For the Love of writing...
Tuesday, March 1, 2011
  Risk to Reward - Bollywood style.

I came across an article in the Times of India which quoted Urdu poet Shahryar slamming Bollywood and calling it as a town of illiterates. Shahryar is the poet who wrote the famous songs of Umrao Jaan (1981) and Gaman (1978) after which he went back to teaching poetry at the Aligarh Muslim University. Today he is as critical of the modern hindi cinema and the songs that they write as any other old timer. And why shouldn’t he be? Any true poet would despise today’s ‘beedi jalayle jigar se piya’ or ‘zandu baam hui darling tere liye’ which have replaced the beautifully penned poetries of the olden days. And so I came to pass on the article without giving it much thought.

Then the next day, Bombay Times carried a photo of the ‘shirt wearing Salman’ captioned “17.5 crore plus 50 percent profits.” And this is what got my gray cells in action. Which producer is willing to pay such a huge sum of money upfront and then willing to share 50 percent of his profits. And what if the movie doesn’t do well? Well in that case, Salman gets the 17.5 crores and the producer takes the 100 percent loss on the entire expense of production.

And that is when I realized one thing for sure. I may not be the appropriate person to comment on Bollywood’s literary exponents but I may not be too wrong to say that Bollywood is definitely a town of Financial illiterates. Of course, being in the profession of making bets on the movement of stock prices for such a long time, a concept that we call risk-to-reward ratio has gotten into my blood.

And this is how the math is. If out of 10 bets that I make only 4 are successful then I have to bear the loss of the 6 bets that went wrong. So let’s say I risk Rs 100 on each bet. My risk to reward ratio should be atleast 1:5. That is I should make Rs 500 on each of the bets that go right and loose only Rs 100 on the bets that go wrong. So after a string of 10 bets I would have made 500x4 = Rs.2000 and lost 100 x 6 = Rs 600. Even then I would be left with Rs 1400 after betting Rs 100 for 10 times. Sound enough.

Now if you come in and tell me that I should share 50 percent of my profits with you on each of the bets then at the end of the day I would make 250 x 4 = Rs. 1000 and loose 100 x 6 = 600. So at the end of the day I would carry home Rs. 1000 after betting Rs 100 for ten times and you would carry home Rs 1000 without betting a penny. My risk to reward ratio in this case would be 1:2.5.

Now you become Salman and tell me that I should pay you 20 bucks for each bet and 50 percent of the profits, I wouldn’t even bother doing the math here, I would walk off. Are you crazy dude? And this financial literacy has cost crores to the producers. Ashutosh Gowirekar has shut his shop, a couple of big companies that plunged into the film industry have taken nerve wracking beatings and quite a few are betting it all on their next film, which if goes bust, will see them shutting shop too.

No enterprise can be successful until and unless it is governed with sound economics. There is a limited pool of cinema viewers available and if only 1 out of 10 films become a superhit, then you have to estimate with the presumption that the next film is going to be an average film and not a superhit.You should be optimistic in life but when doing the math you should be a pragmatist and then hope that you churn out the unprobable.


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