How Movie Stars Get PaidS

Every so often someone writes a trend story about movie star pay that is utterly wrong because the reporter has no idea how Hollywood deals are done. So let's do a brief refresher course.

The example today was the Wall Street Journal's report, "Hollywood Squeezes Stars' Pay in Slump," which is being cited everywhere to suggest that there's no money left in the movies. This is wrong. If your movie just opened huge last weekend, a studio will still back up a Brinks truck to your Hollywood Hills abode.

Lauren A.E. Schuker starts out with a way-past-his-prime Eddie Murphy. But even there, she makes a muddled mess of things:

For years, top movie stars often landed deals paying them a percentage — sometimes as much as 20% — of a studio's take of box-office revenues from the first dollar the movie makes, even if it turned out to be a flop that cost the studio millions. As a result, the biggest celebrities broke the $20 million mark. Eddie Murphy got that kind of payday for the flop "Meet Dave," which cost Twentieth Century Fox about $70 million and took in only $11.8 million at the domestic box office.

Simple math will tell you that 20% of $11.8 million does not equal $20 million. Murphy may have indeed made more than $20 million for Meet Dave (because life is not fair), but it's not because of what (as Schuker litters her piece with) a "first dollar gross" deal. So before she or another reporter tries to tackle the issue of movie star pay, here is a quick run-down of the kind of movie deals that studios make with talent.

For most studio films, there's an upfront payment — for instance, the $15 million Angelina Jolie gets — but the backend is always more important. And those deals come in two flavors, "net points" and "gross points."

Net points: These are about as valuable, and confer as much status, as collecting beads for taking your top off at mardi gras. Everyone gets them and they're never worth anything. Along with whatever fee an actor — or a director, producer, writer — gets for a film, they may get some net points thrown in. What it means is a percentage of the profits of a movie after it has recouped all its costs. Since even the mafia envies the ability of studios to cook their books, movies never go into profit. Ever. There are all sorts of charges — production costs, marketing costs, distribution fees, fuck-you-because-we-say-so write-offs — that can make the biggest hit look like a dog.

Gross points: This is where the real money is. Also known as "first-dollar" because it refers to a percentage of the gross revenue, i.e. the first dollar, a studio receives. Of course, this is trickier than it sounds because a studio's gross is not the same as the box office gross since theaters normally get about half of the ticket sales. Take Meet Dave as an example: the global box office on the film is about $50 million, leaving the studio with $25 million after it splits with theaters. So if Murphy had 20% "first dollar gross," he would be looking at a pay-day of $5 million. Other revenue will still come in for the film — pay TV, DVD, broadcast rights — but there are further wrinkles there. DVD, for instance, gets calculated differently, with studios usually keeping most of the receipts (typically 75%) out of the gross pot because of a practice started back in the 1980s where they argued their home video divisions needed to be subsidized. They want to do the same thing with online revenues, which is why the WGA went out on strike last year and why SAG still hasn't signed its new contract.

Once you get into gross point deals, however, you're in the stratosphere of Hollywood dealmaking and all sorts of different arrangements can be made. But if you want to boil them down, there are two basic types.

"20 Against 20": That's shorthand for saying $20 million in advance against 20% of the gross profits. These are the gold-plated deals that top stars expect. It's mostly a boys club: Denzel Washington, Ben Stiller, Jim Carrey. In order for a movie to earn out the advance, it would need to make $200 million at the box office. After that the gross points kick in. This is the kind of deal Schuker is describing when she says Murphy could have made $20 million on Meet Dave despite it flopping. Studios hate them mostly because, while they always resent seeing stars get rich while they lose money, they are looking for ways to minimize the amount of money they lay out upfront when they greenlight a film.

"Cash Break": So, a sort of hybrid deal has arisen that combines aspects of a net points deal and a gross points deal. In these, the star gets a hefty portion of a movie's revenues after a studio has recouped most of its costs. To avoid tricky studio accounting, those costs are typically defined in the contract rather than based on the studio's own profit and loss statement. The most famous of these was Jim Carrey's deal last summer on Yes Man (and most of the WSJ story is driven by his manager defending it). In these deals, stars might waive their normal fee up front, but it's still accounted for in the budget, making them in theory equity investors in the production. And they are still very lucrative (otherwise stars wouldn't agree to the terms): Carrey's manager says he made $35 million on Yes Man.

So what is the story that the WSJ tried to write? Basically, that Hollywood studios are looking to clamp down on up front costs because the hedge fund money that had bloated their production budgets during the boom has disappeared. Until they find a new source of dumb money, they're looking for ways to structure deals so that they commit less of their dwindling production funds. Also, as Kim Masters reports, actors without proven box office pull (i.e. Mickey Rourke, Scarlett Johansson and, as of late, Julia Roberts) are being told to take less pay. It's always easy to write a piece claiming the money's gone out of being a movie star by citing stars on the decline.