The film “Boxing Helena” was the brainchild of 21 year old first time director Jennifer Lynch, daughter of famed director David Lynch. On the heels of the rookie director Steven Soderbergh’s “Sex, Lies and Videotape”, an independent project that garnered tremendous critical and financial success in 1989, studios were seeking offbeat, low budget projects with large financial upside. Regardless of the climate, making commercially viable films is a very inexact science. Seeking to hedge his risk, producer Carl Mazzocone sought to bring bankable actors to the project, reasoning that the draw of veteran actors like Madonna and Ed Harris would enhance the success of the film artistically and financially. When Madonna withdrew from the film, Mazzocone secured agreement with Kim Basinger as a replacement. Kim Basinger’s withdrawal led Mazzocone to seek relief through the court system for profits lost as a result of her breaking a contractual agreement to star in the film. This paper will examine the court hearing, Mainline Films use of domestic and foreign distribution pre-sales agreements, the validity of the companies estimates of lost profit assessments gleaned from Basinger’s participation in the film in their argument, and the resulting jury decision to award Mainline damages in excess of $8 million.
Domestic and Foreign Distribution Agreements
As illustrated by the plaintiff’s attorney, Mainline had secured domestic distribution revenue of $3 million and foreign distribution revenues of $7.6 million based on Basinger’s appearance in the film. When she withdrew from the project, these pre sale agreements dropped significantly in value, to zero domestically and $2.7 million overseas. Should Mainline’s maximum and minimum lost profit estimates by revised downwards on the basis of the domestic distribution pre-sales? As evidenced by the testimony of Mainline’s expert, in estimating damage as a result of Basinger’s withdrawal, domestic distribution revenue markets lack the efficiency of the foreign distribution markets. As such, Mainline’s contentions of lost profit on the basis of domestic distribution revenue pre sold lacks the validity of their contention of loss on the foreign distribution deals, so the lost profit estimates should be revised downward to reflect uncertainty of the domestic pre sales, though the foreign distribution estimates have more accuracy. Mainline’s contention of a $2.1 million loss on the “without Basinger” film is difficult to quantify for the purpose of awarding damages, as the film “with Basinger” was never made.
The Opportunity Cost of Kim Basinger
Following her withdrawal from the film Basinger opted for a role in the movie “Final Analysis”, for which she was paid $3 million. Opportunity costs exist to both actors and film makers in every role or movie they choose to make. Basinger’s choice to appear in the other film for $3 million should be irrelevant in estimating lost profits to Mainline. The one million dollar salary she forfeited from her withdrawal from “Boxing Helena” would have paled in comparison to the opportunities she would have received had the movie been made with her and been a success. In the case of “Sex, Lies and Videotape”, the success of Soderbergh’s movie “made his stars bankable virtually overnight” (Thompson, 1992, ¶ 2). This was a risk Basinger exposed herself to by her withdrawal, and a benefit enjoyed by her replacement, Sherri Lynn Fenn, a TV and B movie actress tabbed as a replacement for Basinger. Mainline used revenue comparisons between Basinger’s films to date and Fenn’s films to date in their damage estimates. These are difficult to validate, as Basinger was a much more established actress at the time of the film than Fenn. No direct evidence that “star power” has a causal relationship to box office success has been universally established, as evidenced by the failure of “Hudson Hawk” a star loaded film that cost $54 million to make and drew $17 million at the box office. The subject matter of “Boxing Helena” was more risky in finding an audience than Batman, by way of example, in estimating box office potential. As such, revenue comparisons between the 27 year old Fenn and 38 year old Basinger lack relevance in estimating lost profits.
Revenue Estimates for the Basinger Version
The plaintiffs expert in the “Boxing Helena” trial refrained from estimating revenues from the “with Basinger” production of the film and focused solely on the diffences in gaps created by her absence in domestic and foreign distribution pre-sales. Strategically, this was a smart move. The pre-sold distribution rights domestically and internationally are guaranteed to the producer regardless of the films box office potential. If the film fails to exceed pre-sold distribution revenue, the producer is not hurt by the shortfall. This makes damage estimates more plausible, as estimates of final box office estimates are difficult to quantify.
Should Mainline’s lost profits be adjusted downward to include an estimate of domestic revenues for the “without Basinger” version of the film? Wilde’s argument for the plaintiff hinged on profit differentials for the two versions of the film’s potential. He contended that beyond pre-sale estimates there would still exist a minimum $5.1 difference of profit between the “with Basinger” and “without Basinger” versions of the film. As such, estimates of domestic revenues for the “without Basinger” film would not impact Mainline’s lost profits on the film. One of the Mainline partners advanced $1.7 million against domestic revenues to help cover production costs. This transaction was made in Basinger’s absence, thus it would not contribute to estimates of Mainline’s profit loss as a result of her withdrawal as these production costs would be paid had she not withdrawn from the movie.
Profit Assessments
Had Basinger remained with the film and the producers enjoyed the $3 million profit estimated by its experts in minimum damage assessments, Mainline would not have netted this sum in its entirety. Generally accepted accounting principles dictate that film producers amortize film costs at a rate equivalent to estimated lifetime revenues. The increase in revenue of $3 million in the first year would be hedged in their tax position by an increase in expense amortization for the film’s production costs.
The Jury Assessment
Ultimately, Mainline and producer Carl Mazzocone were awarded by the jury $7,421,694 in damages for loss of profit associated with Basinger’s contract breach, and an additional $1.5 million as penalty for bad faith denial of the contract. Since Mainline had secured $7.6 million in foreign presale commitments under a highly functional market, and they were able to establish that domestic distribution pre-sales are co-related at approximately one to one with foreign, the amount is reasonable. They had a reasonable estimate of a guaranteed $15.2 million in revenue from distribution, less the production cost of the film. Budget estimates of “Boxing Helena” were between $5 and $7 million without Basinger (Thompson, 1992, figure 36), and her appearance would have raised production costs just on salary $1.3 million, the difference between the Basinger/Harris $1.5 million salary and the Sand/Fenn salaries of $200,000. Using an average budget cost based on estimates at $6 million, plus the salary differential of $1.3 million, the film would have generated revenue to the producers based on pre-sold distribution rights of $15.2 million less the producers cost of the ‘with Basinger” film of $7.6 million, for a difference of $7.6 million. Without raising the questions of “should the film have even been made” and “what would revenues looked like had the film been better”, the jury damages awarded reflect a degree of fairness as a levy for Basinger’s failure to fulfill her contractual obligation.
Reference
Thompson, A. (1992, July 5). Film; The Ins and Outs of Boxing Helena. The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9E0CE0D8123EF936A35754C0A964958260&sec=&spon=&pagewanted=all
