The Directors Guild of America's pension plan is taking legal action against MGM Pictures, alleging self-dealing in its licensing agreements with Epix and a failure to contribute adequately to the pension funds of the workers behind those shows. This lawsuit uncovers a complex web of streaming-wars history and financial dealings that have potentially shortchanged the pension plan for years.
The pension plan's funding is partially derived from a percentage of the revenue generated by employers like MGM for union projects. When MGM licenses its projects for distribution, it must report that revenue and set aside a portion for the pension plan. However, the lawsuit reveals a 'sweetheart distribution license arrangement' between MGM and Epix, which allowed MGM to report artificially low license revenue, thus underpaying the pension plan.
A residuals auditor discovered in 2016 that MGM was licensing its projects to Epix and allowing Epix to subdistribute them to other streamers. The auditor found that the licensing payments due from Epix to MGM were lower than those in licenses previously negotiated with Showtime, despite MGM providing Epix with additional, valuable SVOD subdistribution rights for no additional consideration. MGM refused to provide the necessary documentation to support these claims, raising concerns about the proper valuation of distribution rights and the accounting for subdistribution revenue.
The DGA pension plan and MGM agreed to pause the statute of limitations on the pension plan's claims, but this agreement expired. MGM's recent refusal to renew the tolling agreement for unresolved issues from the 2017-2022 audit period prompted the pension plan to sue. The lawsuit includes four counts: failure to comply with audit obligations, breach of contribution obligations to the pension plan and its trustees, and breach of contribution obligations for the 2017-2022 audit period.
The pension plan is seeking records and pension plan contributions that MGM has allegedly neglected to provide for years. MGM owes the DGA pension plan $540,426 in unpaid contributions from the 2017-2022 audit period, and so far, the company has refused to pay this sum. The DGA-Producer Pension Plans are managed by an equal number of trustees from the labor and employer sides, ensuring a balanced approach to managing the pension benefits for union members of the DGA.
This lawsuit highlights the importance of transparency and accountability in the entertainment industry, particularly regarding pension contributions and the financial dealings between production companies and streaming services. It also underscores the potential consequences of self-dealing and the need for proper valuation of distribution rights to ensure fair contributions to pension plans.
