Monday, March 1, 2010

Guest Blog: 3 Part Series from Jeff Steele, Expert on Film Finance, Part 1

Top Independent Filmmakers, Take Finance Plans Seriously

by Jeff Steele ( Film Closings Inc. will review only projects over $3m, and Magnet will only consider projects over $10m, but please no unsolicited materials.)

As the CFO for one of the few equity funds actively financing Independent Films, it doesn’t take much for me or any other funder to tell the professionals from the amateurs. One look at a producer’s finance plan (as well as their choice of attorney) tells me right away what kind of closing I’m in for. Being that a film finance closing can last anywhere from 4-12 weeks, this can be a relatively clean, straight forward, experience, or 3 months of hell. Simply put, a finance plan is the best indicator of a producer’s financial I.Q. We need to know that you know how much money you really need and where you’re going to get it from.

You can no more produce a movie with a mediocre budget, than you can finance a movie without a finance plan. It’s the art and science of simultaneously predicting and preemptively satisfying the needs of lenders, investors, attorneys, and bond companies.

Producers tend to think in gross numbers and percentages:

Mr. Grossman says, “Hey Jeff, I’m making a movie for $10 million and I need $2m equity; the rest will be 20% tax credits from New Mexico, we’ll pre-sell 30%, and gap the rest.” These back-of-the-napkin numbers are fine between friends, but you will inevitably end up going back to your financier, hat in hand, to ask for more. You don’t want to be in this situation, especially if the lender or investor has already gone to their board for the initial amount. This is where most deals begin to die.

Because of this, funders have become much more sophisticated: they are either better at punching holes in packages, or they hire someone who is. To inspire confidence with your investors, you don’t have to be smart enough to build your own finance model; you just have to be smart enough to surround yourself with people who can.

The following is what you’ll need to calculate: (a) What your films budget is and (b) What type of capital you’ll be using

  1. Budget information
  2. Foreign pre-sales and estimates
  3. Tax credits
  4. Sources of equity
  5. Gap calculation
  6. Financing costs
  7. Credit discounting (presales and unsold territories)
  8. Bridge details
  9. Worldwide costs of sales (sales agents, etc.)

As you can see, a well thought-out finance plan is not just a requisite for the closing, but is also an essential roadmap that will guide you through the fund raising process. While it can allow you to play with certain variables, the market conditions will typically reveal how the film should be financed, as opposed to how you would like it to be financed. If done properly, your roadmap will lead you to the net-to-production. Remember, Net Net Net! Because, if it’s not net, it’s gross.


Samantha said...

This is so helpful. Thanks for posting. I have been reading your blog for awhile and this post really spoke to me!!! I always thought back of the napkin stuff was enough and my script would be all that was needed to get a financier to close. Duh, that was dumb.

James said...

Excellent post. Budgeting a movie can be a real headache

Anonymous said...

Can you really make a 10 M film for 2 M?

Jentri said...

Yes, great post, thank you!

Tess Young said...

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