Hollywood's premier talent agency has brought in an outside investor to help finance future growth, the latest evidence of the harsh economics of the entertainment industry.
TPG Group, a firm best known for its investments in Burger King, Neiman Marcus and Metro-Goldwyn-Mayer, said Friday it had bought a 35% stake in Creative Artists Agency, becoming the single largest owner of the firm that represents some of the biggest names in Hollywood, including Steven Spielberg, James Cameron, George Clooney, Will Smith, Julia Roberts and Oprah Winfrey.
The decision to bring in outside capital comes in response to seismic changes in the movie and television businesses that have squeezed the commissions that agents collect from their clients. Studios are making fewer movies — and attaching fewer zeroes to the paychecks of actors, directors and writers — as DVD sales and movie attendance continue to slide.
Similarly, there are fewer lucrative television "package deals" for bringing together producers, directors, writers and actors on new shows, in part because of the rise in reality show programming. Meanwhile, the Internet and other new distribution platforms have yet to prove as cash-flush as the old-line businesses.
TPG's investment in Creative Artists marks the second time in recent years that one of Hollywood's major talent agencies has sought an investment from an outsider. In 2005, International Creative Management sold 50% of its agency to private equity fund operator Rizvi Traverse Management. The retrenchment in the talent community also provided the backdrop for last year's merger of the venerable William Morris Agency with industry hotshot Endeavor.
CAA began pursuing new types of ventures as its core representation business faced intense pressure. The cash infusion from TPG should help finance its expansion.
In 2006, CAA entered the sports agent business, and it now represents more than 650 athletes, including NBA stars LeBron James and Carmelo Anthony, New York Yankees shortstop Derek Jeter and Dallas Cowboys quarterback Tony Romo. CAA Sports also won the rights to sell major, multiyear corporate partnerships for the new Yankee Stadium and soon-to-be-renovated Madison Square Garden.
But CAA's push into sports — including the decision to woo top agents such as Tom Condon and Ken Dremer — has been financed out of its own pocket. The agency also has been carrying the financial weight of paying the mortgage on its imposing $35-million headquarters in Century City, where it moved in January 2007 after nearly doubling in size.
That has provided motivation to seek other sources of revenue, insiders said.
CAA began meeting with potential investors about seven months ago, including Kohlberg Kravis & Roberts, seeking a partner that would bring the capital and expertise to help expand the agency's business, according to a person with knowledge of the situation.
Neither CAA nor TPG would disclose terms of the deal, but people close to the agency put TPG's investment at an estimated $150 million in equity, with bankers contributing an additional $200 million in debt.
CAA managing partners Bryan Lourd, Richard Lovett, Kevin Huvane and David O'Connor have signed new long-term contracts.
"CAA exists for one reason — our clients," the partners said in a statement. "Our new relationship with TPG will help us continue to build momentum in the work we do for our clients."
Under the agreement, CAA and TPG will create a $500-million fund to provide capital for future investments.
"We look forward to supporting CAA at this exciting inflection point in their evolution as they look to expand their operations and services around the globe," David Bonderman, TPG founding partner, said in a statement.