Right. The freer the market, the harder it is to win with Hollywood Accounting. It works as well as it does because it's not a free market. In a free market, you pull that trick once, people will never work with you again.
While that may be true, a number of people who back films either:
a. Have some other way they are getting paid for their involvement so they don't care about the upfront costs since they will make money anyway. In addition, they don't have to share that money but profits would be shared so they have no good reason to want a profit
b. It's a way to get to hang around Hollywood types and that's the cost of entry...
The ones who get screwed are those who take a cut of the net profit because they don't understand the system; such as a writer who doesn't understand the system and gets a 10% of the net instead of