Okay, one day you woke up, checked your bank account in Switzerland, called your family office planner, had breakfast with your private client service wealth manager, phoned your tax accountant, and between the three of you, you decided to invest. your profits from your latest company’s Merger or Acquisition aren’t going to some dodgy hedge fund or biotech startup, but to funding Hollywood movies because you think you need the State Tax Credits, tax write-offs federal funds, as well as good revenue coverage from some movies.
Now, this may not sound great initially with your hedge fund manager neighbors in Connecticut or your oil and gas investor friends in Bahrain or Dubai, but aren’t these the same guys who bankroll 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 $1,000,000 check for a movie starring his classmates from the theater department and ended up like a free download on youtube? as?
So, after doing her share of homework, here’s what she discovers may be the chance to spice up her 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, Minnesota Twins owner Bill Pohlad; 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 few of the high net worth entrepreneurs . who entered the film production and financing business with successful results.
*There are several tradable state, federal, and international tax credit incentives that would offer a premium based on an equity position. Suppose there is a movie with a budget of 10 million dollars, where 50% is in stock and 50% is through international distribution guarantees before the release. Now suppose there is a 20-25% tax credit on the total amount of $10 million, which will immediately translate to a $2-2.5 million tax credit for an investor.
* Numerous hedge funds including Reed, Conner & Birdwell (DISNEY), Legendary Fund (Warner Brothers), Melrose Fund (Paramount Pictures), Ingenious Media’s $700 million Float on London’s AIM, Benjamin Waisbren Investments, and a host of other funds and fund managers are entering the field of film financing.
*The international explosion of DVD, pay-per-view, home video, cable, megaplex theaters, the future of multilingual Internet video-on-demand downloads, and cross-market digital distribution, including low-cost digital theatrical projection , the film industry is accelerating at an unprecedented rate of growth.
*The Create American Jobs Act of 2004, amending the Internal Revenue Code of 1986, became law. The Act creates three tax incentives expressly applicable to movies, one of which – ยง 181 of the Internal Revenue Code – is especially significant for independent film producers and their passive investors in qualified movies with budgets of less than $20 million dollars.
*The movie and other entertainment sectors are consistently outperforming and outperforming analysts’ expectations for growth, and are the only industries resilient to untimely global events and adverse economic conditions.
*Returns from Movie Investor may be more favorable and more liquid than holding direct equity positions in most public entertainment and other public companies, real estate investments and other alternative investments.
*There is a high demand, audience and growing distribution structure for independent, crime, horror and other low-budget specialty films, as evidenced by the success of such films 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, was bought for nearly $4 million before Dimension released it, as well as “Hustle and Flow,” which was made for $2 million. and was purchased for $16 million by Paramount Pictures.
* Aside from big box office hits like “King Kong,” “Harry Potter” and other large-scale studio movies, most studio-produced movies have performed poorly at the box office. All the movies that have been successful for the studios were externally financed or co-financed with the studios, sold for 2 or 3 times their costs, and most of them retained the foreign sales rights to maximize revenue.
So, after seeing all the great benefits, how do you go about finding a deal or movie project where you’re sure a Hollywood producer won’t use half your money as a down payment on a new mansion on the Pacific? ? palisades?
The key that separates the successful financiers of the cinema vs. fledgling oil tycoons who come to Los Angeles with a pocket full of money and end up leaving with half a pocket full of money are called by various names: structured finance, leverage, risk minimization, multiple exit strategies, tax credits, and ethical awareness. of the filmmaker/producer.
What does that mean to you in a real world setting? 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 from international sales and maybe some other capital sweeteners on conversion values. who signs as part of the deal. 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 $450,000 in tax credits + under Section 181, you can write off that amount under Federal. Therefore, you are already getting good results before the profits appear. So you figure you sell the movie to 50 countries, and if you’re really lucky, you sell the movie for 3 or 4 times what it costs to a studio at a fancy festival like Sundance, Toronto, Cannes, etc. Do this in 5-10 movies and you can make a very profitable name for yourself among the Hollywood elite.
But let’s really take this a step further and look at how the bigger guys take advantage of the movie investment because they can get a bigger star which can translate into bigger sales abroad. Let’s say a filmmaker/producer has a $10 million movie and you want to get in on the action. I’d park $5 million in equity, get a 20-30% tax credit on $10 million, that’s going to be $2-$3 million, producer get the biggest star they can, get a studio to kick the other $5 million dollars, you don’t worry about seeing a penny of the theatrical release because you know your DVD profits and international sales will cover your capital position. Make sense?
Now take advantage of this with different budgets, genres, stars, distribution, 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 in her new career path as a sophisticated and educated financial movie. Of course, if you want to go even further and guarantee 100% of your capital, there are tricks for that too.