Financing / Crowdfunding : Ask Me Anything (AMA) Wednesday 3/6 to Understanding Recoupment Schedules by David Zannoni

Hi, David Zannoni. Hope you're doing great! Thanks for having this AMA. My question is your question: What is the order and priority in which financiers recoup?

Thanks so much for having this AMA with us David Zannoni. There's always so much for me to learn from your AMA's. Question: How are investments managed when a film performs at less than hoped? Thanks in advance!

Hi David! Great to see you here :) My question for you is: if I'm making a documentary about someone's life where does the individual sit within the recoupment schedule? Is there a standard pool you typically (industry standard) for any revenue share?

Hi David, can't wait to hear more about your expertise. How often are box office bonuses writers, directors, or actors these days?

Hi Maurice Vaughan, doing great, how about you? The financiers are generally recoup right after "off the tops", including payment of fees and expenses to the Collection Account Manager (CAM), Guild Residuals (SAG, DGA, WGA, but also IATSE, AFM or others), sales commission and fees. An exception are banks or senior lenders, if they provide a production loan. The production loan is usually recouped in first position.

hi Leonardo Ramirez it depends on what was agreed between producers and investors. Typically equity investors become stakeholders in the project (and in the LLC set up for the project), and that comes with the risk that the film does not perform sufficiently to recoup investments.

hi Emma Louise Smith that completely depends on what was agreed with the individual, in the agreement between production and the individual. I would think the individual is partly owner of the project, and would in any case share in the revenues (profits) of the project, after payment of off the tops, recoupment of financing, and payment of deferments and other commitments.

hi Pat Alexander that is a great question. Box office bonuses continue to exist, but are only relevant to the extent the film performs substantially at the box offices. WIth theater admissions going down, the value of such a deferred compensation may over time decrease and deal structures may change.

I'm doing great, David Zannoni. Thanks for the answer. What do you mean by senior lenders?

David Zannoni, thank you so much for making yourself available today! How are individual deal terms negotiated into the waterfall and which roles are permitted to negotiate? Would Producers, the Director, Writers, and Actors be allowed to negotiate for individual terms?

M LaVoie great to see you here! Although the market landscapes are ever changing, as do value of markets outside the US - like Latin America, for example - I would still think that for the average independent film, the US distribution portion represents somewhere between 20% to 30% of worldwide revenues (outside the home territory). Of course, this is subject to the nationality of the film, genre, and any film specifics. Remember, the revenues the CAM receives in the collection account are generally minimum guarantees, paid by the buyers (distributors, licensees). that is different from the actually streaming numbers.

Maurice Vaughan senior lenders are providing a loan, usually covering large part of the financing. This is debt financing, es opposed to the financing comes from investors, which is typically equity.

Oh ok, David Zannoni. That makes sense. Thanks for the answer. I've seen producers add recoupment schedules to pitch decks. Have you seen that?

Thanks for all the helpful information, David. In this ever-changing landscape it's great to have a knowledgeable guide. We appreciate your time and generousity.

hey Ashley Renee Smith! Well, everything is in principle up for negotiation. There are no rules written in stone - but there are rules of thumb. Guild residuals always come in 1st position, just after the CAM (exception can be bank financing). Then it is the turn of the sales agent, payment of commission and recoupment of expenses, after which financiers recoup. After recoupment of financing, there can be deferments, box office bonuses, and once financing is fully recouped and all other (deferred) commitments have been satisfied, the film is officially profitable and the profit participants share the backend. Positions however may differ depending on negotiations, and leverage. At the end, the recoupment schedule is just a reflection of all the single deal terms combined. Where an entitlement ends up in the waterfall, depends foremost on what the underlying agreement says.

Maurice Vaughan yes, I have seen pitch decks showing the recoupment schedule. I think that makes sense, it is important that stakeholders get an understanding also of the economics and how recoupment of financing works in the context of a project with multiple beneficiaries, obligations and commitments.

A pleasure Pamela Jaye Smith as always!

Ok, thanks for the answer and all the answers, David Zannoni. Thanks again for having this AMA.

I was in score delivery mode yesterday and couldn't jump in, but it is a great read to catch up with today and learn from you expertise. Thank you so much, David Zannoni !