Donald MacInnes: George Lucas' canny call on Star Wars was out of this world

In the Red

If a trophy existed to honour the canniest business decision ever made, one of the favourites would be a deal that saw the protagonist become one of the richest operators in his industry, while remaining one of its least understood.

Until 1977, 20th Century Fox's largest-ever annual profit had been $37m (£23m). In the tax year 1977-78, the studio's profits rocketed to $79m. The reason boiled down to just two words: Star Wars.

The film was the pet project of director George Lucas and, such was its (at the time) deeply unfashionable subject matter, it would simply not have been made had it not been for the fact that Lucas had just directed American Graffiti.

A nostalgia piece set in the 1950s, with a budget of some $750,000, it has to date made more than $250m. Lucas received $150,000 to direct that film and, as it was such a hit, was offered $500,000 for his next project, the aforementioned space adventure.

But he turned down the deal, saying instead he would again work for $150,000, as long as he could retain all of the merchandising rights and get first refusal on any sequels.

As Fox believed the film was probably going to bomb quite hard – thereby not generating any sequels (never mind joyless prequels) – it agreed to that part of the deal.

It had also lost money 10 years before when it speculated on the merchandising potential of Doctor Dolittle, so was happy to let Lucas have 100 per cent of the six lunch boxes and four T-shirts it expected the film to spawn. The suits were probably sniggering as Lucas left their boardroom.

Of course, the film became a mountainous smash – and not only were the sequel rights worth a fortune, the merchandising deal became a licence to both print money and then spend it on swimming pools full of ginger beer and elaborate cars with big radios.

It's hard to say exactly how much Lucas made from his gutsy deal, but in the year following its release, $100m worth of Star Wars toys were sold. Up to 2012, when Lucas sold all Star Wars rights to Disney for $4bn, that merchandising pot had grown to a galactic $12bn, with Star Wars products generating $3bn a year. And Lucas got it all, having taken a risk on a film no one believed in nearly 40 years ago. Now that is a sweet deal.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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