Okay, so you woke up one day, checked your Swiss bank account, called your family office planner, had breakfast with your private client services wealth manager, phoned your tax accountant, and at three you decided to invest your proceeds from the merger or acquisition of your latest company not in some dodgy hedge fund or biotech start-up, but in financing Hollywood movies because you think you need the tax credits from the state, federal tax deductions, as well as nice income coverage from a few movies.
It might not sound great at first with your hedge fund manager neighbors in Connecticut or your oil and gas investor friends in Bahrain or Dubai, but aren’t they the same guys who finance Hollywood blockbusters? And the only question for you, how do you get into the game without feeling like the uncle of the film school student who wrote his nephew a check for $1,000,000 for a movie starring his classmates? class from the drama department and ended up as a free download on youtube. how?
So after you’ve done your share of homework, here’s what you may discover the opportunity to spice up your rich but boring life:
* Sergey Brin and Larry Page of Google, Fred Smith, CEO of Federal Express, Norman Waitt, co-founder of Gateway Computers, Jeff Skoll of Ebay, Todd Wagner and Marc Cuban (formerly of broadcast.com), Max Levchin and David Grodnick of PAYPAL, Marc Turtletaub of The Money Store, Roger Marino of EMC Corp, former Chicago bulls co-owner Jim Stern, Sidney Kimmel of Jones Apparel Group, Bill Pohlad, owner of the Minnesota Twins; Real estate developers Tom Rosenberg, Bob Yari; and financiers Robert Sturm, Sheikh Waleed Al Ibrahim, Zeid Masri of SilverHaze Partners, Michael Singer, Mark Esses, David Larcher, Michael Goguen, Richard Landry, Michael Reilly, Rafael Fogel and Philip Anschutz are just a handful of wealthy entrepreneurs . who entered the financing and film production sector with good results.
* There are various state, federal and international marketable tax credit incentives that would provide a bonus based on an equity position. Assuming there’s a $10 million budget movie, 50% of which is equity and 50% via international distribution guarantees before release. Now suppose that there is a tax credit of 20-25% on the total amount of $10 million, which will immediately translate into a tax credit of $2-2.5 million for an investor.
* Numerous hedge funds such as Reed, Conner & Birdwell (DISNEY), Legendary Fund (Warner Brothers), Melrose Fund (Paramount Pictures), Ingenious Media’s 700 Million dollar Float on London’s AIM, Benjamin Waisbren Investments, and a host of others funds and fund managers are entering the arena of film financing.
* The explosion of international DVD, pay-per-view, home video, cable, megaplex theaters, the future of multilingual Internet video-on-demand downloads and digital distribution in all markets, including including low-cost digital theatrical projection, the motion picture industry is accelerating at an unprecedented rate of growth.
* The American Jobs Creation Act of 2004, which amends the Internal Revenue Code of 1986, was signed into law. The law creates three tax incentives expressly applicable to motion pictures, one of which – Section 181 of the Internal Revenue Code – is particularly important to independent film producers and their passive investors on qualifying films with budgets below $20 million.
*The motion picture and other entertainment sectors have consistently outperformed and exceeded analysts’ expectations for growth, and are the only sectors resilient to untimely global events and adverse economic conditions.
* Returns for film investors can be more favorable and more liquid than owning direct stakes in most public entertainment and other public companies, real estate investments and other alternative investments.
* There is a huge demand, audience and growing distribution structure for specialty independent, crime, horror and other low-budget films, as evidenced by the success of films such as ‘Brokeback Mountain’, ‘Sideways’ , “Capote”, “Garden State”, “Napolean Dynamite”, “Y Tu Mama Tambien”, “My Big Fat Greek Wedding”, “Memento”, “Crash”, “Saw 1 & 2″, Friday The 13th”, “Halloween”, “Texas Chain Saw Massacre”, “Hostel” and “WOLF CREEK”, which was made for $800,000, bought for almost $4 million before its release by Dimension, as well as “Hustle and Flow” which was made for $2 million and bought for $16 million by Paramount Pictures.
* Apart from major blockbusters such as “King Kong”, “Harry Potter” and other large-scale studio films, the majority of studio-produced films underperformed at the box office. Films that have been successful for studios have all been externally financed and/or co-financed with studios, sold for 2-3 times their cost, and the majority of them have retained overseas sales rights to maximize revenue.
So after looking at all the great benefits, how are you actually going to find a deal or a movie project where you’re sure half your money won’t be used by a Hollywood producer as a down payment on a new mansion in the Pacific palisades?
The key that separates blockbuster movie financiers from rookie oil tycoons who arrive in Los Angeles with a pocketful of cash and end up leaving with half a pocketful of cash is called several things: structured finance, leverage , risk minimization, multiple exit strategies. , tax credits and the ethical conscience of the filmmaker/producer.
What does that translate to you in a real-world scenario. Let’s say you want to finance 100% of a $1.5 million low-budget genre film whose worst-case scenario is a DVD release and profits on international sales and maybe other sweeteners in the conversion of the securities to which you subscribe under the agreement. Well, if you write a check for $1.5 million and the movie is shot in a state that has 30% tax credits, you get back $450,000+ tax credits under the section 181, you can write off this amount under Federal. So you’re already making a good return before the profits kick in. Then you think you’re selling the movie to 50 countries, and if you’re really lucky, you’re selling the movie for 3-4 times its cost at a studio at a fancy festival. like Sundance, Toronto, Cannes, etc. Do this on 5-10 films and you can make a very profitable name for yourself among the Hollywood elite.
But let’s really take it a step further and see how the biggest ones benefit from movie investment, because they can get a bigger star, which can translate into bigger overseas sales. Let’s say a filmmaker/producer has a $10 million movie and you want in on the action. You’d park $5 million in equity, get a 20-30% tax credit on $10 million, that’s $2-3 million, the producer would get the biggest star possible, a studio to inject the 5 million dollars remaining, you don’t worry about seeing a penny of theatrical release because you know your DVD profits and international sales will cover your capital position. Make sense ?
Now take advantage of that with different budgets, genres, stars, cast, places where you can get high tax credits (eg Puerto Rico is 40%), other exit strategies where you can find your shares on the London AIM, and you’re on your new career path as a sophisticated and educated film financier. Of course, if you want to go even further and guarantee 100% of your capital, there are also tricks.