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Why are Academy Awards called Oscars?

There is no definitive explanation as to how Oscar became the popular name for an Academy Award. 

In 1928 a founder member of the Academy MGM, the Irish art director, Cedric Gibbon, created the initial design for the 33 cm high gold-plated statuette. The following year the Academy commissioned the Los Angeles sculptor, George Stanley to produce the 3D version.

In 1930 Gibbon stepped up to collect the first of 11 awards he would go on to win for production design.
The art-deco influenced statuette depicts a knight holding a crusader's sword.  There is no indication that the knight - who is standing on a reel of film - is called Oscar. Nor is there any obvious connection between the subject and the name.

So when did this ugly/beautiful piece of work become Oscar?

In 1934 the term was first publicly used by a Hollywood columnist describing Katharine Hepburn's first Best Actress victory. By 1939 the word Oscar was universally known.

Uncle Oscar?

Bette Davies collects Oscar for Jezebel (1938)
One theory is that the name came from an early Academy director, Margaret Herrick, in 1931. According to this legend, Herrick thought that the statue looked like her Uncle Oscar. 

Bette Davies?

Another suggestion is that Hollywood star, Bette Davies named her award after her husband. She claimed in interviews that the statuette reminded her of the Mr Davies's 'rear end'.  Apparently his hated middle name (Oscar) was meant to be a state secret - so Bette - famed for her feuds - made sure that the world would remember.

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