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Understanding net profits in negotiations or contracts

Posted by Johnson & Johnson, LLP | Jan 28, 2019 | 0 Comments

Understanding net profits in negotiations or contracts

Written by admin


Written by admin


By Neville L. Johnson and Douglas L. Johnson

When you first enter negotiations to work on a movie, album, modeling shoot or another creative pursuit, the money can feel very exciting. Significant numbers are often mentioned upfront to spark interest.

However, it is important to remember that these are only estimates based on how well the finished product may perform. You may be hearing pay estimates that do not adequately consider the cost needed to create a successful product and the problems that may arise during the process. Unfortunately, this is very hard to guess.

Are you working for a percentage or a set amount?

If your contract includes “net profit” to work on a project, then the money comes from the revenue that remains after the project expenses, liabilities, and taxes are paid first.

However, if you have a reasonable expectation about how much your work deserves and ask for that amount up front you may have a contract that pays for “gross participation.”

Concerns for net profit contracts

Net profit-style contracts are commonly used because it lowers the risks for a producer or studio while they produce a project that may not succeed. Unfortunately, it can also mean an entire team may be paid less than they deserve, which can lead to class action lawsuits against a studio. If a project does succeed, however, the entire team is looking at more income.

There are pros and cons to any net profit contract, though generally, accepting net profits for your payment is a risk. You could end up making more than you thought or you could take home much less pay for your hard work than you estimated.

Net profits also do not consider royalties, retail sales or other proceeds, which can be valuable avenues of income.

Ensuring you get what you are owed

If you are just starting your career, you may be more willing to accept payment per project or net profit contracts. Determining what you are owed for your experience also changes after every completed project.

What you initially think is good industry pay may be lower than you deserve as you find commercial success. It pays to have a knowledgeable, thorough review done on all the offers you are receiving.

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