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

A legal brawl has broken out between mogul Alexander Shustorovich and IMG Talent, whose affiliate WME faces the prospect of losing a portion of its music roster as part of a forced sale of the premier classical music management firm IMG Artists.

A company owned by the Russia-born U.S. citizen has filed a lawsuit looking to enforce an arbitration ruling that holds that IMG Talent must sell its stake in IMG Artists to Shustorovich. The deal includes a noncompete that would allegedly bar Endeavor-owned WME from business related to classical, jazz or world music and festivals for three years. IMG Talent, also owned by Endeavor, has refused to sign the 2021 purchase agreement.

In arbitration decided last year, it was found that the noncompete is “unquestionably a term or condition” of the deal and “must be complied with” by IMG Talent and its affiliates.

“If the artists at WME are up for grabs, that doesn’t mean we’ll get them all, but we’ll take a crack at it,” Shustorovich, who has plans to expand the music management firm, tells The Hollywood Reporter. IMG Artists represents pianist Evgeny Kissin, soprano Renée Fleming and violinist Joshua Bell, among several others, and has the rights to 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.”

The two sides have been clashing over the scope of the noncompete. WME is an agency, while IMG Artists is a management firm. There’s a critical difference between the two: Agents, who must obtain licenses in most states, procure work for clients while managers provide career advice, though the line between the jobs are blurring as Hollywood evolves into a business where there are often overlapping responsibilities. If IMG Artists prevails in the case and does win over WME artists, it’d still have to operate under management rules putting it at risk of litigation and losing commissions if it intrudes on work reserved for agents.

“This is a standard type of non-compete that is routinely enforced against contracting parties and their affiliates, and the arbitrator, a retired federal judge, has already found that it is binding,” said IMG Artists general counsel Stuart Karle. “We are confident that the courts will enforce the non-compete going forward against IMG Talent and its affiliates that make up the Endeavor Group.”

Shustorovich became a minority investor in IMG Artists in 2011 through ex-chairman Barrett Wissman. The hedge fund executive needed funds to pay a $12 million penalty after he pleaded guilty to securities fraud. That led him to Shustorovich, who made his fortune in publishing scientific journals and at the time was underwriting a Metropolitan Opera production. Shustorovich acquired a 49 percent stake in the company — roughly equal to Wissman’s ownership of the agency through W Artists.

For years, Shustorovich had been clashing with the rest of the agency’s shareholders over the direction of the company. He’s wanted to put more money into the business in a bid to aggressively compete in an industry he saw as having few rivals and vast opportunity but was met with opposition. The reasons varied. Wissman, who couldn’t be reached for comment and whose lawyers declined to comment, didn’t want his shares diluted and did not make further capital contributions. IMG Talent, which was created as a holding entity for the licensing agreement between IMG Artists and IMG and has no employees, owned just one percent of classical music management firm and largely stayed on the sidelines. In 2014, WME inherited IMG Talent’s stake in IMG Artists when it acquired IMG.

The stalemate lasted until the pandemic, which saw IMG Artists taking a big hit with the majority of the live events industry as it shed employees and cut pay. A note to the board projected that the company would run out of cash by the end of 2020. Shustorovich agreed to cover the shortfall, which included more than $3 million in back rent owed by the agency to Pleiades House, a company he owned that leased IMG Artists its New York offices. Nodding to the operating agreement, he reminded the board that his $3.5 million investment, if not matched, would constitute an additional capital contribution and entitle him to shares in the company at fair market value as determined by an independent appraisal.

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.

Wissman was not happy about the move. W Artists claimed that Shustorovich’s investment was part of an “improper scheme” to seize control of IMG Artists, according to court filings referencing the arbitration. Extensive litigation followed. Wissman sued in New York State Supreme Court in a lawsuit challenging the validity of the Pleiades House lease. He also sought an order allowing him to match Shustorovich’s $3.5 million contribution and return half of the investment to prevent completion of the takeover. After the lawsuits were moved to behind closed doors, an arbitrator found in favor of Shustorovich in both matters.

As the case winded down, IMG Talent objected at the 11th-hour. It opposed imposition of the three-year noncompete provision, arguing that it’s unreasonable and enforceable since it purports to extend across the world and cover IMG Talent’s affiliates. The holding entity said it’s not bound by the purchase agreement except for the price of the sale.

Again, Shustorovich prevailed. Arbitrator Michael Dolinger wrote that IMG Talent is “bound to the terms” of the deal, “including a three-year worldwide noncompete.” He also nodded to its “silence” in bringing claims over application of the provision at an earlier stage of the case, finding that it “surrendered its right to raise that issue.”

Still, there may be wiggle room. Dolinger noted that IMG Talent brought its claims “in the absence of a concrete controversy that would require a determination on whether the provision is defensible,” though he noted “profound doubt” over objection to a term “that had been part of the operating agreement for many years.”

IMG Talent refused to sign the purchase agreement, forcing Shustorovich to sue in open court to enforce the arbitration ruling.

IMG Talent has “belatedly concluded that complying with the non-compete will be devastating to its business and the business of its affiliates – the companies that make up the William Morris Endeavor group,” states the petition, filed on Oct. 22 in New York State Supreme Court. “But, discontent with commercial consequences is not a lawful reason to refuse to comply with an arbitral award.”

If WME declines to comply with the noncompete, it could opt to challenge the purview of the provision. It would likely be assessed on a case-by-case basis. This would involve analysis, for example, of what falls under the umbrella of “world” or “jazz” music in various jurisdictions.

As it stands, IMG Artists is among the world’s most prominent classical music management firm that’s looking at one less competitor in the industry if the deal goes through. The pandemic saw rival Columbia Artists Management close its doors and the San Francisco Conservatory of Music,a nonprofit, acquire Opus 3 Artists.

WME was a “big shadow over our expansion,” Shustorovich says. “Untethered from this shadow, we’ll be able to move onto sunnier spaces — and we have the capital for it.”