All on the basis of a deal memo -- not a final contract.
The deal memo provided Lucas with $15,000 for developing the film, $50,000 for the script, $100,000 to direct, and 40 percent of net profits.
That didn't mean the film would actually be made, though: The "Election to Proceed-Turnaround" clause stipulated that the studio could withdraw financial support at any time. In short, Fox was paying for a screenplay; if they liked it, they could ask for revised drafts. If not, they could bail.
In the meantime, Lucas's American Graffiti became a huge hit, providing Lucas with the financial resources to forge ahead: Hiring artists to conceptualize characters, setting up Industrial Light and Magic to build special effects cameras and equipment... eventually Lucas sank well over $400,000 of his own money into the project.
All of which seemingly should have allowed Fox to play hardball during the endless contract negotiations. Lucas had basically gone all in; the easiest people to negotiate with are those who have everything to lose. But waiting had actually put Fox in a bind; by now, American Graffiti was one of the top grossing films of all time, making Lucas a hot commodity.
And since Fox had refused to fund key elements of pre-production, making it easier for Lucas to pick up his (figurative) Star Wars toys and make the film at another studio.
As a result, Lucas decided to take an unusual stand: Instead of negotiating for a higher directing salary, or more points (basically a higher percentage of profits), Lucas opted for greater control: Control over how the film was made, as well as its ancillary rights.
As Jeff Berg says in the The Making of Star Wars:
There was an open area in the deal that was always more or less ambiguous, that had to do with sequels and television, and publishing and merchandising and soundtrack: Areas that were important to George because he knew the life of Star Wars would exist beyond the making of the first theatrical picture.
We weren't interested in (money) -- we were interested in preserving whatever rights we could and in making merchandising deals...
We weren't interested in making a blanket across-the-board merchandising deal, because we felt that if the picture was successful we would be selling out -- and in the long run it would cost our client a fortune.
Instead of asking for more money up front -- which he could have easily gotten -- Lucas decided to bet on himself. He wanted control over any and all Star Wars sequels. And he wanted to control all aspects of Star Wars merchandising.
Not because he knew it would make him rich (although it did), but because he wanted to control his vision.
As Berg says:
It's important to remember that none of the original deal came out of money as those who know something about it might think.
It came because George just wanted to be able to make the movies he wanted to make.
Reaping the financial benefits was an (admittedly awesome) side benefit, one that allowed him to not only tell further Star Wars stories -- and also reinvest in the capabilities of companies he founded like LucasArts, Industrial Light & Magic, and Lucasfilm.
And to eventually sell LucasFilm to Disney for $4 billion, a great deal for both parties. (The best negotiations allow both sides to win.)
Whenever Possible, Bet On Yourself
Lucas did have one advantage many of us don't enjoy: His American Graffiti money allowed him to finance much of Star Wars pre-production.
By the time the studio was ready to make a deal, the negotiating power had shifted to his side.
That may not be the case if you're bootstrapping your startup; you may need to take all the money you can get up front instead of betting on greater downstream revenue.
But whenever you can, always choose to bet on yourself.
If you believe in what you've created, in what you've developed, in what you provide... believe in its future -- and yours.
Believe that you'll find a bigger audience, that you'll grow a bigger customer base, that you'll build a bigger company:
- If you're bringing on investors, take less up front in order to hold on to more of your company.
- If you're launching a joint venture, take less up front in return for a greater percentage of revenue and profits.
- If you're licensing an idea or product (which extends to creative work as well), take less up front in order to hold on to greater control over that product -- and a bigger portion of the financial rewards.
Whenever you can, bet on yourself. While it might not make you rich, it will allow you to better control your ideas, your mission, and your vision.
Which can sometimes be at least as important as money.
If not more.