X-Raying Lara Croft: Risk Management

  Lara Croft: Tomb Raider is a minor masterpiece of the arcane art of studio financing, or as Sumner Redstone calls it, "risk management." The trick, though applied in subtle brushstroke, is to use OPM-- -- Other People's Money.

Here is the triple-play through which Paramount made a $94 million movie for only $8.7 million.

First, Paramount got $65 million from Intermedia Films in Germany in exchange for distribution rights for 6 countries: Britain, France, Germany, Italy, Spain and Japan. These "pre-sales" left Paramount with the movie, and all the rights, the rest of the world.

Second, Paramount arranged to have part of the film shot in the Britain so that it qualified for a Section 48 tax relief. This allowed it to make a sale-leaseback transaction with the British Lombard bank Paramount on paper sold the movie to British investors, who captured the British government subsidy, and then via a lease and option, returned it to Paramount. Through this financial alchemy,Paramount netted, up front, a cool $12 million.

Third, Paramount sold the copyright through Herbert Kloiber's Tele-München Gruppe to a German tax shelter. Because German law did not require the movie to be shot in Germany, and the copyright transfer was only a temporary artifice, the money paid to Paramount in this complex transaction was truly, as an executive put it, money-for-nothing." Through this maneuver, Paramount made another $10 million.

Before the movie was ever green-lit or cameras ever began turning, Paramount had gotten back, risk-free, $87 million. to be sure, for arranging this financial legerdemain, Paramount paid about $1.7 million in commissions and fees to middlemen, but that left it with over $85.3 million in the bank. So, its total out-of-pocket cost for the $94 million was only $8.7 million. And Paramount could cover even that paltry risk by selling the Pay-TV rights to its corporate sibling, Showtime, for $10 million.
The lesson of Lara Croft: Tomb Raider is that things in Hollywood-- and especially numbers-- are not what they appear to be to the outside world. According to the public numbers, it cost $94-million to make a movie that earned only $62.8-million in rentals in North America. That equation changes radically when the $85 million that Paramount netted from its non-public"risk management" is added in, proving, yet again, in Hollywood, the real art of movies is the art of the deal.

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