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OK, so you woke up one day, checked your Swiss bank account, called your family office planner, had breakfast with your personal client service wealth manager, got your tax accountant on the phone, and the three of you Meanwhile, you’ve decided to invest your proceeds from your latest company merger or acquisition not in some dubious hedge fund or start-up biotech venture, but in financing Hollywood movies because you think you’ll get state tax credits, federal tax credits, and more. Write-off, as well as a good hedge, earnings from some films
Now, this may not initially go over too well 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 people who are financing Hollywood blockbusters? And the only question for you, how can you get into sports 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 theater department classmates? was and ended up as a free download on YouTube. com?
So after doing your share of homework, here’s what you might find an opportunity to spice up your rich but boring life:
* Google’s Sergey Brin and Larry Page, Federal Express CEO Fred Smith, Gateway Computer co-founder Norman Waite, eBay’s Jeff Skoll, Todd Wagner and Mark Cuban (formerly of Broadcast.com), Max Levchin and PayPal’s David Grodnick, Mark Turtletaub of The Money Store, Roger Marino of EMC Corp., former Chicago Bulls co-owner Jim Stern, Jones Apparel Group’s Sidney Kimmel, Minnesota Twins owner Bill Pohlad; real estate developers Tom Rosenberg, Bob Yari; And, financier Robert Sturm, Sheikh Waleed Al Ibrahim, Zeid Masri of SilverHeize Partners, Michael Singer, Mark Esse, David Larcher, Michael Goguen, Richard Landry, Michael Reilly, Raphael Fogel and Philipp Anschutz are just some of the high net worth entrepreneurs. who entered the film finance and production business with successful results.
* There are various tradable state, federal and international tax credit incentives that will offer a premium based on an equity position. Assuming there is a $10 million budget film, where 50% of it is in equity, and 50% is through international distribution guarantees prior to release. Now let’s say there is a 20-25% tax credit on the entire $10 million dollar amount, which would immediately translate into a $2-2.5 million tax credit to an investor.
*Several hedge funds such as Reid, Conner & Birdwell (Disney), Legendary Fund (Warner Brothers), Melrose Fund (Paramount Pictures), Ingenious Media’s $700 million float on London’s AIM, Benjamin Weisbren Investments, and many more funds Fund managers are entering the film finance space.
*The future of international DVD, pay-per-view, home video, cable, megaplex theaters, downloadable multilingual Internet video on demand, and low-cost theatrical digital projection, the film industry exploding cross-market digital distribution at an unprecedented growth rate growing from
*The American Job Creation Act of 2004, which amends the Internal Revenue Code of 1986, was signed into law. The act creates three tax incentives that apply explicitly to motion pictures, one of which – § 181 of the Internal Revenue Code – specifically applies to independent filmmakers and their passive investors on qualifying films with budgets of less than $20 million. is important.
*The filmed and other entertainment sectors continue to outperform and beat analyst expectations regarding growth, and are the only industries that have been immune to untimely global events and adverse economic conditions.
*Movie investor returns 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 large demand, audience and growing distribution structure for specialized independent, crime, horror and other low-budget films, as exemplified by the success of films such as “Brokeback Mountain”, “Sideways”, “Capote”, Garden State”, “Napoleon Dynamite”, “Y Too 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 by Dimension for almost $4 million before its release, as well as “Hustle and Flow” which was bought for $2 million. was produced and purchased for $16 million by Paramount Pictures.
*Apart from big blockbuster movies like “King Kong”, “Harry Potter” and other large scale studio movies, most of the movies produced by the studios are doing poorly at the box office. The films that have been successful for the studio were all externally financed and or co-financed with the studio, sold at 2–3 x their cost, and most of them acquired foreign sales rights to maximize revenue. retained.
So after looking at all the great benefits, how do you really find a deal or movie project where you’re certain half your money isn’t going to be used by a Hollywood producer as a down payment on a new mansion in the Pacific? Palisades?
The key that separates successful movie financiers versus the novice oil magnates who come to Los Angeles with pocket money and end up with half a pocket money is called several things: structured finance, leverage, risk mitigation, Multiple exit strategies, tax credits, and the ethical consciousness of the filmmaker/producer.
What does this translate to for you in a real world scenario. Let’s say you want to 100% finance a $1.5 million dollar low-budget genre film, with a worst-case scenario of a DVD release and profit from international sales and perhaps some other equity sweetener that you subscribe to in the conversion of securities. Are. deal. Well, if you write a check for $1.5 million, and the film is shot in a state that has 30% in the tax credit, you get back $450,000 in tax credits + under section 181, you can pay federal able to write that amount under. So you are making a good return even before the profits start. Then you figure you sell the movie to 50 countries, and if you’re really lucky, you sell the movie to a studio at a grand festival for 3-4 times what it’s worth. Like Sundance, Toronto, Cannes etc. Make it more than 5-10 movies and you can make a very profitable name for yourself among the Hollywood elite.
But let’s actually take it a step further and look at how the big boys take advantage of film investments because they can get a big star that can translate into big overseas sales. Let’s say a filmmaker/producer has a $10 million movie in the pipeline and you want to be in on the action. You park $5 million in equity, get a 20-30% tax credit on $10 million which would be $2-$3 million, the producer gets the biggest star he can, a studio to kick in another $5 million dollars Receive, you never worry about never seeing a penny from the theatrical release because you know that your DVD profits and international sales will cover your equity position. correct?
Now take advantage of this with different budgets, genres, stars, distribution, places where you can get higher tax credits (i.e. Puerto Rico is 40%), other exit strategies where you can find your shares on London AIM, and You are on your new career path as a sophisticated and educated film financier. Of course, if you want to go a step further and guarantee your capital 100%, there are tricks for that too.
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