Dispatch has revealed that Lee Soo Man selling his SM Entertainment shares to HYBE was his only option left on the table.
In an exclusive report, Dispatch curated a series of interviews industry insiders and statements made by HYBE related to HYBE’s acquisition of the majority of Lee Soo Man’s SM Entertainment stock to show that Lee Soo Man had no other choice but to sell his shares to HYBE.
It was previously believed by some that the deal between HYBE and Lee Soo Man was made in part because of the relationship between Lee Soo Man and Bang Si Hyuk. Both Lee Soo Man and Bang Si Hyuk attended the same university, Seoul National University. However, their prior relationship did not affect the deal.
As SM Entertainment grew, Lee Soo Man only thought of the company. He ran the company with the mindset of “I am Lee Soo Man, Lee Soo Man is SM, SM is Lee Soo Man.” However, as time went on, it became clear that while Lee Soo Man created SM Entertainment, he ended up holding the company back.
One example of this is the leaked contract that revealed Lee Soo Man would receive six percent of all music-related revenue from the company between the years of 2022 to 2092, as well as three percent of management-related revenue until 2025. This contract was signed through his personal company, Like Planning. Based on this, Lee Soo Man would stand to receive up to ₩80.0 billion KRW (about $63.3 million USD) over 70 years even after the termination of Like Planning as the money would simply go to Lee Soo Man’s bank account.
HYBE decided that they did not want to continue this relationship, so it was determined that this clause would be eliminated and Lee Soo Man would no longer be receiving royalties as previously contracted. Lee Soo Man gave up ₩80.0 billion KRW (about $63.3 million USD) spread over 70 years in order to offload the majority of his SM Entertainment stock.
During the process of forming this agreement, we have decided to not accept the clause stating that royalties would be paid to former executive producer Lee Soo Man as a demonstration of our commitment to improving the corporate framework.
Lee Soo Man decided to fully cooperate in improving the corporate structure by transferring shares of SM Entertainment’s affiliate companies that he personally held to HYBE.
— HYBE
Some of the company stock that Lee Soo Man transferred to HYBE other than SM Entertainment include Dream Maker Entertainment Limited, which produces concerts and live shows, and a brand marketing company. It was also noted by another media outlet, Invest Chosun, that HYBE has the right to purchase the remaining SM Entertainment shares totaling 3.66 percent of the company within the next 12 months. By doing this, Lee Soo Man willingly provided HYBE with the means to block him from making money from SM.
It was also noted that rather than Bang Si Hyuk joining hands with Lee Soo Man, it was instead Bang Si Hyuk joining hands with SM Entertainment.
Lee Soo Man urgently reached out to Bang Si Hyuk. Bang Si Hyuk accepted his request for help. But it is noteworthy that the help that Bang Si Hyuk provided also cut off nearly all connections between Lee Soo Man and SM.
Lee Soo Man’s role in SM Entertainment is over.
The revenue that Lee Soo Man can make from SM Entertainment activities and promotions is nearly all gone. That money is now going to the company and the shareholders. Lee Soo Man handed over his share and escaped.
How could someone justify Lee Soo Man returning to management for SM Entertainment again?
— Insider
Dispatch notes that the irony in this situation is that the current SM Entertainment management team could not stand by looking at Lee Soo Man’s unfair profits anymore. Therefore, they sought to improve the corporate structure by partnering with Align Partners and demanded to see the accounting books. They chose Kakao as their new large-scale partner, which they believed was a good choice because Kakao was more focused on Kakao Entertainment, and didn’t care much about the internal management within SM Entertainment.
SM Entertainment’s new corporate structure ended up pushing Lee Soo Man into a corner. With increasing scrutiny on his royalty contract, the best he could do was to disrupt the plan, which ended up in a SOS call to HYBE. While Lee Soo Man did disrupt the plan a little, the final goal set by the new corporate leaders and Align Partners were all reached with Lee Soo Man’s decision. The ultimate goal for HYBE now is to stabilize the corporate structure within SM Entertainment.
As an entertainment company, HYBE will still compete with SM Entertainment. They will compete for the future of K-Pop. However, before that, comes normalizing the corporate structure and improving it. Wouldn’t that kind of SM Entertainment be really scary? All of K-Pop is already incorporated within SM.
— Insider
