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Court to be grossed out by oral pacts

The definition of gross receipts and net profits will take center stage in a Los Angeles courtroom this week, with the outcome likely to spark a review of participation pacts.

It’s an issue that Hollywood has been tossing around for years: net profits and gross receipts.

Ron Shelton and 20th Century Fox made a handshake deal on the 1992 film “White Men Can’t Jump,” but the writer-director claims a subsequent contract altered the agreed-upon terms — including the key issue of homevid revenue.

The jury at L.A. Superior Court has to decide what the parties had in fact agreed to. But at stake are two larger is-sues: 1) The style of how business is done in Hollywood; and 2) a possible redefinition of what is included when the studios talk of “gross.” The jury’s verdict could revolutionize bookkeeping on backend deals and multipic pacts.

Back in 1989, newly named Fox Film Corp. chairman Joe Roth wanted to send a message to the creative commu-nity that the studio was talent-friendly and open to the type of deals it had previously passed on or ignored.

In his first deal at the studio, Roth allegedly agreed to an extraordinary pact, giving Shelton 50% of the “true” net profits from the film. A key part of the agreement was that it allegedly included a full share of video receipts, in-stead of the customary royalty.

Taking it to court

After 2-1/2 years of trying to collect money that he believes he’s owed, Shelton is going to L.A. Superior Court, trying to prove that he and Roth closed an oral agreement in which the deal points were negotiated and sealed with a handshake.

“Because there was a close relationship between (Shelton and Roth) and they were friends, Ron felt that the hand-shake was as good as a longform contract,” Shelton’s attorney, Brian Lysaght of O’Neill, Lysaght & Sun, tells Daily Variety.

The handshake deal was followed by an ambiguous deal memo; after the film was released, a standard contract was issued. Shelton claims the contract did not reflect terms of the handshake pact, but Fox reps insist that it spells out exactly what was agreed upon.

Net-profit pacts have long been debated in Hollywood (for “standard” definitions of contract terms, see separate story). In recent years, “Forrest Gump” novelist Winston Groom and columnist Art Buchwald have challenged the decades-old agreements. However, while those cases focused on the definition of profits, this case focuses on gross receipts and how much video revenue is included there.

If Fox wins, the studios conceivably would be allowed to reduce talent’s share of the profit by limiting which reve-nue streams are included in gross receipts.

Conversely, a victory for Shelton could mean that upper-echelon talent would gain an even bigger slice of profits. Further, if the writer-director wins, it might spark a review of participation pacts and a studio push to finalize tal-ent pacts that spell out crucial backend participation.

“Most of the studios have their own definitions of gross and net,” says entertainment attorney Bob Wyman of Wy-man, Isaacs, Blumenthal & Lynne. “And those definitions can vary depending upon the other deal points agreed to in the contract.”

Fox eventually generated a deal memo on “White Men” that is vague enough to support the claims of both Shelton and the studio. Shelton repeatedly tried to get the studio to execute an agreement that would reflect terms that he claims Roth had agreed upon.

But even after repeated requests from Shelton’s attorney Bruce Lilliston, the studio failed to generate a longform contract that articulated the deal’s points.

After the film’s release, the studio created a standard multipicture arrangement. As a writer, Shelton was to be given an $800,000 fee plus 5% of the film’s net. As director, Shelton was to be paid $1.3 million plus 5% of the film’s gross after the studio broke even, i.e. after agreed-upon costs are deducted.

As a producer of one or two other pics, he was to earn a $500,000 fee plus 50% of the net reducible by participation by any other third parties.

Shelton claims the pact contained none of the specific language and terms he had negotiated with Roth. By the time this agreement finally arrived, Roth had moved to Walt Disney, and many other execs had also left for other studios.

Attorneys for Shelton estimate that at stake is a share of the film’s profits in excess of $36 million — in addition to the potential for punitive damages. Attorneys for 20th Century Fox claim Shelton did not have a 50% net profits pact and therefore is not owed any money.

Usually, when Hollywoodites talk of “gross,” they mean 100% of box office and ancillary income — except for video. When dealing with homevid, “gross” means 20%.

The studios typically set aside 80% of homevid income for themselves; when talent gets a share of the “gross,” it is of the remaining 20%. A share of 100% of vid gross is reserved for major players such as Steven Spielberg, George Lucas and Arnold Schwarzenegger.

However, Shelton claims that, in the handshake deal, he was given a full share of the gross receipts from homevi-deo — that is, a share of the 100% pie — and was entitled to 5% of that gross.

Twentieth claims Shelton was given the standard agreement, which called for 20% of the video revenues into his gross receipts pot. In other words, the studio is saying he was to get 5% of that 20% — a royalty, rather than a full share of video receipts.

“We also think that a (verdict) for the plaintiff will result in studio’s thinking twice about delaying the creation of a longform agreement,” says Lysaght, “and not send out agreements that have to be renegotiated because they don’t reflect the terms agreed to by everyone.”

Lysaght declined to comment on the content of the depositions, but sources said they yield little more than Roth and other studio execs failing to recall the deal terms that Shelton claims he made.

The attorney for Fox, Lou Meisinger of Troop, Meisinger, Steuber & Pasich, declined to comment.

Among those scheduled to testify are Shelton, Lilliston and respected participation-pact expert David Held.

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