+1
Let me get this straight, the deal is that if this movie makes any money you’ll get an initial 20% return or your investment, the $12k payment, and then once that commitment is filled you will own 5% of the film or would you be guaranteed 5% of the film’s future earnings?
Either way this deal is pretty bad. Let’s say that I offered to split a $40k vacation condo with you, I’ll pick up 75% of the cost and you’ll pick up 25% of the cost. Every time we rent it out, you get all of the payments until you have been paid $12k. Well that’s awesome for you in the first few months because you keep getting checks, and you make 20% on your investment right away, that is if you exclude opportunity costs. But after you get your $12k, you only get 5% from anyone who rents the condo and I get the remaining 95%. So if I charge $100 a night to rent it out I get $95 and you get $5. It could be the most popular rental in the world and it wouldn’t change the fact that you are only getting $5 each time it’s rented, meanwhile I am making money hand over fist. But what’s really going to make you mad is if some rich guy sees the condo and decides that he has to have it, so he buys it for $1 million. So we sell it, I get $950k and you get $50k, not to bad right? Actually it’s terrible because you risked a fourth of what I did so you should be entitled to a fourth of any profits, $250k, but you’ll never get a perpetual 25% return on your investment with a deal structured like this.
Lots of small Indie film makers love trying to pull this gag, they want financing from outside sources while still retaining ownership control over a large chunk of the film, so if it turns out to be successful they make some good money while if nothing happens for the film they aren’t paying off debt for the next 10 years. But no one should fall for it, it’s not like you are investing in an established studio franchise where you know that you will receive some return on your investment, your investing in an Indie film that will most likely never make a single nickel so you should make sure that you are in a position to make good money if one of these movies ever hits.
Another think to consider before you invest any money is how will this film make any money? Where is it going to be shown, or is it going to be put on the festival circuit and then be sold. Does the director or producer have an agreement or existing relationship with a producers rep or packaging agency?
I am convinced that at least once a year 30 people get together and make a film that would be bigger than Clerks and My Big Fat Greek Wedding put together, but since they can’t get any players to see it, it just sits in a can and eventually turns into nothing.
So remember these two things: You should expect a percentage of ownership that is commensurate to the percentage of money you are investing in the films total cost. Figure out how any movie will recoup its costs and eventually make money, it can be the greatest movie in the world but if it’s sitting in cans in a basement it is worth less than the worst movie ever show in theaters.