For Lions Gate, ‘The Expendables’ Are Shaping Up to Be Indispensable

"The Expendables 3" will find its way to theaters during a busy summer at the movies. Here’s why making a threequel was a no-brainer.

May 30, 2014 at 8:19AM

Jason Statham Expendables

Jason Statham returns as Lee Christmas in The Expendables 3. Credit: Millennium Films.

With so many blockbusters in theaters and on the way, you might not know that Millennium Films and Lions Gate Entertainment (NYSE:LGF) are back with another entry in The Expendables franchise.

I know, I know. The Expendables? Seriously? Yes, seriously.

While these films haven't meant as much to Lions Gate as The Hunger Games or even Divergent, they have done well. Expecting any less from The Expendables 3 when it reaches theaters on Aug. 15 would be a mistake. But don't take my word for it; have a look at the numbers:

Metric
The Expendables
The Expendables 2

Worldwide gross

$268.3 million

$311.9 million

Production budget

$82 million

$100 million

Est. profit before distribution (50% of worldwide gross minus production costs)

$52.15 million

$55.9 million

Lions Gate share (50%)

$26.1 million

$27.9 million

Est. marketing and distribution

$38 million

$40 million

DVD and Blu-ray sales

$74.4 million

$36.4 million

PROFIT CONTRIBUTION

$62.5 million

$24.3 million

Sources: The-Numbers.com, BoxOffice.com, TMF estimates.

To be fair, these aren't perfect figures since financing arrangements can vary from movie to movie. Here, I estimated that Lions Gate would get a 50% cut of profits after producers Nu Image and Millennium Films covered their costs. Lions Gate would then pay marketing and distribution costs and collect the bulk of revenue from DVD, Blu-ray, and download sales. With each film, the company appears to have done well without taking on burdensome production costs.

What The Expendables means to Lions Gate
Not that production is necessarily a bad business. If anything, the first two installments of The Hunger Games franchise proved definitively that the right property could do wonders for Lions Gate stock. Distribution deals merely reduce the overall risk in Lions Gate's portfolio while offering some upside.

How much upside can we expect with The Expendables 3? That's tougher to say. Adding Harrison Ford, Mel Gibson, Kelsey Grammer, and Wesley Snipes, among others, to the ensemble cast probably pushed production costs over the $100 million mark. Clearing a higher hurdle won't be easy, especially with the much-touted Guardians of the Galaxy screening two weeks earlier.

Regardless, history says we can expect $300 million or more at the box office and at least $40 million in DVD and Blu-ray sales. Mix in download sales and licensing deals with the likes of Netflix, which is airing The Expendables 2 right now, and I think you've the makings of another solid profit producer, and a good reason to give Lions Gate stock a second look.

Apple's covert mission (warning, it may shock you)
Recently, a secret-development "dream team" took on the near-impossible task of guaranteeing Apple's newest smart device was kept hidden from the public. They failed; the secret is out and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

The Expendables 3 opens on Aug. 15 in U.S. theaters. Sources: YouTube, Lions Gate.

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Lions Gate Entertainment and Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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