pre-pro Novice producer has compensation question (A-List actor project)

directorik

IndieTalk's Resident Guru
"offsets" or "overhead" are not a source of revenue - they
are both expenses.

It's common for the producer who is putting up the money
to take their expenses from the gross. Overhead is typical.
Offsets can be included in that. Worth looking into those
line items.
 
Thanks for your insights Directorik. It's now clear to me where overhead would be taken from the gross.
So... Canadian or Australian 'offsets' are actually a tax rebate/credit taken at tax season. Running at 20-40% of the budget, that's a handsome chunk returned to the producer. How is that shoehorned into being an expense? Hmmm. I suppose that since the offfset dough does not actually exist until it is claimed during taxes--well after filming-- that it is technically not a money source 'during' production and therefore is not officially accounted for in the budget.

What had concerned me were articles that state: Ok, say the budget is 10M--that's what it takes to physically make the film. A producer may ask the financier to finance 11.5M-- (as an example) so that the producer has some built-in producer fees/profit certainty. Is that typical or nonsense? Puzzled, cuzz it would seem to me that producer fees already built into the original 10M budget should suffice as compensation. Any truth to this methodology? Again-- thank you most kindly for the 411!!
 

directorik

IndieTalk's Resident Guru
As you are learning, financing and returns on a movie project is
very complicated.

Tax rebates/credits/offsets are crazy complicated. You're correct,
it's a nice chunk returned which is why so many producers chose
to shoot in countries and states that offer those breaks.

It is not uncommon for a producer to ask for 10% plus or minus as
contingency. That can be used is many different ways. Often it's used
to compensate the producer. Maybe the original budget “should”
suffice as total compensation but it doesn't always work out that way.
It's typical and it's nonsence. More often than not, that extra 1.5m
(using your example) gets used for production or post overages so
the producer sees nothing from it.
 
Sorry-- my question is are
"offsets' and 'overhead" exclusion clauses standard in the industry? Lead producer wants to exclude my sharing in those sources of revenue.

I think I have a slightly better understanding of what you're asking now.

So... Canadian or Australian 'offsets' are actually a tax rebate/credit taken at tax season. Running at 20-40% of the budget, that's a handsome chunk returned to the producer.

This may not be happening on your film, but it's likely.

So lets say your budget is $10mil. A typical investor will look at mitigation of risk, quite often more than potential profits. On the finance end, these tax rebates can be a big chunk of those mitigations. Lets say you're getting a 20%. On a $10mil film, that'll be about $2mil. So instead of asking investors to fund the full $10mil, they'll often ask for $8mil and borrow an additional $2mil secured against the tax rebate. Those aren't exactly what the numbers will be, but I'm assuming you understand this better now?

A potential return on 8mil is better than the same return on 10mil.

What had concerned me were articles that state: Ok, say the budget is 10M--that's what it takes to physically make the film. A producer may ask the financier to finance 11.5M-- (as an example) so that the producer has some built-in producer fees/profit certainty. Is that typical or nonsense? Puzzled, cuzz it would seem to me that producer fees already built into the original 10M budget should suffice as compensation. Any truth to this methodology? Again-- thank you most kindly for the 411!!

Another thing you can see is the producer doing the project for no pay for the duration of the project and taking the rebate sometime in the future as their fee. If that's the case, then I could see how it may be considered an expense, but you're getting into accounting. Best to have a quick chat with an accountant.

Most people would think rebates work like, "We raise $10mil. Afterwards the tax office pays us $2mil. They paid us, so that's revenue." I've never seen it done like this. It doesn't mean it wouldn't happen, but it's usually a security for a loan or the amount for the producers fee.

They may be doing this a completely different way. Those who have the money tend to make the rules. Sometimes you can see investors push some odd and creative financing structures that suit their needs (and whims). If the producer is willing, it's really best that you chat with the producer to get some clarification.

I'm not up to date as I used to be, but $10mil is a really quirky budget range. Presales and MGs are all but impossible to get. Usually between those two and offsets, you didn't have to raise a lot of money. Less than 20% of the budget could have been enough. Times have changed and producers need to change with the times. Packages aren't easy to put together anymore.

To be brutally honest, it sounds like you don't understand the basics of film finance. I'm not sure what kind of producer you are, but you're probably better off picking up a book on the nuances of film finance and learning some of it so you can ask some appropriate questions and understand the answers.
 
Thank you for the reply.

I understand where you are coming from on the mitigation of risk and potential return. Makes perfect sense.

You say the rebate is usually a security for a loan... OR the amount for the producer's fee. It being the amount for the producer's fee is exactly my concern. I'm to participate in a % of the production comapany's producer share... if participation is excluded (as presented to me in agreement) then that would be substantial dough I don't see.

I appreciate the brutal honesty; I'm a novice. The type of producer I am... I'm bringing the film rights to my book on which the film is based. I'm also bringing the life rights of the subject of the film. In your experience... what is fair producer compensation for someone in my shoes?

I'll definitely pick up a few books on film financing; but it appears that since I am a novice--I should steer clear of any %'s and perhaps seek a sum certain or floor. Appreciate any advice. Thanks for your valuable time and insights.
 
You say the rebate is usually a security for a loan... OR the amount for the producer's fee. It being the amount for the producer's fee is exactly my concern. I'm to participate in a % of the production comapany's producer share... if participation is excluded (as presented to me in agreement) then that would be substantial dough I don't see.

I don't think I've ever seen it written like this.

It's usually written as a percentage of producers nett. It's pretty much always defined in an agreement. Some agreements have speficially how it's calculated. Basically it's gross takings less expenses. Calculating it can often appear to be complicated to the layperson. It's really not. What can make it difficult to know if you're getting your fair share is it depends on other agreements (like distribution/marketing/talent deals) which you may not have the ability to read or control. Eg. Some talent can earn percentage of gross.

You also need to be aware, the word producer is so wide in the industry. It can have different meanings in differing contexts.

I appreciate the brutal honesty; I'm a novice. The type of producer I am... I'm bringing the film rights to my book on which the film is based. I'm also bringing the life rights of the subject of the film. In your experience... what is fair producer compensation for someone in my shoes?

It could be a dollar. It could be a Harry potter deal netting the author 10 figures. Most lean way towards the first number.

I'll definitely pick up a few books on film financing; but it appears that since I am a novice--I should steer clear of any %'s and perhaps seek a sum certain or floor. Appreciate any advice. Thanks for your valuable time and insights.

There's very few companies doing successful $10 mil range films. There's rarely any profit in that budget range but it really depends on the attachments. These days I understand it's leaning towards the IP and/or Producer attachments... Obviously the named actors and directors have significant value. That being said, if there's guaranteed distribution, that's a different ballpark.

It's not my area of knowledge, but my gut would say you're probably getting a good deal if you could negotiate $200k up front. You'd be doing better with your percentage with a $200k mg. Just remember, I'm blind. I don't know the specifics of your IP/film/attachments or who your partner(s) are. Your IP may have no profit potential (in which case, get what you can)... or you may be joining up with Jason Blum (in which case, take a percentage deal, he's one of the few rain makers in this budget range but it's still no guarantee).

I know this isn't exactly a real answer. There are so many variables. Deals usually have many moving parts and are situational and it's tough to know when it's best to take whats offered and when to push.... What has a lot of potential value and what doesn't. Understanding what to ask for (like sequel rights) and the consequences of failing to ask for it. Knowing when the deal is at the breaking point and when they'll walk away. Knowing the current market and also being able to predict the market for when the film will be ready for market. There are some more quirkier considerations that can come up too. Also knowing where you can shop your IP around is especially useful.

It may be worth talking to an entertainment attorney (not a general attorney). They can help you know where these pain points are and they're usually better equipped to know where else you can sell your IP. They'll also be in a position to better know whether you're getting a great deal or whether you're being taken advantage of.

Last thing to take into consideration. Covid is turning the world upside down. It's unpredictable.

Note. This is all very much simplified.
 
The subject is complicated and ultimately depends on the unique arrangements of THIS deal, but I'll add a couple of thoughts here.

The only tax credit I have personal experience with is the NY state credit. A producer can earn it for production and post-production expenses if they meet the tax credit guidelines. The tax credit is a rebate, paid by the state to the Producer. It is not a credit on the producer's taxes or anything like that. It's a check written to the production company. It can take a year or two to get the credit paid.

So, if the credit contemplated in your deal works like NY State, it would not be unreasonable -- but possibly negotiable -- to exclude it. Whatever deal you have, I'm certain that whoever is putting the money up gets their money back first. The tax credit would likely be used to do that and/or pay the Producer's expenses. It's possible as someone else said, the Producer might borrow against the promise of the credit. So, again the credit would serve to repay a loan.

You definitely want to negotiate a reasonable fee for your contribution to this endeavor and leave less of your remuneration to a backend payment. Consider what you think you can live with if there is never another nickel coming your way after you receive that fee. That said, if you hold the IP, you definitely want some share in the rewards if they ever materialize. In fact, do you have anything in the deal to insure you are a part of future deals if there are sequels or spinoffs? Highly, highly unlikely, but if you are the original source for the film's material, you should have a stake in the films/TV shows/animated series that follow.
 
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The subject is complicated and ultimately depends on the unique arrangements of THIS deal, but I'll add a couple of thoughts here.

The only tax credit I have personal experience with is the NY state credit. A producer can earn it for production and post-production expenses if they meet the tax credit guidelines. The tax credit is a rebate, paid by the state to the Producer. It is not a credit on the producer's taxes or anything like that. It's a check written to the production company. It can take a year or two to get the credit paid.

So, if the credit contemplated in your deal works like NY State, it would not be unreasonable -- but possibly negotiable -- to exclude it. Whatever deal you have, I'm certain that whoever is putting the money up gets their money back first. The tax credit would likely be used to do that and/or pay the Producer's expenses. It's possible as someone else said, the Producer might borrow against the promise of the credit. So, again the credit would serve to repay a loan.

You definitely want to negotiate a reasonable fee for your contribution to this endeavor and leave less of your remuneration to a backend payment. Consider what you think you can live with if there is never another nickel coming your way after you receive that fee. That said, if you hold the IP, you definitely want some share in the rewards if they ever materialize. In fact, do you have anything in the deal to insure you are a part of future deals if there are sequels or spinoffs? Highly, highly unlikely, but if you are the original source for the film's material, you should have a stake in the films/TV shows/animated series that follow.
IvonV-- I hear you loud and clear. Get a sum certain, or any other monies ar 'if come" in nature and may never manifest themselves. The agreement speaks to 'all ancillary' rights being included. I believe that by the structure of this film, a vast and fertile expanse exists for a possible TV series. I see where "Hannah" and several other films are now running series based on the original source material; so I'll be sure to adjust that clause so to be included in any related future deals. Thanks a million. Clarity forthcoming bit by bit.
 
I don't think I've ever seen it written like this.

It's usually written as a percentage of producers nett. It's pretty much always defined in an agreement. Some agreements have speficially how it's calculated. Basically it's gross takings less expenses. Calculating it can often appear to be complicated to the layperson. It's really not. What can make it difficult to know if you're getting your fair share is it depends on other agreements (like distribution/marketing/talent deals) which you may not have the ability to read or control. Eg. Some talent can earn percentage of gross.

You also need to be aware, the word producer is so wide in the industry. It can have different meanings in differing contexts.



It could be a dollar. It could be a Harry potter deal netting the author 10 figures. Most lean way towards the first number.



There's very few companies doing successful $10 mil range films. There's rarely any profit in that budget range but it really depends on the attachments. These days I understand it's leaning towards the IP and/or Producer attachments... Obviously the named actors and directors have significant value. That being said, if there's guaranteed distribution, that's a different ballpark.

It's not my area of knowledge, but my gut would say you're probably getting a good deal if you could negotiate $200k up front. You'd be doing better with your percentage with a $200k mg. Just remember, I'm blind. I don't know the specifics of your IP/film/attachments or who your partner(s) are. Your IP may have no profit potential (in which case, get what you can)... or you may be joining up with Jason Blum (in which case, take a percentage deal, he's one of the few rain makers in this budget range but it's still no guarantee).

I know this isn't exactly a real answer. There are so many variables. Deals usually have many moving parts and are situational and it's tough to know when it's best to take whats offered and when to push.... What has a lot of potential value and what doesn't. Understanding what to ask for (like sequel rights) and the consequences of failing to ask for it. Knowing when the deal is at the breaking point and when they'll walk away. Knowing the current market and also being able to predict the market for when the film will be ready for market. There are some more quirkier considerations that can come up too. Also knowing where you can shop your IP around is especially useful.

It may be worth talking to an entertainment attorney (not a general attorney). They can help you know where these pain points are and they're usually better equipped to know where else you can sell your IP. They'll also be in a position to better know whether you're getting a great deal or whether you're being taken advantage of.

Last thing to take into consideration. Covid is turning the world upside down. It's unpredictable. How would talent being entitled to a % of the gross affect me more than relatively marginally?

Note. This is all very much simplified.
The budget is not yet set in stone... (or perhaps my thoughts were based on it being something of a character study. With a strong A-List lead... proven director, writers and production company. Non-studio at the moment. So my guess was a $10M budget, minimum. (Being a bit of a period piece would also tend to add heft to the budget) Perhaps I'm far off. Two co-stars that I know of are strong, but I'm a novice; so there's that.

Yes, it's written as a percentage of the producer's net. And with the folks involved,-- though again, I'm a novice--one would think it would get guaranteed distribution. I like your gut instinct: I'm thinking to ask --forget the flat % with the myriad exclusions-- let's make it simple--$200k range as a floor (mg--just found out what mg means today--I've been studying non-stop as you suggested) that way if the % just so happens to blossom, I'll ask that I'm entitled to the greater of the two--and keep in place the same % of any producer profits that may happen to land in the future.

My biggest mystery is what is the % of the budget that the lead producer gets FROM the budget. Heard they get paid 20-60-10-10% as production moves forward. Is it 10%? 15%? AND can the lead producer ever alternatively be paid a Producer Fee separate from the budget? If so, lead producer compensation would no longer exist in the 'budget', so how would it affect the other producers fees--especially if they were due a % of the budget? Their share would ballon. It seems there would surely be a method to preclude that-- perhaps a clause deducting the separate Lead producer fee for purposes of figuring %'s for the remaining producers in the budget.

Wow. You brought a wealth of knowledge into this forum and into my novice producer vessel. It is much appreciated and I hold you in high regard. Thank you!! (from what I've read-- head spinning --complicated-- with a vast array of possible scenarios and contingencies-- yes-- your post was very much simplified to where my lil brain can latch onto and digest lol) Again--many, many thanks! And respect.

I wish I could have had an agent/manager to help me navigate. But I queried and just got "crickets". I did just get another deal last month. But it was a clean-cut $10k option feeup front for screenplay... with nice contingecies should it get made. On this... I had a screenplay... but I'm not the greatest screenwriter--so... it won't be used, so no dough for that. But I factor in the whole package that I walked in with. Book. Life/character rights. Screenplay. So that's why I'm trying to see what compensation would be fair. The exclusion clauses threw me for a loop. No greed. Just looking for the going rate.
 
I wish I could have had an agent/manager to help me navigate. But I queried and just got "crickets". I did just get another deal last month. But it was a clean-cut $10k option feeup front for screenplay... with nice contingecies should it get made. On this... I had a screenplay... but I'm not the greatest screenwriter--so... it won't be used, so no dough for that. But I factor in the whole package that I walked in with. Book. Life/character rights. Screenplay. So that's why I'm trying to see what compensation would be fair. The exclusion clauses threw me for a loop. No greed. Just looking for the going rate.
I highly recommend getting an entertainment attorney. While an agent or manager can help you navigate a career (or part of it), the entertainment attorney can make sure this deal is favorable to you. An attorney won't be cheap, but unlike an agent you won't have to sell yourself for them to take you on. They will take you on if you pay them (an agent makes their fee as a percent of the fees for work they bring to you). This sounds like an important step in your life and it should not be made solely on forum advice. Don't get me wrong, I think there are some very smart people in this forum and a few of them have made their points here, but it will be nothing like the skill an entertainment attorney can bring to explaining what's in the contract, helping you determine if you are getting terms that are reasonable and "customary" and insuring that the proper language is included in any terms you want to negotiate.
 
Folks say:

Don't go chasing WATERFALLS... stick to the rivers and the lakes that your're used to...

But they don't know the spirit, passions, and dreams that peeps on this site hold dear.
What is life without memories and dreams?
I highly recommend getting an entertainment attorney. While an agent or manager can help you navigate a career (or part of it), the entertainment attorney can make sure this deal is favorable to you. An attorney won't be cheap, but unlike an agent you won't have to sell yourself for them to take you on. They will take you on if you pay them (an agent makes their fee as a percent of the fees for work they bring to you). This sounds like an important step in your life and it should not be made solely on forum advice. Don't get me wrong, I think there are some very smart people in this forum and a few of them have made their points here, but it will be nothing like the skill an entertainment attorney can bring to explaining what's in the contract, helping you determine if you are getting terms that are reasonable and "customary" and insuring that the proper language is included in any terms you want to negotiate.
Word. That's the bottom line. I f I can't get ther flavor I'm looking for, I'll just pass it to an EA and let them iron it out. His 5% will get me far more in the scheme of things. Also... it's just biz and this way no direct conflict or hard feelings with the Prod. Co and I --just like other elements had their guy negotiate.
 
The budget is not yet set in stone... (or perhaps my thoughts were based on it being something of a character study. With a strong A-List lead... proven director, writers and production company. Non-studio at the moment. So my guess was a $10M budget, minimum. (Being a bit of a period piece would also tend to add heft to the budget) Perhaps I'm far off. Two co-stars that I know of are strong, but I'm a novice; so there's that.

Only distribution guarantees distribution.

Just a perspective point: The reason 10mil is nowhere land. It takes an average of $20mil to market a film for cinema (not saying each film has 20mil spent, but it used to be an average when I was on top of numbers). Who would spend that on a 10mil film with favorable terms? Assuming no gross points, you'd have to do $80mil to break even through the box office. That's a home run for most films. The more successful a film is at the box office, the more (typically) you earn from successive distributions windows.

Yes, it's written as a percentage of the producer's net. And with the folks involved,-- though again, I'm a novice--one would think it would get guaranteed distribution. I like your gut instinct: I'm thinking to ask --forget the flat % with the myriad exclusions-- let's make it simple--$200k range as a floor (mg--just found out what mg means today--I've been studying non-stop as you suggested) that way if the % just so happens to blossom, I'll ask that I'm entitled to the greater of the two--and keep in place the same % of any producer profits that may happen to land in the future.

Just be aware of the risk. You may end up killing the deal.

My biggest mystery is what is the % of the budget that the lead producer gets FROM the budget.

It's kind of like I'm being interviewed for a position and when we're talking about what I'll get paid, I'm grilling you for how much the boss gets paid. What the boss gets paid has no relevence to my value to the firm. Even if I'm getting stock options.

The questions you seem to be stuck on lead me to think you suspect the producer could be shadey. If you suspect the guy could be dodgy, walk away from the deal OR seek an entertainment attoyney.

Heard they get paid 20-60-10-10% as production moves forward. Is it 10%? 15%?

That sounds like a dispersement of funds schedule. If so, it's not relevent to this discussion. It's written like it's how the investors funds will be released in stages through each production stage.

AND can the lead producer ever alternatively be paid a Producer Fee separate from the budget? If so, lead producer compensation would no longer exist in the 'budget', so how would it affect the other producers fees--especially if they were due a % of the budget? Their share would ballon. It seems there would surely be a method to preclude that-- perhaps a clause deducting the separate Lead producer fee for purposes of figuring %'s for the remaining producers in the budget.

Producers fee can be separate, it can be included. As I mentioned before, Producer is one of those oddly defined roles. There can be multple producers. It can also be documented in the financing documents which you are unlikely to get access. It depends.

You're a producer in this film, does that mean if you got paid for $200k mg, you'd be in the budget? It all depends on how it's done. You may be in one of the higher tiers of for the distribution of funds (where you'd get your money first, like investors who often reap first until 110% of their investment is recouped or finishing funds - usually last in, first out.) or in one of the lower tiers (where you get your money late, or even last). Either way, you're likely to have to wait a couple of years to see it paid and there's still a chance you won't get paid. It'll depend on how it's structured.

Again--many, many thanks!

You're welcome.

I wish I could have had an agent/manager to help me navigate. But I queried and just got "crickets".

If they believed the deal was worth $200k, they'd sign you in a heartbeat. Most offices will have an agent looking to cut their teeth who would kill for a $20k commission. It might be a sign of the deals value.

I did just get another deal last month. But it was a clean-cut $10k option feeup front for screenplay... with nice contingecies should it get made. On this... I had a screenplay... but I'm not the greatest screenwriter--so... it won't be used, so no dough for that. But I factor in the whole package that I walked in with. Book. Life/character rights. Screenplay. So that's why I'm trying to see what compensation would be fair. The exclusion clauses threw me for a loop. No greed. Just looking for the going rate.

As I said earlier, the going rate varies.

I highly recommend getting an entertainment attorney. While an agent or manager can help you navigate a career (or part of it), the entertainment attorney can make sure this deal is favorable to you. An attorney won't be cheap, but unlike an agent you won't have to sell yourself for them to take you on. They will take you on if you pay them (an agent makes their fee as a percent of the fees for work they bring to you). This sounds like an important step in your life and it should not be made solely on forum advice. Don't get me wrong, I think there are some very smart people in this forum and a few of them have made their points here, but it will be nothing like the skill an entertainment attorney can bring to explaining what's in the contract, helping you determine if you are getting terms that are reasonable and "customary" and insuring that the proper language is included in any terms you want to negotiate.

Pretty much this emphases what I was trying to say before.
 
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