How Corporate Looting And ‘Cutthroat Island’ Destroyed Carolco Pictures

Carolco Pictures was founded by Andy Vajna and Mario Kassar as an independent film company and in their own words: “Since Carolco’s initial public offering of its equity securities in 1986, Carolco’s principal strategic objective has been to produce several major “event” motion pictures for worldwide release each year with well-known creative elements and broad-based commercial appeal.”

Vajna left the company in 1989 to form Cinergi, which had the same basic film funding model as Carolco. These companies would piecemeal together big budgets by a combination of pre-sales to foreign distributors, equity investment from Carolco themselves, and a big sale to a major studio for US distribution rights. In order to attract overseas distributors and a domestic distributor to invest in a project still in development, Carolco Pictures would attract A-list actors to the project by offering oversized salaries and backend deals that even the studios would not match. So once they would land a Schwarzenegger, a Stallone or a Michael Douglas — investors would rush to commit to the future film. The funding logic appears to be sound, but it was not and it was destined to fail.

All of the distributors’ initial pre-sale investments and then their marketing spend would have to be entirely recouped before Carolco would see a percentage of the overages flow back to them. Then their take was reduced further from actor/producer/director backend deals that they set up to launch the project in the first place. Basically, most Carolco movies would have to become one of the highest-grossing films at the box office and on home video in order for them to see any real profit. And Carolco had a brief run that did indeed produce some massive money makers: Total Recall (1990), Terminator 2 (1991) and Basic Instinct (1992). But even with hundreds of millions in global profit from those pictures, Carolco only saw a fraction of the spoils.

Terminator 2 was one of the most profitable movies in the history of cinema and after all ancillary revenue was factored in, it was estimated that Carolco’s profit was about $45 million. Tri-Star, for example, invested $15 million into that film and saw over $70 million in profit. A solid but not record-breaking box office earner would return no profit to Carolco.

So why would a company that inevitably has no long term strategy to remain solvent even exist? To loot the funds and bank loans, of course, and fuck over shareholders who should have known better than buying stock in a company with no real way to make money. With Carolco flush with capital from bank loans, Kassar would command a seven-figure salary, would receive a seven-figure bonus when a Carolco movie was completed, had eight figures worth of stock options given to him, a huge corporate allowance for spending on ‘unaccountable’ items and then there were the extravagances like private aircraft, literally, millions spent on a 203-foot yacht to ride into 1991 Cannes to have a massive party on, huge overhead costs on their headquarters, absurd gifts to already extremely rich celebrities (Schwarzenegger was gifted a $12 million Gulfstream III plane) and also millions and millions showered upon other Carolco executives. Everyone on the top makes obscene amounts of money for running a soon to be failed business and is largely insulated from its inevitable bankruptcy. Yep, times have not changed.

Even with huge Total Recall home video sales being accounted for in 1991 and the profit from Terminator 2, Carolco announced a $265.1 million loss in 1991. Fresh off their biggest hit, they knew their days were numbered and their slate of future productions was reduced.

We are going to take a look at the last few major films that Carolco released up until the legendary flop Cutthroat Island killed them off.

1. Chaplin (1992)

Richard Attenborough’s biopic of Charlie Chaplin was greenlit at Universal, but just days before filming was set to begin, the studio canceled the project over the high budget, script concerns, and that Robert Downey Jr. was not a bankable actor. Universal ate $9 million in pre-production costs.

About 10 months after Chaplin was put into turnaround, Carolco picked up the project. The $37 million budgeted film nabbed a Best Oscar nomination for Downey Jr. but it was a major commercial flop. Chaplin grossed just $9,493,259 and lost millions for Carolco and their financing partners.

The company saw healthy profits from Basic Instinct earlier in 1992, profit overages from the home video sales of Universal Soldier, continued video and TV overages from Terminator 2 and Total Recall, but Carolco still posted an $88 million loss in ‘92.

2. Cliffhanger (1993)

After they bled more than $350 million in two years, Carolco continued to fail upwards when they landed $112 million in capital from Japan’s Pioneer Electronic Corporation, France’s Canal Plus, Italy’s Rizzoli Editore and MGM. This was enough to continue operations and land Kassar and fellow executives millions more from this doomed gravy train.

Their only release in 1993 was the event picture Cliffhanger. Stallone was paid $15 million and the budget was initially set at $47 million. Weather and logistical difficulties sent the production $26 million over budget to $73 million. Cliffhanger grossed a strong $84,049,211 in the US and a huge $170,951,000 overseas for a worldwide cume of $255,000,211. This blockbuster returned no profit to Carolco and in their 1995 quarter financial report they wrote: “As of March 31, 1995, no such participation in the net revenues of CLIFFHANGER had yet been paid.”

Carolco posted a $64 million loss in 1993. They also landed in legal trouble with the guilds, after they owed more than $15 million in payments to the unions for money owed to workers.

3. Wagons East (1994)

By 1994, the company was barely scraping by, but Kassar and executives were still pulling in healthy salaries and perks. John Candy sadly died during the filming of this piece of crap and his death ended up shielding Carolco from most of their financial exposure. The production’s insurance carrier paid Carolco $13,876,000 and then $1,532,000, which covered the majority of their investment into this turkey. Their foreign investors still paid into Wagons East. The movie landed reviews that are as bad as they come and it grossed a dreadful $4,412,297. Carolco lost $43.5 million in 1994.

4. Showgirls (1995) and Crusade (canceled) and Lolita (1997)

Now nearly all of Carolco’s reserves were depleted and they had a few projects in various stages of development: Showgirls, Crusade, Lolita, and Cutthroat Island. Not a good batch of projects for a company on the verge of liquidation. Carolco also handled sales duties on Stargate but was not a financier, which netted them some profit.

After Paul Verhoeven delivered two of their biggest hits — Total Recall and Basic Instinct, he had two films in late stages of pre-production: the infamous Showgirls and Crusade starring Schwarzenegger. Showgirls was set to go before the cameras first and Crusade was expected to cost a staggering $100+ million and Carolco did not have enough money to mount any of these productions. So, the decision was made to sell off Showgirls and Lolita and cancel Crusade. They would scrape together all remaining money to get Cutthroat Island into production.

Carolco would sell off their two properties for what they had already spent on them. Pre-production costs on Showgirls amounted to $9,626,000 and $3,826,000 was spent on Lolita. They spent $13,231,000 on Crusade development and payments to Schwarzenegger, all of which they lost.

5. Cutthroat Island (1995)

With an inevitable bankruptcy now looming, the Carolco brass knew Cutthroat Island would be the final movie released, as long as they could fund it. Of course, Kassar’s big incentive to complete the movie is the fee he receives upon the delivery of the film. They brokered a deal with Pioneer to get upfront costs on future ancillary sales for Terminator 2 and Cliffhanger and that revenue would go toward Cutthroat’s shoot. The company aircraft was sold off, as were other extravagances and between that and the Showgirls/Lolita sale, Carolco had just enough capital to get Cutthroat Island into production.

The big-budget pirate movie was initially set to cost $65 million, but a troubled shoot and much idiocy saw expenses rise and rise. Carolco invested $47.5 million into the picture and the rest was from their usual pre-sale financing model.

The movie was designed as a vehicle for their Basic Instinct star Michael Douglas who was offered $13 million. Director Renny Harlin (who previously helmed Cliffhanger for them) was paid $5.5 million and his wife Geena Davis also landed $5.5 million. Harlin began to rework the script to favor Davis and Douglas dropped out of the project. Pre-sales did not collapse after his exit because the movie was sold on the expense and scope of the action.

Problems began immediately with the crew that was sent to Malta. The art department had to add facades to over 1,000 feet of buildings along the quay in Malta and also erect huge sets, but Harlin stayed behind to deal with casting a Douglas replacement and never flew out to Malta to give direction to the crew. With growing concerns from the crew about having zero direction about what the director actually wants, Harlin in all of his wisdom sent this to the crew: “When the casting concerns have been resolved and I arrive in Malta, I want to see the most spectacular and eye-popping sets, the most interesting and unusual props, and especially weapons and special effects that leave the audience gasping in awe and stunts that no one thought possible before. No sequence or setting that you’ve seen in movies before is good enough. Any idea that has been previously used has to be reinvented and cranked up 10 times.”

The art department apparently did not crank up their work 10 times and when Harlin eventually arrived in Malta, he had them redo their work at enormous expense. The non-bankable Matthew Modine was also hired to replace Douglas and Davis was coming off the back to back flops Angie and Speechless.

The budget quickly ballooned to $80 million and was rising from rewrites, a crew beset by stomach illness, an injured (and replaced) cinematographer, horses flown in from Austria, one of the ships which cost $1 million to build caught fire, etc. — with the final cost of Cutthroat Island estimated to be $98 million. International Film Guarantors bonded the production and was responsible for the overages and Cutthroat Island became the most expensive movie ever bonded.

The troubled shoot caused a release delay from an expected summer 1995 release and it was scheduled for the Christmas frame. MGM handled the stateside release and fronted the P&A costs, all backstopped by Carolco.  $18 million was spent on P&A, which was about $1 million less than the average studio movie and far below what is spent to market a mega-budget tentpole picture.

Cutthroat Island became (at the time) the biggest movie flop in history, bombing out of theaters after just three weeks with $10,017,322 from the box office. Just over $5 million would be returned after theaters take their percentage of the gross. Its reputation was so toxic to the public that home video rentals and sales were not expected to make more than $15 million. Every investor on this turkey lost their investment and Cutthroat Island was expected to be the first movie to have lost at least $100 million after all global marketing costs are factored in. Kassar received his $1 million fee for seeing the biggest movie bomb of all time to completion.