Hollywood has fallen: The problem with entertainment accounting

When action movie leading man Gerard Butler, star of the Olympus Has Fallen series that also included London Has Fallen and Angel Has Fallen, launched a lawsuit in 2021 claiming he was owed at least US$10 million in profit, the media lapped it up.

That’s typically the case with any story about a celebrity. But actually, this was a story about accounting.

Butler’s deal wasn’t structured as a simple payment for service. Instead, it promised him 6% of the film’s US revenue, 2% of foreign revenue and 10% of net profits.

Of course, this all relied heavily on a highly transparent accounting process that, according to Butler and his company G-Base Entertainment, was sorely lacking.

The case, which was settled out of court in October 2023, quoted a “comprehensive premeditated scheme” that the defendants Nu Image and Millennium Media consciously designed to “grossly misrepresent the finances of the film”.

An audit, the complaint said, revealed that the defendants understated receipts from the first film by more than $11 million USD.

Around $8 million USD of payments to senior executives were allegedly not reported.

Domestic revenue was allegedly under-reported to the tune of $17.5 million USD as a fraudulent scheme ensured the film’s distributors did not have to report all receipts.

It’s a textbook case to support an argument for simpler and more transparent reporting processes. Should we be paying attention in Australia?

Our legislation helps protect from exploitation

Fifteen years ago, Founder and Director of accounting business Hot Toast Sarah Lawrance was “probably one of only 10 production accountants in Australia”, she says.

“There’s a reason behind that. The award is really specific, in terms of how you pay talent in Australia. The Entertainment Industry Act is very specific.”

The Entertainment Industry Act regulates agents, managers and venue consultants. It was developed to help artists avoid the type of situation Butler’s lawsuit alleges he was facing – poor treatment by unscrupulous entities looking to boost their own wealth through the exploitation of an artist.

The objectives of the Act, as defined by MusicNSW, are:
To promote the development and growth of the entertainment industry
To provide for the development of codes of ethics for the entertainment industry
To provide a forum for the hearing and resolution of complaints in the entertainment industry
To develop a framework that will provide for the self-regulation of the entertainment industry

“As an agent there are certain requirements around how long they can hold funds for, around the reporting that we have to do, the statements we have to send out and how quickly we have to disperse funds,” Lawrance says.

Making sure the intention of the Act is upheld, however, is about “getting ahead of it, being clued in to how people get paid and what that looks like,” Lawrance says.

“If people don’t have good internal financial controls in place, good reporting and systems, I can see that a lack of transparency could become a problem. Transparency is important across the board.”

The importance of accounting, internal controls and transparency

Is it still possible to bury earnings, to hide revenue for nefarious purposes?

That’s not a question for entertainment, Lawrance says. It’s a question for all of accounting.

The recent case of Guy Sebastian’s former manager Titus Day says it is easy, at least to try.

In June, 2022, Day was found guilty of embezzling the singer’s money to the tune of more than $600,000. He was subsequently sentenced to 2.5 years in prison.

These funds were supposed to be paid to Sebastian for royalties, ambassadorships and fees for performances. They included, the Sydney Morning Herald reported, a portion of Sebastian’s earnings for supporting Taylor Swift in 2013, as well as fees for private performances and a Dreamworld ambassadorship.

“That’s a case of Guy Sebastian saying, ‘Hang on a second, it looks like I’m not being paid what I should be paid.’ And it ends up in court,” Lawrance says. “So yes, it can happen.

“You just need really good internal controls and transparency, and you need to understand the industry and the Act. I’m fairly big on education, around getting in front of people and explaining what the numbers mean, as opposed to just sending reports and hoping for the best. So yes, transparency and experience are key.”

That level of insight will likely become more important, Lawrance says, as talent and creators (think social media influencers) increasingly work directly with producers and brands, rather than via an agent.

That has opened up new conversations around equity deals, as Butler had in place for his Olympus Has Fallen films.

A creator or ambassador bringing their following to a brand is opening up a new channel for that brand and helping it grow, Lawrance says.

“That doesn’t feel like it should earn just a $10,000 fee. It feels like you’ve got skin in the game,” she says. “That is really interesting, seeing that develop in the industry over the past five to seven years. The old gatekeepers are no longer the gatekeepers.

“It’s more important than ever that anybody involved has good financial people, good accountants, systems and internal controls, from the get go.”