Relevant Information for Decision Making

Relevant Information for Decision Making

Q1. Should Main Line's maximum and minimum lost profit amounts be revised downward for the following? Why?

a. The domestic distribution revenues of $3 million because the deal had not been finalized.

No. The $3 million represents as reasonable an estimate of the future cash flows from domestic distribution as was available. The fact that the deal had not been finalized does not diminish that.

b. The $800, 000 of foreign pre-sales because they were "probable" not actual.

No. The $800,000 represents a reasonable estimate of the future cash flows from these potential contracts.The fact that the deals have not been finalized doesn't diminish that.

c. The loss of $2. 1 million on the "Without Basinger" film?

Yes. It is unreasonable to assume Main Line would produce a film on which it expected to lose a large sum of money. There is strong argument, based on the budget figures, that Main Line would never have made the movie if Fenn had originally been cast to play Helena. Therefore, it is improper to hold Basinger liable for any loss incurred by Main Line when producing the Fenn version."

2. Are the following relevant to the determination of lost profits to Main Line? Why?

a. Basinger's $3 million salary for "Final Analysis. "

It appears not to be relevant. But such a huge amount can be taken as the market value of Basinger's services in this type of film. Main Line would have received a "windfall" if the film had been made with Basinger since Main Line was only paying Basinger about $1 million in minimum compensation. It is not fair to force Basinger to reimburse Main Line for a windfall.

It is interesting that this $3 million compensation is the same as the plaintiff expert's calculation of minimum net lost profit to Main Line.

b. If Basinger's marginal contribution to this type of film is really $3 million, why would Main Line be able to contract for her services at $1 million?

Not relevant. SFAS No. 53 prescribes how the film production costs will be written off against revenue over time. It governs the timing of the film's profit recognition.

c. The comparison of revenues for Basinger films with revenues for Fenn films?

Probably not relevant because it is so flawed. Although plaintiff expert appropriately excluded "Batman" from the computation, he included films such as "Never Say Never Again" and "The Natural,” in which Basinger clearly had a supporting role. Certainly, no moviegoer would dispute that Basinger's films have been much more successful than those of Sherilyn Fenn. But the issue here is the effect of Basinger's participation on this particular film, a film which is unconventional to say the best.

3. Is plaintiff's expert correct in not attempting to estimate revenues for "Boxing Helena " beyond pre-sale amounts? Why?

Yes. Although every producer and distributor will attempt a projection of an individual film's revenues prior to embarking on a project, it is well known in the industry that estimates of box office gross prior to a film's release ...