The Film That Never Made a Profit

Art Buchwald was a newspaper columnist. In 1982 he wrote a treatment called King for a Day and took it to Paramount, which developed it for a while and then dropped it. In 1988 Paramount released Coming to America, starring Eddie Murphy, and Buchwald sued, saying it was his story.

He won that part. In January 1990 a judge found the film had indeed been based on his treatment.

The second part is why the case is famous. Buchwald's contract gave him a share of the film's net profits. Coming to America had taken something in the order of 288 million dollars. Paramount's position was that under the contract's definition, the film had made no net profit whatsoever, and Buchwald was therefore owed nothing.

That is not an accounting error. It is what the definition says.

Here is roughly how it works. Before net profit exists, the distributor deducts a distribution fee, typically a large percentage of gross receipts. It deducts distribution expenses. It deducts the negative cost, meaning what the film cost to make, with interest charged on it. It deducts an overhead charge, often calculated as a percentage of the negative cost, and sometimes interest on the overhead. Each of these is defined in the contract by the party doing the calculation.

Stack enough percentage-of-percentage charges and a very successful film can be made to sit permanently just short of net, which is the point. The formula is not predicting a shortfall; it is producing one.

Eleven months after the first ruling, the judge found that many of the net profit terms in Paramount's contract were unconscionable. Under California doctrine, that requires two things together: a procedural element, meaning the terms were a standard form presented by the stronger party rather than negotiated, and a substantive element, meaning the effect is grossly one-sided. The profit definition had both.

Be careful about what this established, because the case is routinely over-claimed.

It did not end the practice. Variants of these formulas remain standard. The eventual figures in Buchwald's own case are modest and the reports of them inconsistent, and the matter was settled rather than finally adjudicated. Nobody got rich.

What it established is narrower and genuinely useful: a court will look behind a contractual definition to what it does. A definition that guarantees a particular outcome is not insulated from scrutiny by being a definition.

The practical consequence for anybody being paid in a film is one question. Is this gross or net?

A gross point is a share of receipts before most of the deductions, and only leverage gets you one, which makes gross participations the clearest available map of who actually holds power on a production. A net point is a share of a number that the other side defines after the fact.

So when a deferred payment is described as a participation in profits, the useful follow-up is not what the film is expected to make. It is what is deducted first, and in what order, and whether any of the deductions are calculated on each other. Absent gross language, a share of profits is a polite way of being paid nothing later, and everybody in the room except the newest person knows it.