned by lawyers representing Shustorovich and obtained by THR. Its clients include Josh Groban, Luis Miguel, Pitbull and Shakira. Additionally, it has the rights to Harry Potter in Concert and has an extensive festivals business that involves Hyde Park Winter Wonderland and tasting festivals.

In a statement, WME called assertions that it’s subject to the noncompete an “attempted land grab.” It added, “The original agreement between IMG Artists and IMG Talent was signed decades ago and pre-dates WME’s acquisition of IMG.”

In this situation, two parties are disputing the boundaries of a noncompete issue. On one side is WME, an artist agency, while IMG Artists is a talent management firm. The main distinction between these roles is that agents, who typically require licensing in many states, secure work for their clients, whereas managers offer career guidance to artists. However, as the entertainment industry becomes more complex with intertwined roles, the boundary between these jobs is becoming increasingly unclear. If IMG Artists wins the case and attracts WME’s artists, it will need to function within management guidelines, making it vulnerable to lawsuits and potential loss of commissions if it ventures into territory traditionally reserved for agents.

IMG Artists’ legal representative, Stuart Karle, stated that the standard non-compete clause is regularly enforced among contracting parties and their associated entities. Previously, this agreement was found to be binding by an arbitrator who is a former federal judge. We are optimistic that the courts will continue to uphold this non-compete restriction in the future, applying it to IMG Talent and the Endeavor Group’s affiliated entities.

In 2011, Shustorovich gained partial ownership of IMG Artists, with funds provided by former chairman Barrett Wissman. This was necessary for Shustorovich, a hedge fund executive, to cover a $12 million penalty following his admission of guilt in securities fraud. Prior to this, Shustorovich had been investing in the Metropolitan Opera and made his wealth through publishing scientific journals. Shustorovich purchased a 49% share in the company, which was approximately equal to Wissman’s stake via W Artists at that time.

For quite some time, Shustorovich found himself at odds with other shareholders within the company regarding its strategic direction. His aim was to invest more funds into the business, intending to compete fiercely in an industry he viewed as relatively uncontested and brimming with potential. However, his proposals faced resistance from several quarters. Wissman, who could not be reached for a statement and whose legal representatives declined comment, opposed dilution of his shares and refused to make additional investments. IMG Talent, which serves as a holding entity for the licensing agreement between IMG Artists and IMG and has no employees, held only a 1% stake in the classical music management firm and generally took a passive stance. In 2014, WME assumed ownership of IMG Talent’s stake in IMG Artists upon acquiring IMG.

The standstill persisted until the onset of the pandemic, during which IMG Artists suffered significantly due to the collapse of most live events industries and had to lay off staff and reduce wages. A forecast to the board predicted that the company would exhaust its cash reserves by the end of 2020. Shustorovich offered to bridge this gap, which amounted to over $3 million in unpaid rent owed by the agency to Pleiades House, a firm he controlled that leased IMG Artists its New York offices. Referencing the agreement, he reminded the board that his $3.5 million investment, if not reciprocated, would represent an extra capital injection and grant him shares in the company based on a fair market valuation as determined by an independent assessment.

That appraisal valued IMG Artists, which had over $7.6 million in liabilities and whose US operations had a $1.7 million operating loss in 2020, at $3 million, according to court filings. The dilution made Shustorovich majority shareholder with roughly 76 percent ownership of the agency, clearing the path for him to trigger so-called “drag-along” rights that would force minority investors, including IMG Talent, to sell their stakes in IMG Artists to an entity he controls known as Classical Talent Management Ventures. Under the deal if it’s completed, IMG Talent will be paid $70,000 for its one percent stake in IMG Artists. In turn, WME could be subject to a noncompete.

It’s clear that Wissman was displeased with the relocation decision.

Toward the end of the legal proceedings, IMG Talent raised an objection at the last minute. They disputed the inclusion of a three-year noncompete clause, claiming it was unreasonable because it claimed jurisdiction globally and encompassed IMG Talent’s affiliated companies. The parent company stated that they were not obligated by the purchase agreement except for the sale price.

Once more, Shustorovich emerged victorious. Arbiter Michael Dolinger stated that IMG Talent is obligated to adhere to the terms of the agreement, which encompass a three-year global noncompete clause. Additionally, he acknowledged IMG Talent’s inaction in raising concerns about the application of this provision earlier in the case, ruling that they forfeited their right to address that issue.

Nonetheless, there seems to be some flexibility in this situation. Dolinger pointed out that IMG Talent presented their claims without a clear dispute demanding a judgment on the provision’s validity. However, he expressed significant reservations about challenging a term that had been included in the business agreement for quite some time.

talent_IMG declined to put their signature on the sales contract, resulting in Shustorovich taking legal action by filing a lawsuit in public court to compel adherence to the arbitration decision.

In their filing made on October 22nd in the New York State Supreme Court, IMG Talent argues that adhering to the non-compete clause would severely harm their business and that of their affiliated companies (the William Morris Endeavor group). However, they contend that dissatisfaction with the commercial impact is not a valid reason for failing to comply with an arbitration decision.

If WME refuses to abide by the noncompete agreement, it may choose to contest the scope of the restriction instead. The validity of this argument would typically be evaluated on a situation-by-situation basis. This process would entail examining factors such as what constitutes “world” or “jazz” music in different legal systems.

From a devoted fan’s perspective, I can’t help but notice that if the ongoing transaction is completed, IMG Artists will be one step closer to standing alone atop the global classical music management landscape – a significant change in the competitive landscape of our beloved industry. The unfortunate closure of Columbia Artists Management during the pandemic and its subsequent acquisition by the San Francisco Conservatory of Music, a non-profit institution, has left Opus 3 Artists without a rival.

According to Shustorovich, WME had been a significant obstacle in our growth. Once free from this impediment, we can venture into brighter opportunities, and we’re financially prepared for that transition.

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2024-11-15 21:26