Hollywood is a very rich town and arguments about millions of dollars are nothing new. This past February, the controversial filmmaker Michael Moore filed a lawsuit in Los Angeles against Hollywood movie producers the Weinstein Brothers (Bob and Harvey) for alleged breach of contract, breach of fiduciary duty and fraud arising from their deal on the sharing of the “backend” or “net profits” from the 2004 movie Fahrenheit 9/11, which is still regarded as the highest-grossing documentary ever, with more than $222.4 million in the till so far. Having reportedly received about $20 million from these payments, Moore seeks an additional $2.7 million in backend profit payments, which he claims should have come to him but were instead secretly “re-routed” to other channels for the benefit of the Weinsteins, who he alleged had used “classic Hollywood accounting tricks and financial deception” to stiff him.
Moore said he discovered the shenanigans through an independent auditor he had hired to look into the matter. As if to draw the battle lines ever so clearly, the Weinsteins’ people have dismissed the claims of accounting tricks as “absolute baloney” and insisted that Moore is not entitled to another dime.
As it happens, accounting for backend or net profits for a Hollywood movie can get pretty tricky. It has so many moving parts and often times it could be years before the true financial picture emerges, as the movie makes its way through the big screens, DVDs and television and through many countries and foreign languages. And when the accounting is finally done, the result can sometimes truly boggle the mind. Who could forget the accounting result in the 1992 Rain Man movie, which reportedly earned over $228 million dollars and had cost only $29 million dollars to make and yet ended up in the red by (get this!) more than $29 million after various deductions were made for distribution and productions costs, including interest ad overhead charges. Quite Intriguing!
So, can anyone really get anything from the studios and producers when it comes to backend profits? Well, yes, but that is easier to arrange at the beginning before the movie is even made. It is certainly harder to do so in Moore’s situation.
To be sure, Moore has filed the appropriate claims here. But his opponents are the ones controlling the production budget and deciding what items to spend money on and how much to spend. That means they can begin their maneuvers early in the production process in order to arrive at the dollar figures they want at the backend and that gives them the ability to run even a high-grossing movie into the red zone. For someone who is not an experienced accountant familiar with movie production budgets, squaring off against them in this numbers game can seem like a David-and-Goliath situation.
Of course, Moore can always use the litigation technique called “discovery” to obtain a lot of this kind of information from the Weinsteins. There will then be a big debate about justifying how much was spent and what it was spent on; whether the spending was so unreasonable and so out-of-the-ball park that it simply cannot be allowed; and so on. Moore will actually have to win this debate before any court can find that the Weinsteins committed breach of contract, or fraud or breached their fiduciary obligation(s) toward Moore and to award him his $2.7 million in damages. None of this stuff is easy.
But the Weinsteins have their own problems here too. The “discovery” process in lawsuits like this one can be a real bitch and if Moore ever wanted to embarrass the Weinsteins and create a public relations nightmare for them, this would be is his big chance to air so much of their dirty laundry in public. For instance, the Weinsteins may not look like such great guys to work with if Moore is out there publicizing details of the so-called “grossly excessive and unreasonable” amount they allegedly spent to hire a private jet to carry a single passenger to Europe, and other not-so-nice stuff.
Long story short, both sides will find that they have good reason to settle the case and call off their dogs. And cut their losses. The option of “mediation” which they have so far pushed aside in their dispute can help them achieve that.
In the end, backend profits or net profits are not a safe bet for anyone who wants to get some money at the backend of a Hollywood movie production. However, folks in Moore’s position can increase their chances of getting backend profits if they structure the “agreement” so they can participate in production decisions, either by themselves or through their representative or perhaps to have the “agreement” guarantee them something at the backend. But whether the studios and producers will agree to such an arrangement is a whole other ball of wax and may depend on how badly they want to do the deal. Still, that may be what it will take for someone to get anything at the backend from any Hollywood studio that is determined not to give him anything.