The stars of Star Trek II: The Wrath Of Khan found an interesting way around Hollywood’s bookkeeping.
Whilst Hollywood has no shortage of creativity when it comes to the movies it makes, there’s also some jiggery pokery that goes on too when it comes to the numbers.
All perfectly legal, just that it leads to stories such as films like The Italian Job – the 1969 classic – being declared as in loss decades after its release. Likewise, Harry Potter And The Order Of The Phoenix, according to the studio spreadsheet, was once reported to be in the red to the tune of $167m, in spite of grossing nearly $1bn at the global box office (and that’s before disc sales and assorted tie-ins were factored in).
It was in the 1980s that Hollywood studio accounting first really made big headline news, with a legal case surrounding the film Coming To America. As charted in the book Fatal Subtraction: The Inside Story of Buchwald V. Paramount, producer Art Buchwald took Paramount Pictures to court over profits from the hit movie. The problem being that Buchwald had been promised in the end a share of the net profits rather than gross receipts, and as such was astounded to discover the film hadn’t many any profit. Some achievement for a movie that cost $39m to make, and grossed nearly $300m at the box office alone.
That story is pretty well known, not least because of the book that was written about it. But one case of Hollywood accounting that slipped under the radar a little was to do with Star Trek II: The Wrath Of Khan.
For good reason, this is the Star Trek movie often rated as the best of the 13 to date. Directed by Nicholas Meyer, the film starred William Shatner, Leonard Nimoy, DeForest Kelley, James Doohan, Walter Koenig, George Takei and Nichelle Nichols, with Ricardo Montalban as Khan.
After the troubles Paramount had gone through with Star Trek: The Motion Picture, The Wrath Of Khan was a more modest production. It cost around $12m to make (a fraction of the cost of its predecessor), and was a huge success. $97m at the global box office was brought in. What’s more, the film was perfectly poised to take advantage of the new video cassette formats that were coming to market. The movie was released on both VHS and Betamax, and sales were double what was expected. Paramount had a flat-out hit on its hands, and plans were soon afoot for what would become Star Trek III: The Search For Spock.
However, hidden away in a Premiere magazine report back in August 1990 was a tiny story about the net profits for The Wrath Of Khan, and how those affected responded.
As it turned out, around half a dozen people involved in the film – including William Shatner and Leonard Nimoy – had net profit participation in their contracts. That, simply, once the film was in profit, they’d get a small percentage of the cash it’d made.
Predictably though, when the balance sheet came in, Paramount was apparently reporting that there were no net profits to slice up on this one.
Yet here’s a case of the people involved reacting in pretty much a perfect way. It should be noted that they had some leverage, by the fact that the studio was going to need them for at least one more sequel, possibly more.
But even so, as Premiere reported, six people who had net profit points on the picture – Shatner and Nimoy included – pooled together thousands of dollars between them. They took that money to pay for what was described as a “thorough audit of the domestic receipts”. And that audit appeared to come up with different conclusions to whatever early spreadsheet package the studio happened to be using at the time (it was the early 80s, we’d bet on something like VisiCalc).
Paramount, in its defence, duly stumped up when presented with the audit results. It forked out over $50,000 in the end for each net profit participation point, more than covering the cost of the audit for those who had opted to fund it.
Brilliantly, the gang of six didn’t stop there. Once they realised that they were onto something with the audit of the American profit and loss numbers for Star Trek II: The Wrath Of Khan, they turned their attention to elsewhere in the world. After all, at least a quarter of the film’s takings had come from outside the States, and if the balance sheet had flaws in one territory, they figured it might have flaws elsewhere too.
Thus, the group began work on auditing the accounts for the film in every country in which it was released. And it was at this point that Paramount decided to step in. That when it realised what the six were doing, and when it also realised which way this was all likely to go, it came back with a counter offer. Keen to keep the creative talent onside for the next film, and also to mitigate its position somewhat, Paramount made an offer to net point participants to buy those points off them. That instead of auditing all the income from the film, Paramount would write a cheque to each of them to consider the matter closed, and close off any future points earnings.
The six accepted.
The actual amount involved in those cheques is unclear, and it’s very much an under the radar story anyway. But the deal was done. Star Trek III: The Search For Spock would follow just two years later, and Paramount continues to make revenue from The Wrath Of Khan to this day.
In the end, albeit after some expensive auditing, this is one of those stories where ultimately, everybody won something…
See also: Forrest Gump – the $678m film that apparently made a loss.
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