Divergent and the Illinois Film Tax Credit

A big studio film every few years is not sustainable. It's time for Illinois to acknowledge the resources it lacks and modify the credit to be inclusive, not exclusive, to the global industry.

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Steele’s 70% Gospel for Foreign Sale Estimates

by Jeff Steele

PRODUCER: Hey Jeff, I’ve got an awesome $10m sci-fi project.

JEFF STEELE:  How much is foreign?

PRODUCER:  $6m, but it’s really more of a domestic play anyway.

JEFF STEELE:  Yeah well, they’re all seem to be domestic plays when their made for the wrong price.

PRODUCER: What!? Really!? Explain.

In the beginning, there were foreign sale estimates, and they were good…

These estimates are such a fundamental truth of goodness that it’s worth bolding: 70% of your budget should be covered by the gross-take-value (gtv) of your foreign sales estimates. And if you don’t, your film budget will be adjusted downward. And, you can’t fool me,  I  know what your thinking, “Jeff, don’t worry, I’ll just shop around for a sales agent that will give me my magical numbers.” Problem is your magicians won’t be able to deliver. So, to be smart about it! I prefer to recommend 75%-80% (gtv), due to the steep discounting lenders apply to presale contracts today. But 70% should be all film projects’ gospel.  Why? Because, to mitigate your domestic risk to an acceptable one, you’ll need :

1. Elevated foreign values

and

2. Tax credit benefits and pre-sales

Don’t delude yourself, the domestic market is saturated with product right now (I’m sure you’ve heard of the $20m direct-to-videos) — the less reliance on the United States the better.

The 70% gospel has spoken; the gospel is good.

  • Pingback: No Dude You Can’t: Your Film’s Budget « Jeff Steele's Film Closings

  • Ernst

    sorry for me being so green but what is gross-take-value?

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    • http://filmclosings.wordpress.com steelejeff

      Gross Take Value is the bottom-line total estimated value of your foreign territories. Generally, your foreign sales estimates will have an Ask price and a Take price for each territory/country. The ask price is how much the sales agent will ask the buyer to pay for your film’s territory. The Take price is the lowest price the sales agent can accept (and close the deal) without having to get permission from the producer or lender. See my 70% gospel post for more on this.

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  • Mitch

    Jeff,

    Can you clarify the difference between what you’ve written here about 70% GTV benchmark versus the blog post about Nicholas Chartier (I saw it on http://www.thewrap.com) where you recommend that films going to market need to have 25-30% of the total budget in foreign pre-sales?

    Thanks! The blog is extremely helpful!

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    • http://filmclosings.wordpress.com steelejeff

      @Mitch

      The 70% Gross-Take-Value (GTV) is the percentage of your budget that should be covered by foreign territory estimates. The 25%-30% in pre-sales is the amount of the budget that should be covered by pre-sold territories. Example:
      Budget: $10,000
      GTV should be $7,000 (70% of budget)
      Pre-sales: $2,500 (25% of budget)
      Remaining Take Value: $4,500 (Pre-sales are subtracted from the GTV)

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      • Pierre Lapointe

        Jeff,

        I take it this figure excludes discounting? Does this figure cover all foreign territories or say the top 10-12 territories?

        Btw, what is an appropriate discount figure we can safely use in our financing plans these days?

        Keep up the good work – you’re a great source of information.

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      • Pierre Lapointe

        What it really comes down to is that GTV estimates should come from a respectable sales agent.

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  • Karl

    Jeff,

    Great info and site. I was curious what your take was on foreign sales agreements. In today’s financial climate, what percentage and how much of a “marketing fee” should we indie producers be negotiating? Any thoughts?

    Thanks.

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    • Jeff Steele

      Karl,

      15% is standard, but most banks and gap lenders will make them defer all but 5% of their fee until their loans are paid off, then it either goes back up to 15% on all revenues going forward, or it goes back up to 15% retroactive to all revenues to date and going forward. Each are fair in the own way, so it’s whatever you can negotiate.

      Marketing fees range from $50k to $250k. It depends on the budget, how hard they’re going to have to work to promote it, as well as what you can afford. I think $75k to $125k is an acceptable range. Technically, this should be an expense paid out of first revenues from your collection account, as opposed to cash upfront; however, some budgeted cash upfront will usually get you some special attention, if you need that.

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  • Catroushka

    Hi Jeff,

    When quoting Sales Estimates to Financiers….does the 70% rule apply to the ASK estimates or the Take Estimates. Although our Sales Estimates have ASK, and TARGET estimates. best to you…

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    • Jeff Steele

      It applies to the Take estimate. That’s the number financiers care about.

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  • Pingback: Indie producers don’t understand tax credits | co-pro.org

  • Ian

    25-35% foreign presales..? This is a bit optimistic.

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    • Jeff Steele

      I’m being realistic, not optimistic. Tax credits can only take you so far, so if you don’t have the equity, then you have to make the presales, or your film won’t be financed. This may require altering your story or package to what the buyers are pre-buying.

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  • frank

    Just to make sure: When you say 30% of your budget should be covered through pre-sales, do you mean the 20% deposits of all the pre-sales you make should amount to 30% of your budget?

    And if so, won’t the 80% that you stand to receive from those foreign buyers upon delivery of the film and the necessary materials, automatically recover 110% of the budget?

    Am I screwing up the math here or something? Could you please clarify this a bit for me?

    Thanks

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    • Jeff Steele

      It can be difficult to conceptualize in the abstract, this is why producers need finance plans.

      If your budget is $10m, then you should have (in the aggregate) at least $3m-$4m in presale contracts from foreign buyers (e.g. UK + Germany + Latin America, etc.) The deposits paid by those buyers should be 20% of their respective contract amounts (due on execution), with the balance due upon receipt of the Notice of Delivery (NOD) from your foreign sales agent.

      Example:
      $10,000,000 budget with 30% in gross presales…

      $3,000,000 in aggregate Presale contracts, would yield:
      $600,000 in 20% deposits, with:
      $2,400,000 (the 80% balance) due upon NOD.

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  • http://www.90000Feet.com Chris Nolan

    Hey Jeff,

    I saw this on your facebook site: Film Production & Finance Summit Monday, May 7 at 8:00am at Luxe Hotel Sunset Boulevard

    Can anyone attend this?

    Thx Chris

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    • Jeff Steele

      Here’s the link to register:
      filmfinancesummit.com

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