“The second easiest way to start a fight at a pool party on the Westside of Los Angeles,” according to professor Mark Weinstein at USC’s Marshall School of Business and Law School, “is to argue in favor of the two propositions presented in my paper.”

That paper, titled “Profit Sharing Contracts in Hollywood: Evolution and Analysis,” argues that contrary to popular wisdom, the studio contract offering profit participation is not designed for the sole purpose of ripping off unsuspecting actors, actresses, writers, producers and others.

Weinstein’s paper, to be published in an upcoming issue of the Journal of Legal Studies, is the first major study of the history of movie studio contracts, focusing on the meaning of “net profits” and “gross profits” as defined by Hollywood studios, and drawing on Warner Bros. archives held by USC.

“Let’s imagine,” Weinstein posits, “that contracts offered by any one studio were horribly one-sided and do nothing but rip off actors. Another studio would come in with a better offer” to lure away the talent, providing an evolutionary path to fairer contracts industrywide.

Unless you believe that studios collude. “But if they did collude on the definition of net profits,” says Weinstein, “they’re not colluding on the portion of the contract that offers fixed compensation.”

Weinstein’s second point argues that studio profit-sharing contracts for top talent function primarily as a means of shifting economic risk from the studio executive making the deal to the talent signing on to do the work.

“If a studio exec is poorer than the star he’s dealing with,” Weinstein says, “he’s likely to be more risk averse. The star may well be back tomorrow, but the exec may not be.”

A corollary to that idea, according to Weinstein, is that profit-sharing contracts ensures the commitment of talent to the enterprise, enhancing the value of the transaction on both sides. The demise of the studio system, in which stars were employees, made this an important feature of the contract, since studios have less control over talent these days.

Among early examples of profit-sharing contracts examined by Weinstein are agreements at WB with John Barrymore, Mae West, Al Jolson and James Cagney, all gross players, as well as producer Hal Wallis.

It may come as no surprise that Weinstein was briefly a paid adviser to the attorneys defending Paramount Pictures in the 1990 suit brought against the studio by Art Buchwald.

From that experience, Weinstein argues further that “some aspects of the contract ruled unconscionable in the Buchwald decision in fact make it possible for participants to audit reasonably the payments they receive, thereby ensuring that the studio is keeping its side of the bargain.”

Yes, professor, some pool-side denizens of Hollywood might indeed take issue with that one.

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