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Focus On Entertainment & Sports Industry

The Entertainment & Sports panel is produced by the L.A. Times B2B Publishing team in conjunction with Citrin Cooperman, Fisher & Phillips LLP, Marsh McLennan Agency, and Ramo Law PC.

Few industries have been able to demonstrate resilience during the COVID-19 pandemic as successfully as the sports and entertainment sector, despite being rocked substantially by business-model-altering shifts. Untold numbers of projects and jobs became frozen in limbo (or worse) during the slowdown, but creativity and innovation - always hallmarks of the entertainment world - sparked silver linings and trends that may actually benefit some sub-sectors of the industry long-term.

As sporting events and entertainment productions have surged back again, the industry continues to explore “new betters,” where there may no longer be “new normals,” and the region’s show business professionals continue to stake ground in unchartered territory. Many unanswered questions remain, however. What protocol shifts are here to stay for the long-term? What legal and financial issues need to be addressed? What new roles can technology play moving forward? What will the industry look like a year from now?

We turned to four uniquely knowledgeable experts for their thoughts and insights about how Southern California’s bedrock industries can continue to blaze new and creative paths to success.

Q: As a trusted advisor to entertainment and/or sports businesses, what do you consider to be the most challenging obstacles facing the industry in 2022?

Greg Jones, Senior VP, ARM, Film & TV,Marsh McLennan Agency: With respect to film and television productions and managing the effects of COVID, insurance companies that typically provide coverage for productions aren’t willing to take on COVID exposure. Therefore, insurance brokers have to find other remedies. There are a few insurers who have taken on some of the risk, but usually at limits well below the total budget for a production. Thus, brokers sometimes have to go above and beyond their insurance company connections, which takes us out of our comfort zone.

Todd B. Scherwin, Regional Managing Partner,Fisher & Phillips LLP: From our perspective as labor and employment lawyers, the biggest obstacle is the constant barrage of employee-related issues/concerns that continue to dominate the headlines. When morale is low and turnover is high, there tends to be more harassment, unfair treatment and wage-hour complaints. As we rise out of this pandemic and more individuals are returning to work and into offices, we expect to see a similar uptick in employee relations-related complaints, and the industry needs to be ready to tackle these issues head on.

Jamie B. Montanio, CPA, Partner & Business Management and Family Office Practice Co-Leader,Citrin Cooperman: A big challenge is the globalization of the industry. Every time an actor, athlete, producer, director, and/or entertainer crosses a border, whether it be state or international, it creates a more complex tax situation. As we all learn to live with the pandemic and productions are starting to pick back up, we find that some clients actually prefer to film overseas or out of state. The opportunity to travel the world by filming outside of typical hubs of New York and California, or even the United States, is very alluring to our clients. As a trusted advisor in the industry, they rely on us to ensure that they are in compliance with all state, local, and international tax laws. Advising on and minimizing our client’s overall tax burden remains a top priority for us.

Q: From your perspective, how has the COVID-19 pandemic changed the entertainment industry going forward?

Alexa Whiteside, Entertainment Attorney,Ramo Law LLC: Unlike some industries that, prior to the pandemic, may have had some experience in mandatory vaccinations, beyond medical examinations for cast insurance for key talent, the pandemic has really been our industry’s first major segue way into having to consider the impact of vaccination and employment law on the business. This has been a learning experience for many producers in balancing the concerns and safety of their employees while also considering the requirements by law to consider certain medical and religious exemptions as well as protecting the medical privacy of their employees. For the first time and probably for the foreseeable future, these producers have now worked with employment and labor counsel to ensure that policies and procedures are in place to uniformly process paperwork (including vaccination status) and consider those exemptions and concerns.

Montanio: When the pandemic started, filming and touring came to a complete halt. With more time on their hands, entertainers were able to create more personalized content and leverage their social media platforms to connect directly with their fans. Music artists turned to the virtual stage by hosting concerts on their personal pages, as well as through different avenues such as collaborating with gaming companies. This further developed virtual connection, which allows for artists to not only create their own content but to distribute the content how they want their fans to experience it. Artists can also sell merchandise even without utilizing the typical live touring aspect. Social media has always been a revenue stream for entertainers, but it has become even more important as other revenue streams were paused due to the pandemic, and will continue to be an important source of revenue going forward.

L.A. has more experienced below-the-line talent per square mile than anywhere else in the world.

— Greg Jones

Q: What are some of the hottest issues concerning entertainment law in 2022?

Whiteside: Now that producers have become comfortable in the digital space, the buzz topics and big areas that many producers are taking a close look at are non-fungible tokens (NFTs) and the metaverse. Producers, distributors, and the guilds are also still hashing out the future of day-and-date releases and what those financial models, benefits, and bonuses will look like. Also, as the restrictions of the pandemic are beginning to be lifted, talent is itching to get back into live performances. Live tours and their associated merchandising agreements will likely be a large component of what we entertainment lawyers are seeing across our desk in 2022.

Q: What are some of the hottest issues concerning sports law in 2022?

Scherwin: Unprecedented challenges are upping the ante on the field, on the court, and in the workplace: Collegiate athletes are pressing to gain “employee” status, harassment issues are surfacing at all levels, equal pay is more heavily scrutinized than ever, and the COVID-19 pandemic has created significant safety concerns. Staying out of the headlines and keeping people safe, including best practices concerning COVID-19 and vaccines, will remain the top priority for all sports employers this year.

Q: What are some of the silver linings that the industry continues to learn from or adopt as a result of COVID-related challenges?

Montanio: As the cost of living increased in California and New York City, people fled and moved to other parts of the state or country. Fortunately, the entertainment industry is able to function outside of the historical centers of the industry (i.e., California and New York), and people realized that meetings could happen anywhere, anytime, and without the dreaded commute. Technology exists for pre- and post-production from the comfort of the living room while collaborating with co-workers no matter where they were in the world. Of course, live-action production still needed to occur in person, but before and after the shoot, people involved in the process could retreat to where they called home.

Q: What safety precautions are being used to ensure the health of cast and crew during the pandemic?

Scherwin: It is important to be up to date on your COVID-19 and OSHA safety protocols. We have heard stories and examples from our clients about OSHA and Department of Public Health inspectors/auditors showing up on set to review safety protocols, vaccination status, and general OSHA safety guidelines. We all need to ensure that we are up to date on the latest Department of Public Health and OSHA guidelines, including local city or county guidelines, which are changing on a weekly basis.

Montanio: Production companies have a huge responsibility to create a safe work environment that protects the cast and crew. An outbreak on set could lead to a costly shutdown for everyone involved. Hollywood’s unions put together protocols to help productions resume safely, including testing and social distancing at the heart of these protocols. The Zone System was also introduced, which consists of three zones. Zones A and B are on the set and break the individuals into two groups with specific protocols that need to be taken into account to keep everybody in that zone safe. While Zone A and B are essential for set life, Zone C is just as important as it represents the outside world everybody lives in before getting to the set and after leaving the set.

As we rise out of this pandemic and more individuals are returning to work and into offices, we expect to see a similar uptick in employee relations-related complaints, and the industry needs to be ready to tackle these issues head on.

— Todd B. Scherwin

Q: How has streaming changed the face of entertainment from a financial perspective?

Jones: The rise of streaming services has made content more valuable. Some services, such as those associated with major studios, have significant libraries. Others have to build up their own inventory. Some studies have shown that subscribers to streaming services prefer to see new content. This has led to a boom in production, which in turn has provided a financial resource that producers are anxious to tap. It has also led to companies offering lucrative contracts to talent, so that they can ensure access to the content they create. Lastly, because there is no “back end” that can be offered to A-list talent, streaming companies now have to pay A-listers more money upfront, which has shifted the financial/accounting paradigm.

Q: What new considerations do professional athletes and coaches need to consider in 2022?

Scherwin: Teams and professional athletes are under a microscope more than ever due to the social media blitz that is prevalent in our society. As a labor and employment firm, the uptick we have seen in harassment and unfair treatment allegations/charges is unprecedented. It is more important than ever for employers to have strong procedures and protocols in place on training, prevention, and conducting investigations so that when an issue or complaint arises among your workforce you are ready to move quickly.

Q: What is the potential impact of the war in Ukraine on the motion picture and television industries?

Whiteside: In the past week, we have seen a substantial roll back and removal of upcoming productions from the Russian markets as well as the discontinuation of certain Russian outlets in EU and NATO countries, including the United States. This will have a major impact on foreign production and possible force majeure implications. Here in the U.S., the conflict in Ukraine is already having an impact on oil prices, which impacts the costs of everything. As more resources are allocated to Ukraine, the supply chain issues are likely to be further impacted and access to certain materials may be limited and costs increased. So, for the next several weeks, even if a producer is shooting in Los Angeles, they should be considering the potential impact on production costs and factor in a contingency as this crisis is ongoing.

As inflation hits the global economy, film and television productions look to reduce costs however they can, whether it be tax credits, lower minimum wage, lower price of materials, or lower income tax rates.

— Jamie B. Montanio

Q: How is the business of college athletics being impacted by the implementation of new Name, Image and Likeness (NIL) monetization rules?

Scherwin: NIL is a game-changer. Our college and university clients now find themselves with a new puzzle to solve as they learn to navigate novel NIL rules and act as a resource to help student-athletes seek money-making opportunities. For instance, we are seeing university clients having to act as “middlemen” between student-athletes and newly formed collectives – which are stand-alone businesses, often part of a larger firm or nonprofit entity, that create income-producing opportunities for the athletes. If there’s a contract between a student-athlete and a third-party institution, the university will look at it to ensure no lines are crossed, it complies with state NIL rules, Federal Trade Commission rules, and other applicable rules. Separately, advocates have reignited the war over employee classification of student-athletes – so universities are having to walk a fine line in their support of athletes.

Q: Do you believe the shift in film and television production to other cities continues to occur?

Whiteside: If the COVID-19 pandemic proved anything, it’s that, with current technology, it’s possible to work anywhere on the globe remotely or in person. This is resulting in a huge diversity of content. And as states and countries continue to develop and provide expanded benefits of shooting in their states and countries, producers of content and financiers are going to continue to search out the most financially viable locations that best suit their budgets as well as their creative vision.

Jones: Yes, the shift in production to other cities will continue. Film producers are always on the lookout for how to stretch dollars. Therefore, they will often consider alternative locales for a film if said locales are providing a financial incentive. Many states and other countries provide tax credits and tax incentives, sometimes up to 40% of a film’s budget. That is a significant impact on the bottom line.

Montanio: If the cost to shoot outside of Los Angeles or New York remains lower, production companies will continue to move productions away from traditional filming hubs. As inflation hits the global economy, film and television productions look to reduce costs however they can, whether it be tax credits, lower minimum wage, lower price of materials, or lower income tax rates. If talent is willing to sign onto a project outside of Los Angeles or New York and the crew’s skill level is similar to that found in Los Angeles and New York, the shift away from Los Angeles and New York will continue. If state and local COVID-19 protocols stay at today’s levels into the future in Los Angeles or New York, productions will also continue to find new locals.

Q: How can we reinvest in L.A. to keep more entertainment production here?

Jones: One of the ways would be to offer financial incentives, such as tax credits. Another would be to promote the wealth of experienced film production labor. L.A. has more experienced below-the-line talent per square mile than anywhere else in the world.

This has been a learning experience for many producers in balancing the concerns and safety of their employees while also considering the requirements by law to consider certain medical and religious exemptions as well as protecting the medical privacy of their employees.

— Alexa Whiteside

Q: What are some of the new challenges of financing a film or series?

Montanio: Although risk has always been the main challenge in financing a film or series, the pandemic has exacerbated it. Due to health and safety protocols and general inflation, the cost of production has increased. Historically, independent production companies have relied heavily on traditional bank financing and bonding to fund their productions. However, if you can secure an insurance policy or completion bond, the cost of these products has doubled in some instances. Because of this, independent productions must look elsewhere for capital or reduce their budgets without sacrificing the production quality. While the large studios have deeper pockets and can take on more risk, they still are cautious about the risk they want to take on and are concerned with the eventual profit.

Q: What should employers in sports look for in a trusted advisor?

Scherwin: With deep industry experience and more than 35 attorneys who were collegiate or professional athletes themselves, our dedicated Sports Team, including my co-chair Adam Sloustcher, knows clients’ concerns first-hand and shares their same passion for sports. Our diverse group of attorneys are long-time labor and employment counsel to professional franchises and leagues, collegiate conferences, individual colleges and universities, youth sports clubs and organizations, and other industry players - including sports television networks, eSports employers and league owners, stadiums, apparel companies and other sports-affiliated organizations. We help sports employers comply with applicable laws and regulations, work up-front to avoid and manage controversies, and defend clients fiercely before governmental, regulatory, and administrative agencies and, when necessary, in litigation.

Q: Are we seeing ESG-related trends in sports and entertainment businesses?

Montanio: Our clients in the entertainment industry are looking at Environmental, Social and Governance (ESG) related products to invest in and endorse. For their personal investments, we are seeing that clients want to invest around their values. If environmental protection is an important value for our client, we want to make sure their investment portfolio represents the same value. We help them evaluate investments based on the ESG criteria, and they use these same criteria when they are going to endorse a product. Not only do our clients need to believe in the endorsement, but they are very selective of who they will endorse and invest in, looking for a company that shares similar values and world views.

Q: What should independent filmmakers keep in mind when selling films overseas?

Jones: Experience counts! Independent filmmakers should be sure to use an experienced sales agent, who will know best not only what overseas exhibitors are able to pay, but also the ability to get the payment out of the country in question. Usually, the financial commitments a filmmaker gets from overseas are aggregated and used as collateral to obtain financing from U.S.-based banks. If any of the sales territories have a history of being difficult when it comes to payment transfers, it affects the bank’s decision to lend.

Q: What licensing issues come into play with the recent shift to virtual events, content and distribution?

Whiteside: As we’ve shifted into the virtual world, the grant of rights necessary within the licenses that producers are obtaining have expanded and, with that, have increased the overall licensing budgetary line of production. Additionally, many producers will decide to record that live event. So, for instance, if the event was via videoconference but is recorded and made available for later access, a producer has expanded the term from a single live digital event to, essentially, a perpetual term for the purposes of digital distribution of an audio/ visual product. More rights or a greater term (or both) generally means a higher fee. So, if a producer is doing a live event, these are considerations that need to be taken into account and included within the budget for that production.