In this blogpost we will present a plethora of convoluted ways borrowers try to scam the financial industry. Especially film producers. To be fair it isn’t always intentional. Sometimes it is because they lack academic credentials and financial industry experience. And sometimes it’s because they hear various “seminar soundbites” from similar people and copy and paste the soundbites to suit their whim.
In 6/16, a first time screenplay writer with no MBA in finance or employment history in the finance industry wrote a Pulse post on Linkedin claiming the entire finance industry was scam with no specifics of how. He didn’t mention he had been trying to “find” abstract film funding for over 3 years with nothing more then a script. Then there is a film producer who asked for EB-5 finance without realizing it’s unique aspects involve both telemarketing & government relations. When informed of these aspects he changed his mind. Obviously having no idea of what was involved with the labor intensive, time consuming nature of EB-5 financing.
When asked to specify some other selection of capital instead; the film producer quoted “Provide any money whatsoever even another source and I will give you a list of people who will give you a minimum of 5% down”. The borrowers reply proves the film producer had no money or revenues, or assets of his own and couldn’t define one type of capital from the other in order to illustrate how he meet funding approval criteria.
Contrary to popular assumption; a numerical amount of capital is not a TYPE of capital. But specifying type of capital your presumably eligible for DEFINES both DIRECTION and DURATION of an effective IR campaign. Those who choose to ignore this fact are the one’s going in circles trying to “find” abundantly available capital for 3 years. Remember; companies called ‘unicorns’ with billion-dollar valuations are emerging at least 1 new firm per month for at least 2.5 years. If all it took to get funded was to “find” it then everyone would already be approved.
Film producers like to cry scam on things they do not understand; yet at the same time are one of the biggest exploiters of labor. Case in point; they ignore the provisions of intern labor laws, frequently advertise for “non-paid film jobs” on Facebook and think that everyone in other industries work without contracts or empty promises of ‘deferred’ abstract pay. I forget how many times I’ve heard statements like “You mean I gotta hire ya? Well that never occurred to me” or “It never occurred to me I have to qualify for financing” or my favorite… “Is it guaranteed money for the asking?”
These are the same people who cannot differentiate one type of capital from the other or how many phases of financing there are. Think financiers, funders, lenders & investors are the same thing. Think there is no cost to film finance. Like buying completion bonds. Think it is OK to sell equity securities that don’t exist in violation of SEC regulations (despite entertainment lawyers warn don’t). Think everyone is a “bird-dog” broker and brokers are the same as financial advisors, biz development consultants, financial analysts, financial marketers etc.. Think tax credits are collateral. Think LOI’s is a “commitment”. Circumvent SEC law on commissions. A producer from Universal Pictures debunks the latter three points;
Some more erroneous assumptions or statements made by film producers include asking for “matching funds” with no 50% POF’s of their own or asking for 10% finishing funds to describe 10% down seed capital on Linkedin or my other favorite… “all films are made with 100% equity finance”. The reality check is the majority of the Top 200 feature films in theaters are funded by banks according to IMDB credits and on average film capital equity percentage is only 35%. This is done for 2 reasons; risk mitigation and to leverage capital. Here are 5 more facts that debunk the equity only myth.
Another prevalent myth film producers like to hoax everyone into believing is that angel investors and panhandling for donations from the “enamored” 3-F’s on “crowdfunding” are the primary source of film financing. Spoiler alert: financing means 2 things; you must qualify and you must pay back with interest. Which has nothing with do with donations. Furthermore, everyone on Facebook ‘Film investor’ groups are asking for “contributions” and not actual investors. Here are the other myth busters about angel investors;
Some film producers ask for “consideration” thinking it means scrutiny. The word they are searching for is due diligence. Consideration is used in the voice over for TV shows. For 12 years the TV show called “2 and Half Men” used to state “consideration is provided by” and then name what ever company has donated products for bartered advertising. Known as product placement. Then there is the increasing trend where at least film producers have given up any pretense of having an investment and are not looking to do any hard work to qualify for film finance. Dixie Publishing offers a free e-book called the “NO budget film making” for hobbyists.
Another myth buster about films is the likelihood of it’s profitability The rate of films not only making no profit but not even recovering their cost is high. If this was any other industry the borrowers would be fired or in jail. Here is what an investment banker says about film default ROI rates and budget break-even points. His credentials includes several securities licenses.
Here is an astute observation from a film producer on why film producers got rejected as contestants on the TV show ‘Shark Tank’. Ironic, considering one of the judges happens to be a film producer and owner of Magnolia Pictures.
Here is the slideshow of that episode on Shark Tank which was ranked 1 of the Top 10 worst ever. Here is the short story. Hi judges. Here is our trailer. Give us $5M.
Yes, film producers like to cry wolf about scams in other industries they lack credentials in. And yes financial fraud is up since 2012. But the inconvenient truth is that the biggest spike in financial fraud is borrower fraud; as reported on the evening news and crime TV shows, and national publications. The author of this report states ”out of desperation borrowers are getting more creative”;
The 3 following film producers are presented as the POSTER CHILD for film finance fraud and ineptitude in knowledge of film investment banking which in the real world involves; attracting (marketing), analysis, negotiating, leveraging, packaging, risk mitigation and regulatory compliance.
And film producers have the audacity to claim the financial industry is a scammer?