The mega-agency merger is made: William Morris Endeavor (WME) Entertainment is the combined talent agency merging film, television, music and book publishing between WMA and Endeavor. Architected on one side by Ari Emanuel, who left ICM (under Wiatt) nearly 15 years ago, and his senior partners - Patrick Whitesell (former CAA), Adam Venit and Rick Rosen (the fourth, or fifth, principal was Tom Strickler, who resigned presumably because he was anti-merger); and, by Jim Wiatt and Dave Wirtschafter from the WMA, now Chairman and Co-CEO, respectively, with Emanuel and Whitesell. A breakdown of the deal math, what it means, and where they go next in relation to CAA.

The Agency/Deal Math:

With Endeavor’s 80-100 agents (about 280 total employees, per LAT) and WMA’s 150 agents (800 employees), Nikki Finke at Deadline Hollywood Daily’s (DHD) blog, which expertly followed the merger, predicts 100 or so layoffs over the next few weeks.

Add to that the requisite agencies’ assimilation issues - agents/agency poaching and conflicts, agents-turned-managers, change of client marketshare - comes the understanding that while this merger helps both companies survive the current economic storm and a changing entertainment environment (lower DVD revs and TV budgets, less upfront/more backend for theatrical).

With combined revenues of $300-325M - research points to a 2:1 split between WMA:Endeavor - the goal will be to challenge the dominant CAA, while maintaining course with current clients.

And with the new classification as WME “Entertainment” (as opposed to “Agency” or better “Media”), one wonders if they will stretch the model as has been seen with the Endeavor-MRC relationship.

The toss-up will be how the two sides intermingle and work together to produce coherent results for their shared clients. Early on, Emanuel said, “We need a bigger boat,” given the merger exploration process which took an emotional toll on both sides, not to mention their clients.

Per Nikki Finke’s DHD:

Both sides now realize that any newly merged company has to consist of only 150 core movie/tv agents at most. The mantra of these negotiations is “make it smaller”. That means, of WMA’s 150 agents, and Endeavor’s 100 agents, about 100 from the combined total will have to be let go. And since CAA’s Richard Lovett has pursued a policy of 100% marketshare when it comes to clients, the new WMA-Endeavor is making as its goal to rep only the elite Top 2%.

After the jump, more on the new agency makeup, the financial value of the enterprise, and the new-and-improved mega-talent agency skirmishes and wars to follow…

The make-up of the new WME board (5 WMA, 4 Endeavor with supposedly equal voting, 1:1.25):

1. Jim Wiatt, Chairman (WMA)
2. Ari Emanuel, Co-CEO (Endeavor)
3. Patrick Whitesell, Co-CEO (Endeavor)
4. Dave Wirtschafter, Co-CEO (WMA)
5. Adam Venit, Managing Partner (Endeavor)
6. Rick Rosen, Managing Partner (Endeavor)
7. John Fogelman, Motion Picture Head (WMA)
8. Peter Grosslight, Music Head (WMA)
9. Jennifer Rudolph Walsh, Publishing Head (WMA)

Via Dawn Chmielewski and Meg James’ article for the LATimes: “This is a somewhat historic reset in the industry. I don’t think we have seen anything quite like this,” said Larry Gerbrandt, head of Media Valuation Partners and a media analyst. “It’s more than just a merger of two agencies; it’s about what all of this implies.”

The Tinseltown economies affected by agency mergers also potentially allows studios and clients to play more hardball, instead of being figuratively “hip-pocketed” into packaging deals that benefit agencies primarily on an aggregate level.

With conjecture on what the new mega-agency will be worth, Nikki Finke’s DHD pulls some valuation insight from the film financing world:

Back in 1995 when Michael Ovitz was negotiating with Edgar Bronfman for the top job at MCA (now Universal Studios), CAA was valued at $250 million. So what are the biggest agencies worth now, given that factors such as Big Media’s consolidation, and lower TV packaging fees, and fewer TV syndication deals, and less movies being made, must be measured against receivables?

The business world is loathe to give personal service businesses a value based on a multiple of current year or future years cash flows or profits because the future is so speculative. This is, in large part, why talent agencies have had a very hard time figuring out ways to create liquidity (how do I cash out?) for their partners. And it’s why talent agencies really can’t go public because the public marketplace is really all about projecting future revenues and future earnings. All that the WMA/Endeavor merger does is potentially create a better, more efficient mousetrap in a world of consolidation or shrinking revenue streams.

With a better mousetrap, where do such newly monolithic agencies steer next? And how less nimble can they be given the huge carry of talent (human cargo) they have to maneuver?

Post-Merger, aka Stepping up on CAA:

Per Sharon Waxman’s TheWrap.com: “There’s the wedding,” said one [insider], “and then there’s the marriage.” The various agency entities will assimilate, however loudly, into an organization where the biggest dog, think “Ari Gold” agent training, will force changes.

Not only will agents be let go, but clients not in line with the agency growth/competition, will also find their walking papers. Boutique, i.e., smaller agencies will sweep in, as well as be created by excised agents, to roll-up clients and former WMA/Endeavor agents.

On the other side of the talent agency Chunnel, one can only imagine a CAA or a UTA calmly reviewing their respective clients - i.e., Jerry Maguire or his protege, ‘Bob Sugar’ (expertly played by Jay Mohr) calmly calling all the clients and bereft agents, and casually mentioning, “It must be hard, given all the politics and turmoil over at WMEA, or Whatever Agency it is today…”

Via Patrick Goldstein’s “The Big Picture,” LATimes:

In a rocky economic downturn, we have two talent agencies with different motivations for a merger. At Endeavor, Ari has been looking for a way to get bigger, either through entrepreneurial ventures or through a merger (he’s already approached ICM, but those talks went nowhere). For Emanuel, the real target is CAA, the agency behemoth that’s been hobbled to some degree by the lousy economy. You might say Emanuel smells a moment: Seeing CAA in a rare downturn, Emanuel figures a merger with WMA would give him a rare opportunity to grow his agency in a down marketplace and play catch up with his fiercest competitor.

If there’s an opportunity, one assumes, the smart agents will seize it; and, a little more concentrated competition will undoubtedly increase CAA’s own competitiveness which can only raise clients’ boats, while offshoring or creating a number of new Endeavor-like startup agencies of ‘politically bored’ agents.

Per the NYTimes: “Endeavor has momentum, the William Morris Agency has depth, and a combined entity would challenge a leadership position long held by the dominant Creative Artists Agency.”

The mega-agency wars just got more interesting, one would think.

Next steps? Hard to say. It’s about finding ways to carve out businesses that prevent future loss of entertainment revenues.

Find out where the studios are seeping revs and create new relationships, manage new talent in distribution, marketing and production to own more of the model without breaking the model or the studio chain, as it were.

If there’s a way to renovate the entertainment system, it likely lies with those who know all sides of the entertainment system, who can raise more money, take more equity and provide the necessary attachments to glue it all together.

Perhaps the days of the power brokers are back if (and a big IF…) they can figure out the new dynamics of entertainment consumption.

Two cents or a little more from the agency muse.

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The official release below:

ENDEAVOR AND THE WILLIAM MORRIS AGENCY MERGE
Two of the leading entertainment agencies reach historic agreement

(Beverly Hills, CA — April 27, 2009) In a landmark deal, two of the leading entertainment agencies, Endeavor and the William Morris Agency, today announced a merger of both companies. The new agency will be called William Morris Endeavor (WME) Entertainment. The transaction, which is subject to customary closing conditions, is expected to be completed in the second quarter.

The leadership team for the new agency will be Jim Wiatt, Chairman, and Ariel Emanuel, Patrick Whitesell and Dave Wirtschafter, Co-CEOs.

Wiatt, Emanuel, Whitesell and Wirtschafter join company directors John Fogelman, Peter Grosslight, Rick Rosen, Jennifer Rudolph Walsh and Adam Venit on the nine-member board that will guide the agency.

This historical agreement brings together two of the industry’s most respected entertainment agencies spanning motion pictures, television, music, theatre, publishing, commercials, sports, marketing and below-the-line production.