By the time the suit was filed, Nicholson had reportedly been paid $50 million (with estimates today suggesting up to $90 million) and even received a financial interest in Batman Returns (1992), a film he had no involvement in. Guber and Peters were said to have made up to $20 million from the film. Warner Bros. agreed with those numbers and said that this was one reason that final accounting had not been made. Nicholson, at least, received a deal for “gross profits” (a percentage of the receipts before expenses were accounted for), meaning he would get a cut of the box office whether the film was successful or not. So creative accounting may be a common practice, but is it legal?
- What Prowse failed to realize however, was that Guiness’ deal included the merchandising wing of Lucasfilm, not just the Movie itself.
- As a former projectionist I had distributor preview mandates for most every print.
- The producers, writers, director, cast and crew all were paid from this budget, but the companies involved relied on the profits of the film.
- New Line was later fined $125,000 for failing to provide its accounting documents in relation to the suit.
By 2007, after a string of flops for New Line, Jackson was brought back to the studio to first executive produce, then to officially direct the new trilogy based on J.R.R. Tolkien’s The Hobbit (all part of the same continuity as The Lord of the Rings). This reversal was partially because co-studio MGM shut down production without Jackson. Stack Exchange network consists of 183 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers. Checkout Trends.co to access exclusive research and connect with business builders from around the globe.
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After seeing how lucrative Sir Alec Guiness’ net-point deal was, he signed on for a similar payment. What Prowse failed to realize however, was that Guiness’ deal included the merchandising wing of Lucasfilm, not just the Movie itself. This resulted in Prowse still not being paid to this day, whilst Alec Guiness’ estate continues to receive residuals.
- The real reason for this loss was the practice of Hollywood accounting.
- All of the above means of calculating overhead are highly controversial, even within the accounting profession.
- Hollywood studios use it to grab profit shares and limit extra payments to other film participants.
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Hollywood Accounting is the way production studios avoid paying actors, models, filmmakers, and crew royalties or anything else based on a percentage of profit. Production companies overestimate your expenses, and through accounting practices, there is no profit, or at least a lot less of it – at least on paper, even if the movie makes billions of dollars. In an NPR interview, author Edward Jay Epstein argues that this double-edged sword can also be doubly beneficial in some cases. When an actor, director, producer or writer is given a profit sharing contract with a promised percentage of the net profits, on paper they are shown (and reported in the press) to be making incredibly huge amounts of money… even though that money will never be seen. When negotiating their next projects they can demand higher fees based on that very thing.
As an example, the distribution of a film may be handled by another company the studio also owns. This distributor can then charge the parent company really anything they want to distribute the film. The studio will naturally accept this fee, no matter how obscene, as they’re just paying themselves. hollywood accounting But now they can show that they had to pay, say, $100 million, for distribution, even if the distribution only actually cost a fraction of that.
But given the profit-sharing deals many actors and other creatives include in their contracts, as well as tax liabilities, Hollywood is occasionally inclined to do the opposite. Without the audit clause, a creator may be left relying on the goodwill of a studio to produce the requisite accounting information in order to determine if the creator is being compensated fairly. Beyond that, a creator’s only avenue to compel a studio to produce its financial information may be through the discovery process during litigation or arbitration.
Marketing Against the Grain
Hollywood accounting refers to a set of intricate financial practices utilized by film studios in Hollywood. It involves manipulating financial records to make a film or television show appear less profitable on paper than it is. Hence, the studio can avoid or reduce payouts to talent and other profit participants. Thus, doing this leads to disputes and legal battles between studios and those involved in the project. Art Buchwald received a settlement from Paramount Pictures after his lawsuit Buchwald v. Paramount (1990).
Specifically, industry experts often point to Rita Hayworth as a trailblazer in this regard, as the starlet’s agents are known to have secured lucrative deals for the actress that saw her taking home 25% of the gross for many of the films she starred in. That is, of course, difficult to prove which is why such a lawsuit took so long to be settled (and still resulted in profits for Fox, thanks to the large successes of Aliens). Whether the books were ever opened or not (and they were not), it’s true that Brandywine ultimately won the suit (albeit with little substantial hit to Fox) and went on to make six more Alien films in partnership with the bigger company. In the 1960s and 1970s, actors, producers, directors and even writers took part in the gross and net profits of hit movies. Warren Beatty, for example, shepherded the production of and played the lead role in « Bonnie and Clyde. » In addition to earning $200,000 upfront for his work, he also took 40 percent of gross profits. The movie was not expected to make much when the deal was struck, but it has since earned more than $150 million.
Once a film is made, there are all kinds of expenses — distributing it widely to theaters, paid TV channels, streaming services, airlines, etc. There are also huge marketing costs and interest payments on debt, said S. Mark Young, an accounting professor at the University of Southern California’s Marshall School of Business. In other words, it’s on actors and writers to make sure any profit-sharing deals are tied to revenue or ticket sales, rather than net profit. No matter how successful the movie is, net profit may, by design, never exist. Because actors and other creatives involved in making it have profit-sharing deals in their contracts.
The Real Money Heist
That means he has earned about as much as Sandra Bullock would make on « Gravity » nearly 45 years later. Hollywood accounting primarily impacts the financial reporting and profit-sharing calculations after a film’s release. It is separate from the box office reporting, which reflects the gross revenue generated by a movie at the box office. However, the reported profitability (or lack thereof) can influence how the public and the industry perceive a film’s success.
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The fact that streaming money will pale in comparison to box-office receipts makes the specter of Hollywood Accounting as great as ever. According to Business Insider, WarnerMedia’s decision to release its 2021 slate of big movies (e.g., The Matrix 4) simultaneously in theaters and on HBO Max is riling Hollywood folk. … in the form of taxes, royalties, and profit-share agreements. Sony, Solomon says, is artificially keeping the movie in the red to avoid big payouts. And yet Sony Pictures, the studio behind it, claims the film has never broken even.
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In short, this Canadian/ Greek/ American co-production (quickly labeled the “most Profitable Independent Film in History”) would be considered a hit by any accounting practice in Canada, Greece or America. But what if 20th Century Fox employed a little creative accounting to keep that 30 percent from being too high? Hollywood accounting is the practice of big studios of making successful movies into what looks like a financial failures on purpose and through questionable accounting tricks. The goal is to show no profit despite the movie actually being profitable, in order to not having to pay anyone who negotiated for a cut of profits.
Undaunted, Hanks, wife Rita Wilson and Gary Goetzman (who also produced) joined with Vardalos and also sued Gold Circle (along with Big Wedding Productions, LLC and Vortex Pictures) separately. Vardalos was reportedly contracted to receive eight percent of the profits with Hanks, Goetzman and Wilson promised one third of the remaining funds after expenses. Even with Gold Circle revising the net from the negative to around $287 million, the various parties continued their suits until 2008 when the various parties requested a dismissal “without prejudice” (meaning the suits could be re-opened). While not all of that settlement has been disclosed to the media, the suit itself does give us a bit of a look into why this creative accounting takes place.
The court further found that such formulas effectively “double-count” many expenses of the studio and have been designed for the express purpose of making sure a net profit is mathematically impossible (and therefore no profits must be shared). Unlike as we have with Order of the Phoenix, we don’t have any ledger explaining just how Fox (allegedly) buried the profits from Alien but the question of “Why? In the case of Alien, Brandywine acted as the production company with input from Fox, which acted as something of a co-studio.