What's Better: 10% of Profits or 2% of Revenues?

TechDirt.com wrote a great article that perfectly illustrates this rule of thumb for negotiating contracts based on future earnings, that is...how to make sure you'll get paid. Profits are an ever moving target: is profit calculated after taxes? After paying the principals? How about the money we spend on our vacation to Hawaii afterwards, is that a deductible cost? People do this all the time.
"...the big studios set up "corporations" for each movie, specifically designed to "lose money," often by paying money back to the studio itself. Basically, the studio sets up this "company," but then charges the company a huge "fee," such that the company itself rarely, if ever, becomes profitable. Of course, hugely successful films usually still get past the threshold, but perhaps not all of them. Hugues Lamy points us to the news that the actor who played Darth Vader in Return of the Jedi is saying that Lucasfilm still isn't paying residuals, claiming that the film is still not profitable: 
“I get these occasional letters from Lucasfilm saying that we regret to inform you that as Return of the Jedi has never gone into profit, we’ve got nothing to send you. Now here we’re talking about one of the biggest releases of all time,” said Prowse. “I don’t want to look like I’m bitching about it,” he said, “but on the other hand, if there’s a pot of gold somewhere that I ought to be having a share of, I would like to see it.”
If you adjust for inflation, Jedi is the 15th highest grossing films of all time..." 
The best solution for you as a contractor invested in a projects success, but also wanting to get a fair share of that success, is to make a counter offer based on the total revenues of the project, regardless of costs. Now you can't ask for the same percentage cut, but if you ask for 2% of total revenues instead of 10% of the profits and they balk at that, you gotta ask yourself if they had any intention of paying out anything in the end.

Asking for a cut of total revenues leaves the management of the expenses for the principals and the finance people. That's their job, to make sure they make a profit. Your job is to deliver great work.

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