George Lucas Gave Up a $500,000 Raise to Keep Star Wars Merchandising Rights. They've Made $20 Billion.

After American Graffiti became a massive hit in 1973, George Lucas was entitled to a significant raise for his next directing project. The figure most often cited is $500,000. He was offered approximately $150,000 to direct a science fiction film called Star Wars.

Lucas made a trade that the studio considered a gift: he would accept the lower fee. In return, he wanted two things Fox considered worthless: sequel rights and merchandising rights.

Why Fox Said Yes

Fox had good reason to view merchandising as a losing game. In 1967, the studio had backed Doctor Dolittle with an enormous merchandising push. Over $200 million worth of product went unsold. The film flopped. The merchandise was a catastrophe.

"Fox had tried to do a merchandising program on Doctor Dolittle in 1967, and it flopped," confirmed Charles Lippincott, the head of Star Wars marketing at the time. Studios routinely gave away merchandising rights "just for the publicity" and viewed them as a minor afterthought.

Fox signed the deal.

$20 Billion and Counting

Star Wars became the highest-grossing film in history. The merchandise became something the entertainment industry had never seen. Action figures, lunchboxes, bedsheets, video games, LEGO sets, clothing lines, theme park attractions. By 2012, licensed Star Wars merchandise had generated over $20 billion in retail revenue.

The sequel rights Lucas retained allowed him to make The Empire Strikes Back and Return of the Jedi on his own terms, founding the independent empire of Lucasfilm.

The Sale

On October 30, 2012, Lucas sold Lucasfilm to The Walt Disney Company for $4.05 billion in cash and stock. The deal included everything: the films, the characters, the merchandising empire, and the sequel rights Fox had given away for free 35 years earlier.

Fox got a $150,000 directing fee. Lucas got $4.05 billion and the most lucrative merchandising empire in entertainment history.