Seduced and abandoned, a 2013 mock documentary about the nonsense of independent film financing directed by James Toback and starring Alec Baldwin, hasn’t aged well. Baldwin and a pre- # MeToo Toback (the director’s career derailed in 2017 after hundreds of women accused him of sexual misconduct, charges he denied) are seen at the 65th Cannes Film Festival, reeling from one fabulous lunch to another while wine and dine with assorted filmmakers and billionaires. They are supposedly trying to raise money for a modern remake of the erotic drama from 1972 The last tango in Paris located in contemporary Iraq (working title Last Tango in Tikrit). Their desired budget: $ 15-20 million, and Baldwin to play alongside Neve Campbell.
Again and again, Baldwin and Toback are shot. Mark Damon, veteran independent sales manager, founder of Foresight Unlimited, scoffs at the idea and calls Baldwin, then ends his 30 Rock run, a television actor who “does not refer to a movie film”.
Avi Lerner of Nu Image, another heavyweight in independent cinema, tells the couple bluntly, “When I make a movie, all I think about is profit.” If they want to attract investors for Tikrit, he says, they should cut the budget to $ 4 million or $ 5 million.
As Baldwin learned in Seduced and abandoned, getting money to make independent films has never been easy. In recent years, capital building has become more difficult, as US producers have found it more difficult to fully fund films using the “presale” model, in which a film “package” – one screenplay, one director and a key cast for an upcoming project – is shopped country by country to regional distributors who sign contracts agreeing to buy the film for their territory once it’s made.
But for several years now, global pre-sales have declined as a percentage of a movie’s budget, in part because of the decline in the home entertainment market following the booming DVD era. Independent filmmakers are therefore turning to new funding models. Many have turned to Section 181, an otherwise obscure provision of the U.S. tax code that provides tax breaks for investments in film and television.
Essentially, Section 181 allows a producer to write off the first $ 15 million (up to $ 20 million in some cases) invested in a film or television production in the United States in the year in which the money is spent and not – as it normally would be – when the film comes out and begins to generate revenue in the form of the box office, home video sales, etc.
If an investor in a high tax bracket (say the 35% bracket) invests $ 1 million in a qualifying production, he could theoretically deduct that from his taxes, recouping $ 350,000 that otherwise would have gone to the IRS.
Streamline Global, one of seven companies credited as producers on Rust, has transformed Section 181 into a business model since the company’s launch in 2017, acting as an intermediary between high net worth investors and independent film projects, Section 181 and other production tax incentives being used as vehicles to create tax breaks. He also helped fund Aaron Sorkin’s project The Chicago 7 trial as good as The pale blue eye, with Christian Bale, which was acquired by Netflix for $ 55 million.
Emily Hunter Salveson, co-founder of Streamline Global, 36, executive producer of Rust – his business partner Ryan Donnell Smith is credited as a producer on the film – had little experience in the independent film world before starting the company. Her previous professional activities included teaching surfing, retailing, assisting in a rehabilitation center, and assisting in the office of her father, Kent, a seasoned tax lawyer from Orange County, Calif., which itself advocates savings through investments in film and television projects. Streamline describes its role as an advisor.
Salveson’s most notable previous involvement in entertainment was co-hosting a YouTube show called Bath time. All parties conversed in a tub filled with foam. The slogan: âAll naked. Guests included contestants for the reality show, up-and-coming actors and various influencers. âI have never worked with someone with a bigger heart and more intelligence, drive and passion,â said host Jessie Morrison. “I know she brings the same passion and compassion to the film industry.”
âEmily’s path to Streamline was not unusual,â said Streamline spokesperson Sallie Hofmeister of crisis communications firm Sitrick and Co. (Salveson declined Hollywood journalistinterview request.) âIt’s likely that only a few Hollywood merchants have an MBA at Harvard. “
On her own, in an interview with Daily Movie in March, Salveson said she was inspired to become a “financial industry disruptor” by the family example, noting that her grandfather Melvin Salveson created the system that made MasterCard workable and that her great-great-uncle was the legendary Wall Street trader. Gerald Loeb, who was one of the founding partners of the brokerage firm EF Hutton & Co. (Loeb, who knew Ayn Rand, himself produced the 1949s Fountain.)
âI decided it was time for me to disrupt, too, so I walked around my apartment for about three months, writing ideas on notice boards on my closet doors and reading book after book. famous venture capitalists, and I ultimately created the model that Streamline Global is based on, âshe explained. “I still have these billboards – they’re so special to me and remind me of what we’ve built.”
Salveson raised her eyebrows at the 2017 Cannes Film Festival when, during a speech at the Carlton Hotel, she appeared to claim that Streamline created a new way to use Section 181 to ease the tax burden on high net worth people. Through Film Investments: âWe do tax fairness finance, and we have created a new financial model for the film industry that allows investors to get significant returns on their investment.
The model, however, was not new. Industry watchers with long memories will recall similar promises of UK sale and leaseback investment programs of the late 1990s and early 2000s. Taking advantage of a generous tax break promulgated by Prime Minister Tony Blair’s new business-friendly Labor government to boost a UK film industry, film investment groups with names like Little Wing and Ingenious have sprung up, offering high net worth investors the promise of relief juicy tax and guaranteed return.
The funds helped finance Hollywood projects, but the system was ripe for abuse. In some cases, film budgets have been artificially inflated to create a loss on paper, allowing investors to claim larger tax refunds; money claimed to have been spent on development or production was simply exchanged between various offshore accounts. The founders of Little Wing, for example, were convicted of investment fraud and sentenced to lengthy prison terms. Other groups, including Ingenious, have successfully appealed tax evasion charges. The company remains an active investor in film, recently supporting the Oscar winner Judy and the documentary directed by Oliver Stone JFK revisited: through the looking glass. The UK sale-leaseback program was finally shut down by the UK government in 2006.
Schuyler Moore, partner in Greenberg Glusker’s corporate entertainment department, sees a direct parallel between the UK sale-leaseback scandal and the potential (mis) use of Section 181 in the US independent film industry. To the independent film world, section 181 “is a hill of beans and comes back to nothing,” says Moore.
In Moore’s view, the only way to make Section 181 work would be to âget a lot out ofâ your investment by borrowing the money you put into the film.
âSo instead of your investment being $ 100, you invest $ 10 and borrow $ 90. If your cashback on the $ 100 is $ 35, it looks like you’re ahead, âhe explains. âBut it’s just leverage, just a bunch of debt. [Itâs] the same old nonsense that was used [in the U.K.]. “
For Streamline, Hofmeister argues that section 181 âworks both with and without leverage. The potential investors brought in by Streamline want to make a profit, and Section 181 provides incentives that help them achieve this goal. She adds that the company “does not provide tax advice and specifically asks investors to rely on their own tax professionals,” noting that Salveson’s father, Kent, “has connected with attorneys and CPAs retained by investor clients “.
But Moore says anyone who uses Section 181 as a tax shelter to fund films is playing the “audit lottery.”
He notes: âYou can play around with the system for a while, but if you get audited you will be absolutely destroyed. Hofmeister replies: “Audit risk depends on the skills and knowledge of the tax preparer and the complex formulas and calculations used by the IRS. Streamline does not believe that Section 181 results in a higher audit risk and the experience of its clients confirms this belief.
Phil Hunt, CEO of London-based Head Gear Films and 25-year film finance veteran, is familiar with the model: âIt’s a good deal because you make money even if you lose it. … It was like that before [with sale-and-lease-back] and was totally abused. â¦ If I [didnât care], I would do this business every day of the week.
There is no evidence that the use of Section 181 by independent film financiers resulted in any safety or other issues on the sets. But Robert Szanto, an independent producer who was a production consultant on The father and also worked in development at Broad Green Pictures for half a decade, believes the system opens the door “for wealthy but very inexperienced or unscrupulous independent producers to access a filmmaking pipeline that they shouldn’t. walk in without another producer who really knows how to make the movie they’re trying to make.
Alex Ritman contributed to this report.
CORRECTION: An earlier version of this story incorrectly stated that Avatar had been financed in part through the UK sale-leaseback tax system.
A version of this story first appeared in the November 10 issue of The Hollywood Reporter magazine. Click here to subscribe.