Reasonable percentage of profit for cast & crew? - Creating a Legal Contract

[Mr.]

Hi,

Two years ago I began writing on a micro budget feature. The script is now complete and we're currently in pre-production. I'm currently working on making a legal agreement for everyone involved to sign before we start shooting. Since this is a micro budget project, I don't have a lot of money to offer cast & crew, so I decided everybody involved will get a percentage of the (potential) future profit of this film.

We're a tiny cast and crew, around 10 people, but I'm sure more crew members will join us in post production (VFX, sound design & scoring etc.). What's a reasonable percentage to offer everyone involved? I know this is a difficult question with a lot of variables, but I'm not looking for exact numbers, more a general sense of what's reasonable.

Input and thoughts would be greatly appreciated!

All the best!

 

[Mr.]

Neither of the statements you quoted suggested offering money after
the film makes a profit is a bad thing. I said, “I don't like that carrot
dangled in front of me.” and gave you my reason why I feel that way
and offered an alternative method. You can disagree, but I never said
or suggested that it's a bad thing.

I'm sorry, I clearly misunderstood the carrot analogy in that sense! Thanks for your help directorik! We'll see how this turns out. I'm sort of already half way into making the percentage / points kind of deal considering I previously told them some sort of such a deal will take place. Sounded like a stellar deal for everyone involved to my ears at first, but I guess you're right regarding the bookkeeping nightmare scenario. It's easy to be wise after the event. If it ends up in a major clusterf@#!, I'll learn the hard way, a not so unfamiliar outcome.

I'll let you guys know what we end up going with!

 

[buscando]

I'm sort of already half way into making the percentage / points kind of deal considering I previously told them some sort of such a deal will take place.

I'd like to see the percentage points allocation when you finish it, if you don't mind.

 

[Sweetie]

Let's say a micro budget film costs 30.000$ to make. The producer of that film asks you to work for free. As an example, let's say the film gets sold for 100.000$, that's a 70.000$ profit (I know it's not this simple, and that there's a lot of other expenses etc, it's just an example). At the end of the day, you wind up getting paid 4% of that profit, 2800$, despite the fact you were basically asked to work for free. How's that a bad thing? To me that's the producer saying "Thank you for working on this project! WE made a profit and here's your cut!"... If I were the one getting paid those 4%, I'd love to work with that producer again!

If the movie only made 30.000$, the producer would break even, but neither he nor cast and crew would actually earn anything from this film. Is that fair or greedy? Should the producer hand out a percentage of what the film makes instead of the profit it makes, and accept that everyone earned a little something except him who lost most of his investment?

In the latter example the producer lost his money but got a finished feature, and the cast and crew got paid. What would you have done?

This is why deferred payments are messy and problematic.

Another point of view: Why isn't time invested the same as a cash invested? It's called sweat equity for a reason. No?

The way you're doing it isn't bad, it just isn't as fair as you'd expect.

I always look at the way most people use deferred agreements as a one sided investment. If you're not paying them, you're asking people to invest their time. At least you're offering a share of the profits as opposed to getting paid their wages if the project succeeds, thus putting all the risk but none of the benefits of said risk.

 

[directorik]

I'm sort of already half way into making the percentage / points kind of deal considering I previously told them some sort of such a deal will take place. Sounded like a stellar deal for everyone involved to my ears at first, but I guess you're right regarding the bookkeeping nightmare scenario.

Are you going to be handling all the money? Will you be the person
accepting the money, paying expenses and determining the percentage
payouts? Will you be doing this under a business entity or from a
personal account?

Right now these are your friends which is why I suggested you ask them
to work for free and leave it at that. If in 18 months to three years after
you find distribution you get a large check then you get your friends together
present them with a check for their time. As soon as you go outside your
circle of friends and offer them a percentage you need to fully understand
the accounting and legal issues you face.

I suspect you don't know the laws of your state regarding this kind of
payment agreement. As Sweetie points those profit participants are now
investors and there are SEC laws protecting them.

Proceed carefully. All it takes is ONE person to question a decision on your
part to open up a federal investigation. Even if you are 100% right and fair
an investigation will financially break you.

 

[Sweetie]

As Sweetie points those profit participants are now
investors and there are SEC laws protecting them.

I'm not sure but my understanding, equity partners are treated very differently, legally speaking in the US. Without the sweat equity, you never know, you may fall foul of minimum wage laws and/or intern rules. It's potentially a big can of worms, but I guess that's why producers are paid the big bucks.

 

[indietalk]

You will need a good lawyer to help you with the business entity, and the contracts, to make sure you don't give ownership of your film away. It needs proper wording of gross, or net, and any other profits, licensing, in perpetuity, etc. Giving points to everyone sounds careless and dangerous. Since you have no money, and you SHOULD NOT do this w/o a lawyer, take that money that would be for the lawyer, and pay your people with it, imo.

It would be silly to pay a lawyer to help you word contracts to not pay people when that money, well, can pay them something.

 

[DeJager]

This is why deferred payments are messy and problematic.

Another point of view: Why isn't time invested the same as a cash invested? It's called sweat equity for a reason. No?

Sweetie - This is likely because time invested won't pay the production costs. Would you rather have somebody invest actual cash into your production or provide free labor? My guess would be you'd rather have an actual cash investor. Of course that's not to say that time invested shouldn't be worth anything, because it absolutely should be. Just not equal to actual cash invested.

I often work on deferred agreements or percentage points. Having said that, I don't need the money from the movies to survive so I can understand why some people stay clear from them.

 

[buscando]

...that's not to say that time invested shouldn't be worth anything, because it absolutely should be. Just not equal to actual cash invested.

It's different for every production, but I think time invested can have equal or more value than cash invested. A lot depends on the skills & standing of the person investing the time.

 

[directorik]

Sweetie - This is likely because time invested won't pay the production costs. Would you rather have somebody invest actual cash into your production or provide free labor?

Sweetie isn't making that comparison: cash or labor. He's pointing out
that time invested has value when it comes to profit participation. And
often the same value.

I often work on deferred agreements or percentage points.

How many of those projects paid out?

I, too, have often worked for "deferred" payment or have been offered
profit participation. That's why I prefer to be asked to help out for no
pay as a favor. That way I'm not hoping for or expecting money in the
future. That makes me feel my sweat equity is appreciated. Having that
carrot on a stick makes me feel they don't appreciate the hard work
and talent I bring to a project. Ask for help or pay me is my motto.
Don't tease me with riches down the road.

 

[Sweetie]

Sweetie - This is likely because time invested won't pay the production costs. Would you rather have somebody invest actual cash into your production or provide free labor? My guess would be you'd rather have an actual cash investor. Of course that's not to say that time invested shouldn't be worth anything, because it absolutely should be. Just not equal to actual cash invested.

You're right. It's not equal, but not the way you expect. If you collect the right people, the sweat equity is in fact worth more, way more than the money. It's the exact reason that when you get the right talent together, you can attract larger investment and a greater expected return than if you have weaker talent.

I often work on deferred agreements or percentage points. Having said that, I don't need the money from the movies to survive so I can understand why some people stay clear from them.

That's your decision and I respect that. I'm glad you're in the position where you're happy to help others earn money without the need to be a partner in the

I don't accept that cash is more important than talent. I believe that there needs to be some level of respect between the talent and the cash investors. If the investors cannot afford or the venture is too risky to assume the entire project cost, asking others to cover the shortfall with time and talent makes them partners in the venture. Both sides need each other.

Sweetie isn't making that comparison: cash or labor. He's pointing out
that time invested has value when it comes to profit participation. And
often the same value.

Kind of. I hope I was clear above. While I don't expect others to share my view, I do hope that it's considered and it's fair. Not that life is fair.