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Reality Firm Gets Caught in “Big Fat” Accounting Mess

Reality Firm Gets Caught in ‘Big Fat’ Accounting Mess By CARLOS MARTINEZ Staff Reporter Studio City-based television producer MPH Entertainment is known for its high-end reality shows and documentaries. So when the company sought to expand into films it scored a major coup with the high-grossing “My Big Fat Greek Wedding” last year. “It was the best decision we ever made,” said Jim Milio, who along with partners Melissa Jo Peltier and Mark Hufnail, established the production company in 1996. But the company has yet to see a penny from the film. Caught up in the controversial issue of movie accounting, the local company is now suing actress/writer Nia Vardalos and the main producers of the film, claiming it has not been paid profit points for the hugely popular movie. “Unfortunately, it’s the kind of thing that happens from time to time with the accounting in Hollywood,” said Robert Schulman, an Encino-based entertainment attorney. “Some people sometimes get left holding the bag and there’s little option but to sue,” he said. According to a complaint filed on July 1 in Los Angeles Superior Court, MPH principals Milio, Peltier and Hufnail allege that they are owed 3 percent of the film’s actual profits under a contract MPH signed with Vardalos, producer Rita Wilson, HBO, Gold Circle Films and Playtone Co. The suit seeks $20 million in damages along with a proper share of the film’s profits and an independent audit of earnings from the film’s box office and video rentals and purchases. The problem with film studios and others in the entertainment industry is that they don’t follow what accountants call Generally Accepted Accounting Principles, or GAAP, said Joseph Hacker, a partner in the Los Angeles accounting firm Hacker, Douglas & Co. Although he would not speak about the MPH case, Hacker said studios often refer to Standard Profit Definition or SPD as part of their accounting methodology. So while GAAP provides that revenue is recognized when it is earned and expenses are recognized when they are incurred, in contracts using SPDs, the language generally shows that revenue will be recognized when the cash is received and expenses will be recognized when they are incurred. “This mismatching of revenue and expenses can delay the reporting of profits for a long time or perhaps forever,” Hacker said. One example of SPD accounting is how gross profit participants like top actors or producers, are paid from the gross profits of a film even before the film breaks even, thus adding to the film’s costs as it continues to earn revenue, oftentimes making it impossible for a film to ever break even. Struggle to break even These formulas can show that while a film may eventually show a net profit under GAAP, it may never report a profit under a studio’s complex accounting formula. MPH is one of the Valley’s top reality and documentary film producers for cable television. Ironically, “My Big Fat Greek Wedding,” was to be one of its first efforts at producing a motion picture. MPH’s Milio, Peltier and Hufnail say they have not received any profits to date from the film other than an accounting statement that claimed the film had lost $20.6 million as of March 31 despite the fact it grossed more than $600 million worldwide. The independently produced film was released on April 19, 2002, becoming a breakout hit with audiences grossing $241.4 million in the U.S. alone a feat unheard of for a non-studio backed film. The suit claims the movie grossed $366 million in worldwide receipts, which include video purchase and rental of about $220 million and the sale of U.S. television rights of $20 million for a total of $606 million worldwide. “It’s not the usual accounting issues that seem to come up in Hollywood, this is something completely different,” said Henry Gradstein, of Gradstein, Luskin & Van Dalsem which represents MPH. “These are real points and not net profit participation issues. Their profits were to be determined under the same formulas used for the film’s other producers.” Gold Circle issued a statement on behalf of itself and those others being sued denying any wrongdoing. “We stand by the integrity of our accounting. It’s ludicrous to suggest this film will not be profitable. MPH Entertainment will see their appropriate participation in due course,” the company said. Vardalos attorney Jonathan Moonves said the actress has nothing to do with the disbursement of profits or related issues and should not have been sued. He added that the actress is considering legal action over being wrongfully named in the dispute. But Gradstein asserted that all those named are involved in some measure in the case. “So far our clients have received nothing other than an accounting statement showing a $20 million loss on a film that cost $5 million to make and has grossed $600 million worldwide,” he said. Net loss According to the accounting statement by Gold Circle and HBO, the film’s producers received $77.4 million of the movie’s total gross through March 31. The statement went on to list distribution expenses of $71.7 million along with distribution fees of $19.3 million with a total budget plus interest for the film at $6.9 million. It all added up to a net loss of $20.6 million. “My clients gave up practically everything to help the picture get made their ownership of the script and their right to produce and direct,” Gradstein said. “And all they asked for in return was a small share of the real profits and proper credit. What they received was a Big Fat Greek Tragedy.” According to the suit, MPH became involved in the project when Vardalos, who had a supporting role in MPH’s 1997 film “Men Seeking Women,” asked Milio to read her script for “My Big Fat Greek Wedding.” MPH went on to acquire the script for $60,000 and agreed to have Vardalos star in the film. When actor Tom Hanks and his wife Rita Wilson became interested in the project for their Playtone production company, MPH amended its contract with Vardalos and her company My Penzatta, calling for MPH to be paid $115,000 if Vardalos found another production company to make her film. Under that deal, MPH would be paid an additional $85,000 when shooting began. So when Playtone, HBO and others became involved in plans to make the film, MPH agreed to reduce its participation in the profits to 3 percent of the actual profits and for its proper credit of co-executive producer in the picture along with participation in any awards programs, premieres and film festivals involving the film. But the suit claims MPH has not received its share of the profits, was not given proper credit in the film nor was it invited to participate in any of the 17 events and awards ceremonies involving the film, including the Academy Awards and the Golden Globe Awards. HBO later paid MPH $115,000, for taking over the film’s production then its limited partnership, Big Wedding LLC, paid MPH the additional $85,000 when filming began. Although the case is yet to be decided, MPH says it plans to continue efforts to produce motion pictures in the future, but will continue to focus on its core documentary and reality programming. The company is known for such documentaries as “Roswell Crash: Startling New Evidence,” “Lost Dinosaurs of Egypt,” “History of Sex,” and “Titanic: The Legend Lives On.” Since it was founded in 1996, MPH has produced more than 200 hours of programming for networks such as the Discovery Channel, The Learning Channel, the History Channel, Sci-Fi Channel and others.

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