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Principles of finance ah la shmoop why gap accounting exists

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think hollywood profits is an oxymoron Well for low level

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profit participants it usually is like there ain't no profits

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for low level players in hollywood That is if you're

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not a headliner like brad pitt or steven spielberg the

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way your profits get defined is likely very different from

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the definitions for brad or stephen Yeah we're on a

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first name basis here you know he directs a bunch

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of our videos kinch tell all right Well the stars

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attributed cost of renting capital might be a five percent

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movies cost upwards of one hundred million dollars to make

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for the big ones S o five percent on one

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hundred billion dollars for steven and brad Yeah five million

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bucks a year Okay they can stomach that Whereas a

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lower level profit participant might get assigned a capital cost

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of eighteen percent a year on that hundred million bucks

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Yeah eighteen million a year in interest cost to rent

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that money and it takes a whole lot longer for

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the lower level Guys get profitable and participate in profits

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Take eight years to pay back that hundred million Well

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that's a lot of cash spent just to pay back

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the rent on the capital to make the movie in

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the first place or paid the studio a the bank

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So yes the terms are different but they're at least

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accurate stated and track ahh lower level profit participant knows

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exactly when they become profitable It's not chicken ary lives

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and seat it's Just negotiating leverage because i don't really

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need john travolta in the movie Well there's an actual

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process to the way in which the numbers get presented

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to hollywood agents and managers and well also to the

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irs But read a number quote from a financial site

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a business marketing it's wears or anyone who has an

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axe to grind in expressing data and that little skin

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fold between your eyebrows will likely get active So let's

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walk through an example of a profit participant and note

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why gap accounting also known as what's it called oh

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yeah rules are so important in counting beans Exhibitor narcissus

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makes a movie called egg xavier He leaves his salary

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as quote undetermined unquote He gets a star to take

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half the profits while the movie cost fifty million box

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to make twenty five million to market with everything paid

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accepting xavier's salary well the film reaps one hundred eighty

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million dollars at the box office and sales of which

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the producer distributor egg xavier keeps yeah for about ninety

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million bucks As the dough wires in from theaters around

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the world xavier decides to fill in the blank on

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his salary where he then writes fifteen million Yeah the

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ninety million dollars would have made fifteen million after production

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marketing costs but eggs aviators hefty salary just blew out

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any notion of profits to the star or any other

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profit participants They're not fare well What went wrong here

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Well the star was certain that this film would be

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a hit That's Why I signed up to be in

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it in the first place But now the film makes

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all this dough in the stargates Whole lot of nothing

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What time is it Yeah Agent firing time Yeah The

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agents falls the agent should have negotiated for A better

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clearer definition of profit for his client was everything accounted

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for in complaints of gap Yeah probably Maybe even absolutely

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The salary just wasn't made clear until well it was

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too late The best creative people aren't those who write

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the scripts Just look at the accountants who defined notions 00:03:25.177 --> [endTime] of what profit really is

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