4 ms·

I've heard of these accounting shenanigens. If you are ever faced with a contract where you get "residuals"/net-profit, how do you protect yourself?

deleted 10y ago
[deleted]
gamblor956 10y ago
All of the Star Wars movies made profits for their distributor. The accounting loss was recorded only in the special-purpose holding company (SPHC) that was specifically set up to disburse profits to net-profit participants. To ensure that this type of entity has no profits, all production and distribution expenses of the studio and distributor are generally charged to this entity, usually in advance lump sums. The studio and distributor record and are taxed on their income. In many cases, any licensing income is earned by a separate but related company that paid the SPHC for the rights to re-license the film (but usually the distributor also acquires licensing rights). The SPHC is generally a profit-participant in the licensing company, but its share of the licensing profits usually varies based on industry politics (i.e., leverage). A-listers with sufficient leverage and competent representation can sometimes participate in the profits...of the distributor. It's not enough to get gross profits since gross profits take into account COGS/COSS. What you really want is "first-dollar gross", meaning "gross income" before distributor expenses. For example, say, "Gravity 2" makes $100m at the box office. That $100m is first-dollar gross. If WarnerBro's COGS were $80m, gross profits were only $20m. If Sandra's share of profits was 1% of first-dollar gross, she's looking at $1m; but if she only had a gross-profits participation, she's looking at only $200k. If Sandra was a net profit participant, she wouldn't make anything at all since Gravity Special Purpose Movie-Making Entity has an $X million dollar loss related to production expenses for making the movie and the distribution expenses WarnerBros is expensing to it. [source: I do this. But not for WarnerBros or Gravity, those are just examples that are easily Googled if you want to follow up with your own research.]
maxerickson 10y ago
Actors with good negotiating position get big up front payments and a percentage of gross. So I suppose one answer is to have good negotiating position.
lenjaffe 10y ago
You negotiate a percentage of the gross.

deleted 10y ago

[deleted]

gamblor956 10y ago

All of the Star Wars movies made profits for their distributor. The accounting loss was recorded only in the special-purpose holding company (SPHC) that was specifically set up to disburse profits to net-profit participants. To ensure that this type of entity has no profits, all production and distribution expenses of the studio and distributor are generally charged to this entity, usually in advance lump sums. The studio and distributor record and are taxed on their income. In many cases, any licensing income is earned by a separate but related company that paid the SPHC for the rights to re-license the film (but usually the distributor also acquires licensing rights). The SPHC is generally a profit-participant in the licensing company, but its share of the licensing profits usually varies based on industry politics (i.e., leverage). A-listers with sufficient leverage and competent representation can sometimes participate in the profits...of the distributor. It's not enough to get gross profits since gross profits take into account COGS/COSS. What you really want is "first-dollar gross", meaning "gross income" before distributor expenses. For example, say, "Gravity 2" makes $100m at the box office. That $100m is first-dollar gross. If WarnerBro's COGS were $80m, gross profits were only $20m. If Sandra's share of profits was 1% of first-dollar gross, she's looking at $1m; but if she only had a gross-profits participation, she's looking at only $200k. If Sandra was a net profit participant, she wouldn't make anything at all since Gravity Special Purpose Movie-Making Entity has an $X million dollar loss related to production expenses for making the movie and the distribution expenses WarnerBros is expensing to it. [source: I do this. But not for WarnerBros or Gravity, those are just examples that are easily Googled if you want to follow up with your own research.]

maxerickson 10y ago

Actors with good negotiating position get big up front payments and a percentage of gross. So I suppose one answer is to have good negotiating position.

lenjaffe 10y ago

You negotiate a percentage of the gross.