How Corporate Looting And ‘Cutthroat Island’ Destroyed Carolco Pictures

https://bombreport.com/corporate-looting-cutthroat-island-destroyed-carolco-pictures/

Carolco Pictures was founded by Andy Vajna and Mario Kassar as an independent film company and in their own words: “Since Carolco’s initial public offering of its equity securities in 1986, Carolco’s principal strategic objective has been to produce several major “event” motion pictures for worldwide release each year with well-known creative elements and broad-based commercial appeal.”

Vajna left the company in 1989 to form Cinergi, which had the same basic film funding model as Carolco. These companies would piecemeal together big budgets by a combination of pre-sales to foreign distributors, equity investment from Carolco themselves, and a big sale to a major studio for US distribution rights. In order to attract overseas distributors and a domestic distributor to invest in a project still in development, Carolco Pictures would attract A-list actors to the project by offering oversized salaries and backend deals that even the studios would not match. So once they would land a Schwarzenegger, a Stallone or a Michael Douglas — investors would rush to commit to the future film. The funding logic appears to be sound, but it was not and it was destined to fail.

All of the distributors’ initial pre-sale investments and then their marketing spend would have to be entirely recouped before Carolco would see a percentage of the overages flow back to them. Then their take was reduced further from actor/producer/director backend deals that they set up to launch the project in the first place. Basically, most Carolco movies would have to become one of the highest-grossing films at the box office and on home video in order for them to see any real profit. And Carolco had a brief run that did indeed produce some massive money makers: Total Recall (1990), Terminator 2 (1991) and Basic Instinct (1992). But even with hundreds of millions in global profit from those pictures, Carolco only saw a fraction of the spoils.

Terminator 2 was one of the most profitable movies in the history of cinema and after all ancillary revenue was factored in, it was estimated that Carolco’s profit was about $45 million. Tri-Star, for example, invested $15 million into that film and saw over $70 million in profit. A solid but not record-breaking box office earner would return no profit to Carolco.

So why would a company that inevitably has no long term strategy to remain solvent even exist? To loot the funds and bank loans, of course, and fuck over shareholders who should have known better than buying stock in a company with no real way to make money. With Carolco flush with capital from bank loans, Kassar would command a seven-figure salary, would receive a seven-figure bonus when a Carolco movie was completed, had eight figures worth of stock options given to him, a huge corporate allowance for spending on ‘unaccountable’ items and then there were the extravagances like private aircraft, literally, millions spent on a 203-foot yacht to ride into 1991 Cannes to have a massive party on, huge overhead costs on their headquarters, absurd gifts to already extremely rich celebrities (Schwarzenegger was gifted a $12 million Gulfstream III plane) and also millions and millions showered upon other Carolco executives. Everyone on the top makes obscene amounts of money for running a soon to be failed business and is largely insulated from its inevitable bankruptcy. Yep, times have not changed.

Even with huge Total Recall home video sales being accounted for in 1991 and the profit from Terminator 2, Carolco announced a $265.1 million loss in 1991. Fresh off their biggest hit, they knew their days were numbered and their slate of future productions was reduced.