On paper, "Evan Almighty" looked like a sure thing.
A spinoff of Jim Carrey's smash hit "Bruce Almighty," the film starred Morgan Freeman, reprising his role as God, and Steve Carell, one of Hollywood's hottest comedians.
But "Evan Almighty" turned out to be a dud, with an estimated $250 million in production and marketing costs and just $173 million in box office revenue.
Studio financing: An article in Section A on Feb. 16 about hedge-fund financing of Hollywood movies said studio projections for films in an investment pool known as Gun Hill Road I indicated that "Doom," "The Holiday" and "Stranger Than Fiction" might lose a combined $100 million over seven to 10 years. The projected losses for those three films are actually about $84 million.
Studio financing: An article in Section A on Feb. 16 about hedge-fund financing of Hollywood movies incorrectly identified Och-Ziff Capital Management as an investor in a slate of films known as Gun Hill Road I. Och-Ziff was not an investor in Gun Hill Road I.
The film's distributor, Universal Studios, is not the only one feeling the pain. A Milwaukee hedge fund put up millions of dollars to help bankroll the movie and more than a dozen others, according to investment bankers. Hedge funds have been a major source of capital for Hollywood studios over the last three years. Drawn by projections of double-digit returns with minimal risk, they pumped $13 billion into 150 major pictures. Typically, they helped finance "slates" consisting of as many as several dozen movies.Now, the glitter is gone. Many of those deals are likely to lose money for equity investors, according to investment bankers. The toll could reach hundreds of millions of dollars.
In some cases, studios have restructured deals to appease angry investors. Sony Pictures, whose investors backed such flops as "All the King's Men" and "Stranger Than Fiction," agreed last year to absorb some marketing costs originally charged to them, according to three people knowledgeable about the matter.
Sony agreed to swallow $20 million in marketing expenses, one of the sources said. Another said the figure could reach $45 million.
Bob Osher, Sony's chief operating officer, confirmed the restructuring but declined to discuss the financial terms. He said the renegotiation "was never related to any specific cost element of the pictures."
New deals will carry more stringent terms so that the studios can no longer profit if their backers end up in the red, investment bankers say.
"Many of the equity investors who have gotten into the industry in the last 24 months have woken up and smelled the coffee," said Eileen Burke, a managing director at investment firm D.B. Zwirn & Co. "They're either going to say, 'I don't want to invest anymore because I don't like the misalignment of interests' or they're going to insist on better alignment."
The drama has largely played out behind the closed doors of the famously secretive hedge funds, pools of private capital that almost never disclose profits or losses.
- SEC May Conduct Hedge Fund Inspections May 23, 2003
- SEC Calls Hearings Into Hedge Funds Mar 25, 2003
- Spitzer Questions Policing of Hedge Funds Apr 21, 2004
