Hollywood Accounting and How The Harry Potter Movies (Technically) Lost Money

Isaiah McCall

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According to Lucasfilm, “Return of the Jedi” has never made a profit despite the film earning $475 million at the box office against a budget of $32.5 million.

David Prowse, the actor who played Darth Vader throughout the original trilogy, revealed he’s never received any residual payments on “ROTJ” because it failed — and continues to fail — to make any net profit.

“I get these occasional letters from Lucasfilm saying that we regret to inform you that as Return of the Jedi has never gone into profit, we’ve got nothing to send you. Now here we’re talking about one of the biggest releases of all time,” said Prowse. “I don’t want to look like I’m bitching about it,” he said, “but on the other hand, if there’s a pot of gold somewhere that I ought to be having a share of, I would like to see it.”

What happened to Prowse isn’t uncommon. It’s an insidious practice known as Hollywood accounting and it still happens to this day.

Stan Lee Lost Millions

The late great comic-book legend and human easter egg Stan Lee was also bamboozled out of millions by the same company he helped create.

Lee had a longstanding contract awarding him 10% of the net profits of any film, toy, or product based on any of his comic-book characters like Spider-Man, Black Panther, and Thor. So when Sam Rami’s 2002 film “Spider-Man” debuted making more than $800 million in revenue, Lee expected a fat check from Marvel.

What Lee didn’t realize, however, was that “Spider-Man” technically never made a profit as defined in his contract. So Stan Lee received nothing. Not until he sued Marvel for breach of contract years later.

“I am gratified by the judge’s decision, although, since I am deeply fond of Marvel and the people there, I sincerely regret that the situation had to come to this.” — Stan Lee

What is Hollywood Accounting?

Also known as “creative accounting,” Hollywood accountants set up separate corporations for movies with the intent that these fake production companies take on heavy losses.

For instance, if you were a slimy Hollywood accountant you’d create a corporation called “Return of The Jedi Inc.,” and charge this “film company” an artificially inflated fee that technically busts it.

It’s like having a lemonade stand, paying yourself $100, and telling everyone you made/lost $100 today. It’s legalized money laundering.

So, the studio pretends to have spent this money, when in actuality it just hands it back to itself. But as for Return of The Jedi Inc., on paper at least, it looks like it drained the studio out of millions.

Now the studio can rake in all that cash while alienating anyone who signed a contract requesting to make net profits on the film.

These details are often in small print and these actors, producers, and investors often assume the studio is looking out for their best interest with these contracts. Actress Lynda Carter on “The Late Show with Joan Rivers” commented “Don’t ever settle for net profits. It’s called ‘creative accounting’.

Want to know something even crazier?

The IRS took Hollywood to court over creative accounting and lost. Tax evasion wasn’t behind Hollywood accounting. The studios just wanted to maximize their profits while screwing over the film crew.

Creative accounting is how Hollywood does business.

Harry Potter: The Biggest Hollywood Scam

It didn’t matter if you were Raven Claw, Hufflepuff or Slytherin, everyone got screwed over in the Harry Potter franchise.

Namely, the hugely successful movie “Harry Potter and the Order of the Phoenix which had a $167 million loss on paper despite grossing nearly $1 billion.

Some years back someone leaked the official balance sheet which revealed all the shenaniganry that Warner Bros. pulled —

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See anything weird??

No?

It’s not your fault. You’re not an accountant. You still have your soul.

In the above statement, there’s a grossly inflated “distribution fee” of $212 million dollars. While the average distribution fee hovers around 30% for many films, in this case, it was Warner Bros. paying itself back that money.

And that’s not all. $57 million in “interest” and $160 million in “advertising” and “print” costs were another way the studio paid itself back.

Box office profits are sexy, but Hollywood makes the bulk of its money from harvesting the back-end.

All the major players in the film crew were paid upfront — including JK Rowling who demanded a “100 percent” accounting clause— but many writers, actors, and producers were screwed out of any net profits despite signing and expecting them.

The Studio Behind Your Favorite Film is Evil

Here are some other notable films guilty of Hollywood accounting —

➰21st Century Fox used Hollywood accounting to deceive the producers and stars of the television show “Bones” out of $179 million in missing profits.

➰Michael Moore lost his percentage of profits for his documentary “Fahrenheit 9/11.” Moore later sued Bob and Harvey Weinstein for creative accounting. They ended up settling in court.

➰Winston Groom, the author of “Forrest Gump,” sold his screenplay rights which included a 3% share of the net profits. Due to Hollywood accounting Groom received only $350,000 for the rights and an additional $250,000 from the studio.

The Takeaway

When you’re somebody working on a movie there’s a strong chance that you’re doing better than most and don’t need any additional profits to live a comfortable life.

Let’s be thankful that most everyday corporations don’t have the money, or power to do what Hollywood does to its film crews.

However, Hollywood makes the bulk of its money from harvesting the back-end. This includes TV and streaming service licensing, physical merchandise, and Blu-rays. All those net profits we were talking about earlier.

It’s enough money to make someone rich several lifetimes over. This is why the film crew wants in, and why Hollywood won’t give up easily.

In summation, if someone ever offers you a movie deal — take the money upfront, and run.

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USA Today Reporter and Ultramarathoner. I write about Cryptocurrency, Fitness Hacks, and Greek Philosophy. Also a diehard Trekkie | mccallisaiah@gmail.com

Jersey City, NJ
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