Second sentence of that Wikipedia page: > Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount w

Second sentence of that Wikipedia page: > Expenditures can be inflated to reduce or eliminate the reported profit of the project, thereby reducing the amount which the corporation must pay in _taxes_ and royalties or other profit-sharing agreements, as these are based on net profit. First and foremost it’s a tax dodge because nobody falls for points net anymore unless they’re brand new to the industry and people dropping millions to finance a movie are rarely that uninformed. But that’s the why. I’m describing the how: Hollywood accounting is GAAP accounting where the financiers direct a significant fraction of the capital towards businesses they have an ownership stake in. They have both control over the client and how much the vendor charges, driving profit in the topline organization to zero and sending it downstream. The people/studios financing the films are okay with it because they own the downstream vendors. Neither the studios nor Spielberg are under any illusions about how this works - they structure it that way on purpose. They can’t just zero out their profit and say too bad to the taxman and all the contracts on net profit. No judge would let that slide if it came to a lawsuit (and it frequently does). None of this is a mystery to anyone who has worked on the financial side of the industry but because of how that money moves around within a production, it creates economic incentives that favor expensive productions rather than smaller budget ones, at least within Hollywood.