How South Canterbury Finance lost the $30 million it invested in the Lord Of The Rings trilogy. By Paul Carruthers If you are interested in John Keys relationship with Hollywood you should read this. Allan Hubbard and I spoke on the phone and in person many times during the last 15 months of his life. He shared an enormous amount of information with me. One of the many bits of information he shared with me, was the subject of how South Canterbury Finance lost $30 million it had invested in a BNZ capital raising venture to finance the filming and production of the Lord of the Rings Trilogy in New Zealand. Allan Hubbard confirmed that New Line Cinema did not finance the Lord of the Rings. The vast majority of the capital raised to finance the LOTR trilogy, was raised on the New Zealand capital markets by the BNZ at New Line Cinemas request. Allan Hubbard told me that the final figure the BNZ raised was never publicised but it was widely known to have been many hundreds of millions of dollars. Robert Shaye, CEO of New Line Cinema at the time, is on record as saying more than $250,000,000 had been forwarded to Sir Peter Jackson to make the movies in the first instalment. Allan Hubbard told me that the BNZ pocketed tens of millions in fees for raising the capital and arranging the financing of the movies. Eventually the BNZ ran into strife with the IRD over the deals, because it was complex and murky and lacking in transparency. A number of companies were formed in the process of the capital raising, but the process was so murky that most details of Lord of the Rings film companies remain suppressed. Two companies also have names referring to the second and third Lord of the Rings films. It is likely that these were part of the complex transactions used in financing the films, designed to maximise tax concessions. Gordon Campbell (Listener, “Planet Middle Earth”, 15/12/01, p.17-24) estimates that the film cost the New Zealand Government up to $200 million in lost tax revenues. In addition, the third of the trilogy – The Return of the King – “is being financed by Hannover Leasing of Munich via a reported US$150 million tax shelter – i.e. half the budget for the entire three films – with each German investor needing to pony up US$43,000 to join”, reported Campbell. The second film – The Two Towers – probably had similar financing. In other words, German taxpayers were contributing another substantial part of the cost, based on the same expenses as the New Zealand tax concessions. Both New Zealand and Germany have since changed their tax laws – but in the New Zealand case, with a “grandparenting” clause which allowed the Lord of the Rings to retain the concessions. New Line itself, after New Zealand tax breaks, merchandising and so on, “had only US$20 million riding on each movie”. Thats right, you heard it here - Allan Hubbard invested more money in Lord of the Rings than the Hollywood Movie Studio did. $10,000,000 more, to be precise. The Fellowship of the Ring was released on 11 December 2001, it grossed US$871,530,324 worldwide, with a budget of US$93 million to make it. The Two Towers was released on 12 December 2002, and it grossed US$926,047,111 worldwide, with a budget of US$94 million to make it. The Return of the King was released on 13 December 2003, and it grossed US$1,119,929,521, again with a budget of US$94 million to make. So, overall, the LOTR trilogy grossed US$2,917,506,956, and cost US$281 million to make. That means New Line Cinema sold around NZ$6 billion in tickets, before merchandise sales etc. And yet it posted a loss. South Canterbury Finance invested $30 million in The Lord of the Rings film trilogy, only to have New Line produce accounts showing that the movies did not make a profit, but made horrendous losses. According to Allan Hubbard: We found it surprising because it was one of the biggest box office successes of all time. The three films rank 7th, 25th, and 33rd on the list of highest-grossing films, and won at least 11 Academy Awards. Peter Jackson’s production company Wingnut Films questioned New Line Cinema’s accounting methods, bringing in an outside auditor as allowed by the contract, and eventually sued New Line. New Line executive Robert Shaye took great offense, declared that they would never work with Jackson again”…. The situation was made more complex by Saul Zaentz Co’s ongoing dispute with New Line Cinema over profits from the Lord of the Rings films. The dispute began shortly after the release of the films. In December 2007 Variety magazine reported that Zaentz was also suing New Line Cinema, alleging that the studio has refused to make records available so that he can confirm his profit-participation statements are accurate”…” Similarly, the Tolkien estate sued New Line, claiming that their contract entitled them to 7.5% of the gross receipts of the $6 billion hit”. Allan Hubbard told me he settled out of court for a couple of million in the end, the BNZ took no responsibility because they already had their fees, but a lot of New Zealand investors lost their shirts over Lord of the Rings. I trust that the irony of John Key and Allan Hubbard colliding at the crossroads of South Canterbury Finances losses on Warner Brothers involvement in New Zealand is as rich for you as it is for me. Somehow or another the New Zealand taxpayer has stumped up hundreds of millions of dollars to subsidise tax losses on these movies, and the other hidden victims of this story are those trusting New Zealanders, like Allan Hubbard, who trusted politicians like John Key when they have sold Hollywood to New Zealanders in patriotic and nationalistic terms. But for both public and private investors in New Zealand, it has been an unmitigated disaster of epic proportions. Of the total cost of around NZ$330 million to film the LOTR trilogy, New Line (now part of Warner Bros) invested only a small percentage of that. The majority of it was invested (and lost) by New Zealanders. So when you think of someone like Kim Dotcom, you now know what he is up against. And to put that in context, factor in the $40 million more tax subsidies, plus the employment law changes John Key gave Warner Bros *knowing* this had all happened, ask yourself why there is such a breathless and desperate campaign to discredit Kim Dotcom going on. I cant help wondering if it has anything to do with Allan Hubbard telling me that he hired a money-laundering investigator, and they traced the profits from LOTR back to the Cayman Islands - a tax haven. SOURCES (with thanks): en.wikipedia.org/wiki/New_Line_Cinema nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10584693 nzherald.co.nz/entertainment/news/article.cfm?c_id=1501119&objectid=10418732 huffingtonpost/2009/09/08/tolkien-estate-new-line-c_n_279625.html usatoday30.usatoday/life/movies/news/2007-06-06-rings-suit_N.htm en.wikipedia.org/wiki/The_Lord_of_the_Rings_(film_series) canterbury.cyberplace.org.nz/community/CAFCA/cafca01/jun01.html#_Toc29992154 therealstevegray/2012/10/read-a-letter-to-john-key-from-bruce-hopkins-about-his-hollywood-visit/ nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10353391 brianedwardsmedia.co.nz/2010/10/the-hobbit-a-laymans-attempt-to-make-sense-of-it-all/
Posted on: Tue, 02 Sep 2014 23:49:23 +0000
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