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Chris Cullari is a writer/director based out of Los Angeles. His most recent film, THE AVIARY, is available for streaming on Paramount Plus and Showtime. You can find him tweeting about monsters, pro-wrestling, and horror movies.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.
Pre-sales—especially for independent films—have long been one of the most consistent and effective ways of financing a movie. In a pre-sale, distribution rights for a film are sold to different companies and territories based on the strength and auspices of the project.
For instance, if you were producing an indie film with a big name attached to star, a distribution company in the US or Australia or France might calculate they can make “X” amount of money on the strength of that actor. They then offer “X” amount of dollars to lock down ownership of the film in their country once the film is completed.
A producer would repeat this process with different companies in different countries with an eye towards putting together as much of the budget as possible. In recent years, however, this strategy has become less effective, as panelist Jamie Thompson explains.
“You—maybe, if you're lucky—can count on half of your financing coming from pre-sales. If you're lucky.”
The reasons for this are varied, ranging from a glut of available projects post-COVID, to streamers cutting their acquisition budgets. But the result is that producers have been left searching to find new ways to piece together the money for their projects.
Some of these alternative strategies include international co-production opportunities and even brand deals to help shore up the budget.
As the pre-sale market contracts, private equity has become increasingly important in film financing.
This type of financing comes from private investors or investment firms rather than from traditional sources like studios, pre-sales, or bank loans. These investors provide capital in exchange for an ownership stake in the film project and its potential profits.
One of the benefits of private equity funding is that it can serve as cash-in-hand that allows filmmakers to worry a little less about the minimum guarantees put up by distributors during pre-sales. In some cases, your investors can also see tax-benefits for investing in your film, especially when paired with state incentives.
On the downside, private equity can come with strings attached, such as notes on the script that—depending on the investor—might not reflect much familiarity with or love of film. This can be challenging for less commercially minded filmmakers.
In addition, private equity is often attracted to projects with big stars that promise a good return on their investment. No stars? No problem. Thompson, who is in development on a Silent Night, Deadly Night film, noted how you can still get a greenlight without a name.
“Established IP can be the star of your movie; it doesn't have to necessarily be an actor.”
This is especially true in genres like horror and sci-fi that produce consistent financial returns on films that play within known franchises.
Even with good IP in hand, searching for private equity isn’t easy.
“I'm looking for equity as I'm starting. I'm looking for equity as I'm finishing the finance package. I'm looking for equity sometimes while I'm shooting the movie," said Thompson.
This seemingly endless search is why the panelists note that you shouldn’t rely on private equity as your sole source of funding.
As Thompson aptly put it, “I think you're always in this mode of looking for how you're going to make all of your financing pieces fit together.”
This method of funding your film is essentially a fancy term for taking out a loan to be paid back with interest. Much like the other forms of film financing discussed, the panelists see debt financing as a piece of the overall financing puzzle—and a risky one, at that.
This is because securing loans requires valuable collateral. In the case of film financing loans, this collateral usually comes in the form of different aspects of a film's potential income like tax credits, pre-sales agreements, and estimates from sales companies.
The risk is that once your film is finished, some of the numbers you based your loan on can turn out to be inaccurate (e.g. your film isn’t as profitable as anticipated) or delayed (e.g. there is a hold up in receiving tax incentives, credits, and/or rebates from the state in which the film was shot).
Debt financing usually comes later in the financing process, if for no other reason than putting up tax credits or state rebates up as collateral means having those deals in place before approaching lenders.
According to our panelists, debt financing loans have an average term of six months to a year. Some loans, particularly with regards to tax credits in states like New York, can extend for a period potentially over two or three years. Even still, these are not long-term loans, and you have to be prepared to pay back the money soon after borrowing it.
Then there’s the issue of interest. How much money can you expect to be paying back to your lender on top of the principal?
As the president of Blue Fox Financing, Patrick Rizzotti works with a broad spectrum of banks, private lending institutions, and individual investors to find the money for films, often in the form of debt financing.
Rizzotti noted, “We see rates that go as good as 10% and as high as 30%. This huge range depends on what they're lending against—tax credits, pre-sales, or estimates from sales companies.”
Finally, our panelists touch on gap and bridge financing. These types of financing are short-term solutions for cash flow issues, typically used to cover expenses until longer-term financing comes through.
Gap financing is unsurprisingly used to cover the "gap" between secured funding and the total budget. So, for instance, if your film’s budget is $5 million and you’ve raised $4.5 million, you need to find a way to cover the difference.
Most lenders will base their loan on the projected value of whatever territories remain to be sold off for distribution. But as the industry changes and these numbers become unpredictable, gap financing is becoming harder to secure, unless, as Thompson noted, “[...] You have a reliable sales agent with proven estimates.”
Bridge financing is often an even shorter-term loan, used to shore up your cash on hand as you ramp up to production.
According to Jeremy Ross, “Let's say your bank loan against your pre-sales and tax credits and so on and so forth is going to pay out in six weeks but you start production in three weeks. You'll take a bridge loan against whatever portion you need to keep you going until that six week period closes, and then you'll pay back your bridge lender from your senior loan.”
Our panelists stressed that both of these types of loans should be approached carefully and employed strategically.
No matter what approach you take to financing your film, Wrapbook is here to make sure that you are supported and prepared along the way.
For more information on the journey ahead, be sure to watch the recording of our panel and check out Wrapbook’s complete guide to film financing right here!
Whether you work at a studio or produce indies, you’ve probably felt the film industry shifting beneath your feet. In this era of unprecedented change, understanding the intricacies of film financing is more crucial than ever.
Wrapbook’s recent virtual event Where's the Money? The Realities of Film Financing Today brought together industry experts to share their insights on navigating the complex world of film finance.
Our discussion featured a panel of industry veterans sharing their experiences, strategies, and predictions for the future of film financing. This article will highlight some of the key points made over the course of the talk, but it’s well worth your time to watch the entire event.
There’s nothing like first hand experience, and our speakers have plenty to share.
Leading the discussion on tax incentives and their critical role in film financing was Ryan Broussard, VP of Sales and Production Incentives at Wrapbook.
With over 16 years of experience in production payroll, Broussard's expertise in optimizing production incentive strategies is invaluable for producers looking to make the most of their budgets at any level.
Joining Broussard for the event was a panel of distinguished industry professionals:
And presiding over the panel was moderator Patrick Rizzotti, President of Blue Fox Financing.
The panelists stressed that understanding tax incentives and their benefits is more important than ever for producers. According to Broussard, these programs can account for an average of 25% of some film budgets.
That percentage isn’t always calculated as cold hard cash on hand. It can come in the form of rebates, discounts, tax breaks, and more. If you’re new to film financing, make sure to read Wrapbook’s primer on understanding production incentives.
During the panel, Broussard shared more valuable insights on the current state of incentives with our guests.
He noted that while many states have tax incentive programs, there are a handful that stand out. Georgia, Louisiana, and New Mexico remain some of the most popular states for production with long running and well established incentive programs.
Unlike some states, Georgia and Louisiana offer incentives for both residents and non-residents, making them particularly appealing to producers across the country.
New Jersey has become increasingly attractive as well, especially after expanding its incentives to include reality television. And if you’re looking to shoot in the Midwest, Broussard noted that Chicago has always been very popular for filming due to its incentive program’s lack of caps, which are limits on how much a project can receive.
“These tax credits are unique snowflakes,” Broussard explained. “What was best for one person's production may not be best for yours.”
To that end, each state's program has unique features that producers should consider:
Some states only offer tax credits, which can be converted to cash by selling them. But Broussard noted, this takes time.
“If your turnaround time is important, I would look at rebate and grant states because then you don't have to do a tax return and you don't have to sell it [the tax credits] on the open market.”
In an effort to support local labor, some states offer incentives only for productions made up (in part or whole) of residents from that state. For example, Broussard explained that Illinois’ incentives used to be for residents only; however, that stipulation has changed.
“[Now] depending on your budget it can go up to four actors—SAG actors—if they're non-residents, and then there's nine positions (usually key department heads) that can qualify in Illinois. It's been kind of a game changer.”
Some states have quicker turnaround times than others when it comes to delivering on their incentives. You should be aware of when those incentives will hit your bank account and impact your bottom line.
For more on which states offer incentives and what’s included with them, visit our article on state-by-state tax incentives for 2024.
