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Valparaiso Univ. Law School

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Thursday, March 4, 2010

A Sign of Rational Acting?

Clooney  This blog has suggested elsewhere that baseball contracting is irrational.  Players are offered jaw-dropping contracts based on their past performance which incentivizes them to have performed well in the past.  Sports contracts, we suggested, should have enough downside protection to lure players to a team, but the bulk of the salary should be in the form of incentives.  That's how it works in the world of corporate executive pay, and clearly corporate executives are not paid when they don't perform. Oh, wait.  Yeah.  Well, perhaps we more than a few tweaks away from the Peaceable Kingdom.  

In any case, today's New York Times reports that the film industry is moving away from the mega-contracts that paid the likes of Leonardo DiCaprio and Russell Crowe $20 million up front for appearing in blockbuster movies.  Although nobody will talk on the record, it seems that the newly risk-averse studios are now paying a measly $2 million or so up front to land even huge stars like George Clooney.  But don't worry, George Clooney and Sandra Bullock will not soon be sharing a roach-infested bed-sit in the East Village.  They make their profits, which still can be in the $20 million range, or even higher, once their films pass the break-even point.

So, even if actors cannot be counted on to behave rationally, there is evidence of some rational acting in Hollywood.

[Jeremy Telman]

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Comments

But incentives can be perverse, too. Isn't the problem there the notorious deception the studios engage in when reporting profits on which payments are based? According to new Line, Lord of the Rings made no money, at least when it came time to pay Peter Jackson and the Tolkien estate. This practice (that's a kind word for fraud) even has its own Wikipedia entry: "Hollywood Accounting." Given that problem, I don't see why an actor with enough clout to negotiate would trust the studios to payments other than those received up front. Without neutral accountants or at least transparent and verifiable methods, this idea is nothing but good business for Hollywood litigators.

Posted by: Jamie Fox | Mar 7, 2010 10:33:47 AM

Thanks, Jamie. I was unaware of this problem, and I do not believe it is referenced in the Times article on which this blog post is based.

But wouldn't an actor with enough clout to negotiate also have enough clout to define profitability in a way that checked the studio's desire to engage in aggressive accounting practices? I suspect this to be possible, since the Times reports that Clooney and Bullock will profit handsomely through the success of their most recent films.

Posted by: Jeremy Telman | Mar 7, 2010 1:48:04 PM

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