A new complaint was filed against Warner Bros. Discovery, Inc. (WBD) by shareholder (plaintiff) Richard Collura on November 25, 2024, in the U.S. District Court for the Southern District of New York. The defendants in the complaint are the company, CEO and President David Zaslav, and CFO Gunnar Wiedenfels.
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The plaintiff alleges that he bought WBD stock at artificially inflated prices between February 23, 2024, and August 7, 2024 (the “Class Period”). The plaintiff is now seeking compensation for his financial losses. To learn more about the lawsuit, click here.
Warner Bros. Discovery is an American multinational media company and entertainment house. The company’s renowned offerings include HBO Max, DC Films, Cartoon Network Studios, CNN, and Discovery, among others.
The filed complaint alleges that during the Class Period, the defendants misled WBD investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
Plaintiff’s Allegations
According to the complaint, WBD intentionally misrepresented information presented in its financial statements submitted with the U.S. SEC (Securities and Exchange Commission). In particular, the defendants allegedly misled investors about the “goodwill” value of the NBA (National Basketball Association) contracts and networks portrayed on the balance sheet. The plaintiff alleges that the defendants failed to exercise proper oversight and control over the preparation and submission of public financial statements.
The complaint alleges that the company and its senior executives knowingly misrepresented the true value of its networks and NBA contracts. This, it alleges, led investors to pay an inflated stock price, which included an overvalued goodwill amount. Additionally, the plaintiff claims that investors were misled regarding the true potential of the NBA rights negotiations. The complaint also alleges that the decline in the Networks’ goodwill was due to the gap between its market cap and book value, along with softness in certain U.S. advertising markets.
For instance, on February 23, 2024, WBD released its Q4 and full-year Fiscal 2023 results. During the earnings call, the President mentioned that the company had regained its solid footing during FY23, become a financially healthier company, and was fully set on a growth trajectory. Moreover, the President claimed that the company was making good progress on the NBA contract negotiations to extend WBD’s coverage rights with the League.
Unfortunately, on April 22, 2024, the window for negotiating exclusive contract terms with the NBA expired. This allowed other potential bidders to enter the process, driving up the prices for the NBA contracts. Despite this, during the Q1FY24 earnings call, the President expressed confidence in the value of the company’s assets and stated that contract negotiations with the NBA were still ongoing.
Warner Bros. Discovery’s Misrepresentations
In contrast to the claims made by WBD and the defendants, the company had allegedly inflated its goodwill value in the books, only to revalue and slash its figures in the financial statements later.
The truth became clear on August 7, 2024, when WBD reported weaker-than-expected results for Q2FY24. In the three months ended June 30, 2024, revenue fell 6.3% year-over-year. What’s worse, WBD reported a net loss of $10 billion, which was majorly impacted by a $9.1 billion non-cash goodwill impairment charge from its Networks segment. Following the news, WBD stock fell 11% in after-hours trading on August 7.
To conclude, the defendants allegedly misled investors about Warner Bros. Discovery’s goodwill value and contract rights negotiations. Year-to-date, WBD shares have lost 7.2%, causing damage to shareholder returns.
