Clear Your Mind: Episode I - Striking the Right Deal
In the run up to the new Star Wars film, John Devine, sports and media lawyer and lifelong Star Wars fan has devised a special series of legal updates called 'Clear Your Mind'. We hope you enjoy Episode I: Striking the Right Deal.
“You must do what you feel is right, of course.”Ben ‘Obi Wan’ Kenobi, Episode IV: A New Hope
With laser swords, wizards, mystical powers, strange aliens and a proposed initial budget of £3M (relatively high in the early 70s for was thought of as just a ‘sci-fi’ movie), Star Wars™ creator, George Lucas, was in search of a studio who could both understand and grasp the potential of his space movie.
United Artists passed, as did Universal for whom Lucas had just made the highly successful American Graffiti. Lucas eventually found an ally within the studio system in Alan Ladd Jr at 20th Century Fox, who later confirmed that he had been persuaded by his faith in Lucas rather than the ambitious project[1].
Prioritising costs
Lucasfilm Ltd had been incorporated to develop Lucas’ independent projects. Like any new start up business, prioritising costs was key, but it is equally important to evaluate when you need to tap into experience and then get the best person for the role that you can.
Lucas chose to shoot in England since production costs were cheaper and he could also use the world-renowned talents of the British film industry’s production experts.
While the story’s three principal actors were American, he was able to convince the English authorities, at a time of widespread national unemployment, that the creation of 300 jobs[2] for English workers justified their work permits.
Assembling the right team
By casting unknowns in the three lead roles, Lucas was able to spend more on the sets, costumes and ground-breaking special effects to realise his vision. Mark Hamill (Luke Skywalker) was retained on a fee of $1,000 per week, Carrie Fisher (Princess Leia) $850 per week and Harrison Ford (Han Solo) $750 per week[3]. Modest fees in the context of what the movie became.
Lucas did, however, realise he needed some gravitas to anchor the project, in particular the concept of the Force, casting Academy Award®™ winner, Sir Alec Guinness as Ben Obi-Wan Kenobi.
The morality of the story is said to have appealed to Guinness, but here lies a lesson to all stakeholders in any collaborative project on the benefits to having an equity share… he was retained on terms of £15,000 per week (a fee commensurate with his long career and star status as a knighted Oscar®™ winner) plus 2 per cent of the original Star Wars’ net profits[4].
Earn-out paid-off
This type of contractual arrangement is often known as an ‘earn-out’, a mechanism more commonly used on, for example, corporate deals. It typically involves a fixed initial payment followed by at least part of the fees payable being calculated by reference to and contingent upon financial performance during an agreed period following completion.
Guinness delivered, earning a further Academy Award®™ nomination for Best Actor in a Supporting Role as Obi-Wan, while the original movie has, to date, grossed worldwide $775.5 Million[5] against a final budget of $11 Million (unadjusted for inflation).
Rewarding key people
Such was Lucas’ appreciation of his contribution to the success of the film, Guinness recalled with a smile in a 1977 television interview with Michael Parkinson that, the day before the film opened in San Francisco, Lucas had called him to say he thought "the movie was kinda gonna be alright” and that he “was very grateful for all the little alterations [Guinness] suggested”, so he wished to offer him an additional discretionary extra half a per cent on top of his 2 per cent contractual entitlement.
A few weeks later, Guinness recalled that he raised this conversation with the film’s producer so they could eventually “get something in writing” for his agent, to which Guinness received the reply “oh, about the quarter per cent, yes”.
Perhaps a timely reminder that contractual certainty is always preferable to any informal arrangement, but the phenomenal success of the film went beyond everyone’s expectations, even Lucas’s, so all certainly ended well.
As for the three leads, their contribution was similarly not underestimated by Lucas, who (though not obliged) generously shared much of the profits of the film with those whose essential involvement he had valued, including Hamill, Fisher and Ford, John Williams, who had written the Oscar-winning iconic score, key crew members and even his lawyers, the firm of Pollock, Rigrod and Bloom.
Lucas said: “Everybody has points, but the key is to make them pay off. I had a chance to give away a lot of my points, which I had done with Graffiti. The actors, composer and crew should share in the rewards.”[6]
The brilliance of Guinness
Despite serious ill-health, Guinness returned to reprise his role in Episode V: The Empire Strikes Back, this time having negotiated 0.25 per cent of the film’s gross receipts[7] ($547.9M[8] to date worldwide), as opposed to net profits; so in effect agreeing to take a smaller slice of a potentially much larger number if Empire could repeat Star Wars’ box office performance.
Due to his condition, he was needed for just a single day’s filming, with Empire director Irvin Kershner noticing in between takes that every inflection and emphasis of intonation in his dialogue had been planned meticulously by Guinness in advance from manuscript notes he had made in a small book, then executed perfectly in his performance.
As Lucasfilm Unit Publicist, Alan Arnold noted: “He made a small fortune in a matter of hours, but at the cost of a lifetime of experience”[9].
Lucas persuaded him back for the final original trilogy film, Episode VI: Return of the Jedi, commenting that Guinness “understands my goals and the larger picture, rather than just ‘What’s in it for me?”. Guinness noted in his own authorised biography: “It would have been mean of me to refuse.”[10]
Striking the right deal for your business
Remember, the financial terms of any deal can be cut in many ways, whether fixed fees, retainers based on actual time spent at an agreed rate, ‘earn outs’ expressed as percentages of net profits or gross receipts or even a combination of these.
While bargaining strength and risk are (amongst others) significant factors to be taken into account, it’s ultimately up to the parties to settle on a deal that is mutually acceptable at the time the agreement is made. Just ask Han Solo:
“ We can pay you two thousand now, plus fifteen when we reach Alderaan?” Obi-Wan Kenobi, Episode IV: A New Hope (1977)
Taking early advice on how it could potentially be structured will put you in the best place to get the deal you want.
For more information or advice, please contact Alex Craig using 0191 211 7829 or [email protected] to read more episodes click here.
Notes
Star Wars®™ and all related character names are copyright © and the exclusive property and trademarks of Lucasfilm Entertainment Company Ltd. LLC, which are referenced here only for the purposes of the illustration of legal concepts in general terms only. Muckle LLP is no way affiliated to nor associated or connected with Lucasfilm Entertainment Company Ltd. LLC, Lucasfilm Ltd.™ or LFL Ltd.™ or any of their respective film(s) or franchise(s). This article and its contents are not endorsed by Lucasfilm Ltd.™ or any of its affiliates.
[1] Empire of Dreams documentary film, Lucasfilm Ltd, 2004[2] The Making of Star Wars, J. W. Rinzler, p125, Del Rey Books[3] The Making of Star Wars, J. W. Rinzler, p125, Del Rey Books[4] The Making of Star Wars, J. W. Rinzler, p113, Del Rey Books[5] Box Office Mojo[6] The Making of Star Wars, J. W. Rinzler, p302, Del Rey Books[7] The Making of The Empire Strikes Back, J.W. Rinzler, p241, Aurum Press[8] Box Office Mojo[9] The Making of The Empire Strikes Back, J.W. Rinzler, p241, Aurum Press[10] The Making of Return of the Jedi, J.W. Rinzler, p9, Aurum Press