Alt Investments
GUEST OPINION: Investing In Film - Time For Another Take?
Kirsty Bell, partner of Nyman Libson Paul, explains how measures like better finance structures will encourage more investors to get involved in film.
London-based
accountancy Nyman Libson Paul has specialised in managing the
financial affairs
of the entertainment industry for 80 years, and is now using that
expertise to
launch a series of film EIS vehicles under the banner of
“Goldfinch Pictures
Ltd”. Here, NLP partner – and successful filmmaker – Kirsty Bell
explains how
measures like better finance structures will encourage more
investors to get
involved in film.
Film investment badly needs an image overhaul – and not just so
that the
UK’s
vibrant film industry can continue to thrive. Most clients and
advisors will
know that film investment is strongly supported by government tax
incentives.
What they may not know is how far filmmakers are rolling out the
red carpet to
attract investors. Innovative finance structures are turning the
old ways on
their head, meaning that clients can invest in film with more
confidence than
ever before.
As someone who is passionate about UK film as well as being a
tax
specialist, it pains me to see how misunderstood film investment
is. Some
associate it with tax evasion while others see film projects as
mere vanity
investments akin to black holes swallowing up endless capital
with precious
little hope of returns.
There’s no denying that film investment has had some pretty poor
press
over the years. Tax breaks rolled out in the 1990s were abused by
some parties
and just last year certain celebrities hit the headlines over
dubious film
investment schemes. But while tax planning and film investment
continue to be
mentioned in the same breath, today it is for all the right
reasons. To put it
bluntly, pre-2007 some film finance schemes were about “playing
the rules” on
tax. In contrast, the EIS, Seed EIS and tax credit incentives
taken advantage
of today are entirely legitimate. In fact, HMRC smiles on
tax-incentivised film
investment to such an extent it is probably the most supported
industry in the UK today.
The tax incentives prompting high net worth investors to invest
in EIS
vehicles are certainly very generous. They also go a long way
towards mitigating
investors’ fears of losing money. The income tax relief for EISs
has been
raised from 20 per cent to 30 per cent, meaning that the
government is
essentially funding almost a third of any EIS investment.
Furthermore, higher-rate
taxpayers can obtain loss relief of up to 65 pence in the pound,
which
effectively gives them a government-backed safety net should
investments not
succeed.
These tax breaks offer a good deal of reassurance, but savvy EIS
firms
(and film production companies) are going much further to allay
investors’
concerns. They are building investor protection into the finance
structure from
the off and making sure that equity investors are first in line
to get paid –
not, as has often been the case, at the bottom of the pile.
Equity investors often step in towards the end of a project to
save the
day, providing the capital to ensure a film in post-production
has a score or
creating a distribution budget which will ensure a finished film
is actually
seen by audiences. It is therefore pretty ironic just how poorly
investors are
sometimes treated in return – even in the case of angel investors
who fund a
big chunk of a project. Their money is swallowed up and they have
little notion
of when, or even if, they will see a return. A project may be
wildly successful
and yet investors may not see any upside for a long time. This is
the
antithesis of our approach, and of the production companies we
work with.
Last in, first out
Put simply, the way we structure our film deals ensures that
our
investors are “last in, first out”. We put them in first position
on the
recoupment schedule and build in mechanisms to make sure they get
paid back
straight away. As part of government moves to encourage film
production in the UK, production
companies can claim a 25 per cent cash rebate when making films
with a budget
under £20 million. Under our EIS these tax credits come straight
back to
Goldfinch Pictures, as do the pre-sales contracts up to the
amount Goldfinch
has invested in the project. This way we ensure clients’ money is
recovered (plus
a premium, hopefully).
It would be easy to assume that production companies begrudge us
these
terms, but nothing could be further from the case. They are
looking for repeat
investment and know that fostering investor confidence is the
only way to
secure it. The fact that the flagship Goldfinch EIS will only be
providing gap
funding means that its investors really will be the final link in
the chain.
The production companies we work with rightly want to recognise
that
contribution by offering investors as much certainty as possible.
The £50,000
($816,722) minimum investment EIS vehicles typically ask of
investors may be
relatively modest, but it is still a sum one would want to feel
secure about
seeing again.
Greater transparency and more intelligent structuring is
undoubtedly
where film investment is heading. What the film and finance
sectors now need to
do is get the message out there that, while the world of film
might be fickle
and unpredictable, investing in it doesn’t have to be. Many
investors are drawn
to film EISs because they want to get involved creatively in the
industry, and
this certainly happens, but I always counsel clients to think of
film assets
and finance structures in the same light as any other. The
investment case
needs to stand up in its own right, and to our mind that means
prudently
investing in a diversified portfolio of projects which have a
reasonable chance
of success – rather than betting the farm on the next runaway
hit. Some very
well respected figures in film sit on the board of Goldfinch, but
even with
that expertise we remain cautious.
Realistic return expectations, strict recoupment covenants and
sensible
diversification may seem a million miles away from the glitz,
glamour and
creative passion associated with the film industry – but this is
the only way
film investment will regain its shine for investors. Done well,
film EISs can
be incredibly useful investments for HNW individuals. The
continued growth of
the UK
film industry depends on more of them knowing that.