Small Indie: Who controls the money?

[Tom Lowe]

Everything I've shot so far has been my own money (and lots of it! ), but I have a producer raising the $200k for my RED feature for next summer/fall -- the SAG ultra-low cap. He has a few wealthy clients who want to invest in a small film.

So, my question is, who actually controls the money? In theory a producer has some kind of control, but since I wrote and will be directing this, no one else can have control over the money, otherwise they'd essentially control my picture.

How does this normally work?

 

[donatello b]

what ever the contract states who owns what & who controls what will control the $$ ...
in general Producer controls the $$ ... many times a executive producer just raises the $$ ...

also in general writer has NO control over the $$ ... Director spends - spends and the Producer tries to keep it all within the budget ...

perhaps you want to Producer too ... bottom line is put it in writing who owns & controls what ... from my experience putting $$ into low budgets - i insist that there be a finish editing date .. if it is not finished by that date the investor can take control to finish the editing ... No completion date in contract = get $$ from somebody else ...
IMO when you take on INVESTORS it is now a business .... whatever position one has then do the JOB ... and YES there should be somebody keeping the Director within budget and schedule ... i've seen too many Directors that have total control on a project not keep to budget and schedule and the projects never get finished ..

 

[PaulClements]

On a smaller budget the director might well be the producer too or one of. That's half the problem for directors though isn't it; having control over the money.

If it's not your own you have to answer to someone else. If it is yours then you have the bigger burden of losing a tonne of cash if it goes pear-shaped. The guy raising the money is likely the one who will answer to the investors, therefore you answer to him, or at least between the both of you, you'll answer to them.

I'd say on a smaller budget movie such as the one you are talking about you'd probably discuss spending with the producer (The guy raising your money) at each stage. His job is to keep you in check the whole time!

On a big budget you'd have a whole accounts team working for and with the producer/s/Exec Producer/s. Requests would go in through them. Typical expenses approved on a daily basis and larger ones going to the top for a decision.

I'm no expert though. Hopefully someone who is can chime in and give a better take on it.

 

[Tom Lowe]

I don't mind having a producer make sure I stick to the budget (actually I need it!), but I don't want anyone to have the power to turn off the money flow halfway into the picture over some argument or something. In other words, if there are disagreements, god forbid, I cannot be in a position where one person holds all the purse strings, because at that point, it's that person's movie, and not mine -- they might as well be directing.

I guess the bottom line is, I need to be able to fire the producer, if it comes down to him or me.

I'm 100% not anticipating any battles, but i have been on enough indies to see DPs and directors actually duking it (actual fisticuffs), and producers trying to fire directors.

 

[Tom Lowe]

Yes, there will be an agreement regarding what happens with the investors' money. What I am interested in learning is what type of stipulations I can insist upon in the contract/agreement that will prevent any one person from cutting off my access to the money that is already in the bank.

I do have access to an entertainment lawyer, and I will probably will pay him for advice later this year, but I was looking for some free advice from people here who might have experience with this.

 

[Jim Exton]

I don't mind having a producer make sure I stick to the budget (actually I need it!), but I don't want anyone to have the power to turn off the money flow halfway into the picture over some argument or something.

The producer is not going to shut the money off. The investors are investing in a film, if there is no finished product you are opening yourself up to a lawsuit. You have to deliver a product to your investors.

 

[Tom Lowe]

Maybe, maybe not, Jim. I have seen tempers flare on many sets, and I don't want the fate of my picture controlled by any one person. The amount of money I am talking about is relatively small -- 200k. If a producer or anyone else has 100% control over the money, then he has 100% control over my picture, bottom line.

 

[donatello b]

if you want total control and you think 200k is relatively small then forget the money guy and get the $$ from friends, relatives, credit cards etc then you hire a production manager/producer that helps you bring it in on budget/schedule but cannot shut off the $$$ ....


the investors usually put up the $$ before the start of production ..
you could simply put in the investment portfolio thing that investors have NO say or control over the project ... they simple put up their $$ and they get back X $$ return if it makes any $$$ ... make sure you explain in writing what their RISK is going to be and then you mention what their REWARD will be IF the movie makes a profit ...

 

[Tom Lowe]

the thing is, i don't want the producer credit or responsibilities at all.

my friend who is rounding up the money has the whole prospectus put together. once the investors put their money in, they have no say in anything at all. it goes into a sort of escrow. that's not to say that i won't welcome their involvement, as long as it's informal.

but even though i know this guy and trust him, there is no way i'm going to turn over control of the picture (the money) to anyone else. what i'm going to have to do is make it so only i have ultimate control over the money, and i have the ability to fire anyone, including the guy who raises the money and is listed as the producer. otherwise, if he controls the money, he controls everything.

 

[donatello b]

ok the $$ is from investors .. was there a company set up for this one project ?

or do you have your own company and it is producing the movie ?
if your partner is the producer in the company ??

be very careful ... if your producer went to his friends - then they might have invested more because he is involved vs. your project .. they know and trust him ... you fire him you may have un happy investors which maybe in the end they have NO control over the project but they can perhaps stop production for a period of time ??

well, i saw 2 friends start a company ... raised 1/2 mil ... then one wanted to fire the other in middle of production ... we are talking law suits .. several months down time ... $$ frozen ... in the end cost alot of $$ to have that person leave ( quit) ...

 

[Tom Lowe]

see, that's exactly the type of thing i am hoping to avoid. i think right now the idea is to form an LLC just for the purposes of this one film.

yes, my friend who is raising the money is going to people he knows, and yes, in a sense, some of them will be investing because they trust him. and yes, he will be a real producer and have control of the money on a day-to-day basis, and actually i am hoping he will help me exercise financial restraint.

but.... what i am worried about is a nuclear meltdown, like what you are describing, in which case i would need to have the ability to fire him, flat out, and still retain the 200K in the bank so we can keep shooting.

keep in mind that my picture is going to be shooting on location for 30 days up in the sierra mountains, so that makes me extra paranoid about things going wrong with personalities and such.

does that make sense?

sure, i could raise the 200k myself and maintain 100% control for sure, but i hate fundraising and don't want any part of it.

 

[donatello b]

LLC are very good ... you can decide who becomes members ( but i'm pretty sure investors would want to be members) ... perhaps you don't want investers as members ? ... you can define what are the responsibilities of members and who has the final say .. you can state a persons percent of ownership in the LLC without regard to how much $$ they have put in.. IE: a person puts up 100k (1/2 budget) but may only have a ownership of 5% ... Nolo press has a good book on LLC and a book ( w forms on CD) on how to set it up ...

" i could raise the 200k myself and maintain 100% control for sure, but i hate fundraising and don't want any part of it."

well then you may have to live with a partner(s) that you can't fire in a moment ..you might have to call a meeting of the LLC members and take a vote on firings ? all depends what you put in the by laws of the LLC ...
IMO if you think/feel that you might have a problem with that person then think before you leap into a partnership ...

the friends i mentioned above had nothing on firing, nothing on who had control .. they both were directing ... one of the persons ( say bill ) is the one that had the $$ contacts ... the $$ persons/investors stated the $$ goes where ever bill goes .. the $$ persons/investors had placed specific dates that the production had to meet in order to get the next $$$ . if they didn't meet the date then they had to have a meeting to state why and at that time the $$ persons could pull out .. so in the end bill gave mr screwup ( ok, i took sides) a choice - either quit or they will quit and take the $$ with them and that in the end would mean the project too ... so mr. screwup went out the door with $$$ ...

IMO 200k is not easy to raise or for that matter 20k ... this is $$ that you pretty much can KISS goodbye ... there's a 90+ percent it will never make a dime of profit ... i have many friends that have projects in the can and need 5k-20k to finish and many are now 2-6 years later ...

 

[Jeff Kilgroe]

Tom,

You really should speak with a good attorney on this one. But I think you're on the right track with the dedicated LLC. The LLC and its officers and assigns need to be the ones controlling the money. The producer can most definitely be an employee (and not necessarily an officer) of the LLC. He becomes the front man, the investment broker or sales representative. Investors will rely on a certain level of trust with the producer as any high-profile sales or investment broker with other businesses. I think that some responsibility should fall on the producer as well -- he needs to sell investors on the production and those involved, not just their trust in him.

Set up the LLC and give him (producer) control over investments and finances, but if you're president or controlling officer of the LLC, you still have the ability to override him or fire him if the need arises. What happens to the invested funds will depend on agreements made with investors. You will probably need an investment agreement combined with a non-disclosure. Afterall, the investors will probably want a cop of the script and other information about what they're investing in and you probably don't want them spreading it around town to all their friends. At the very minimum, the LLC should be able to retain funds necessary to at least cover all accrued expenses to date and any costs associated with clean-up and shut-down of the company. At that point ownership of any material created probably reverts to investors and an arbitration may be needed to divide it up or work out some sort of settlement or recovery agreement. Ideally, the funds should be secured by the LLC for a certain period of time. And after production passes a certain percentage of completion, the LLC should have the right to retain all remaining funds to complete the project. Because once you hit the half-way point or so, your best bet at recovering any losses or even still making some money is to keep on trucking and finish a product. Like any other business investment, the investors should know that there is associated risk and a substantial portion of their investment could be lost if the production fails. All the more reason for the producer to sell the investors on the production itself and the people involved rather than using his friends' trust in him as a means to borrow cash. If that's the only marketing approach, you may as well just borrow from a bank with the knowledge right up front of how much it's going to cost and when it has to be repaid.

But I think the best advice I can offer is to have a well laid out plan for the production and make sure everyone is on the same page. Keep investors out of the production loop. The last thing you need is someone trying to influence the production directly just because they think their investment entitles them. Spell out the limitations of their investment in their agreement. They should be placing their money, trust and faith in the production.

 

[Tom Lowe]

Thanks for that info, Jeff. I know we are using a standard film business investment agreement, so I assume the stuff you talked about, with regard to hitting the halfway point and all that, is included in that agreement, but I'll be sure to double check. My brother will be the other producer on the film, and he's a business guy.

So it sounds like what I need to be concerned with is having control of the LLC, and then I can fire whomever I want and maintain control of the film if all hell breaks loose.... which I don't think it will!

 

[James T Mather]

nd then I can fire whomever I want

I don't think I'd like to be your producer - lets hope he doesn't read this - or he might opt to put his "money raising" into another project and another director - one who isn't preplanning on firing him.

 

[Tom Lowe]

heh. no, he doesn't read here.

 

[Jeff Kilgroe]

One other thing though.... Typically the producer is the one forming the production company and fronting the money, hiring the director, etc.. Perhaps your friend shouldn't be "producer". Maybe you're the producer / director and he's the director of finance and investor relations. Titles and implied purpose can change a lot of expectations you know... Or perhaps you hire him as an independent consultant who secures investments for a small fee. His main payoff comes when the project completes, so it's in his best interest to do everything to help your production succeed.

Anyway, I'm just speculating here... I don't know your whole situation and there's so many possible ways to structure such business deals. Hence the suggestion for seeing an attorney. A good sit-down with one could really help iron a lot of this out. You say this guy is a friend, but you're talking about being able to fire him. In my experience, business and friendship usually mix very well or not at all and it's the in-between relationships that can kill you. Do what you can to secure your friendship while protecting both your interests in a fair and legal manner.

 

[Tom Lowe]

One other thing though.... Typically the producer is the one forming the production company and fronting the money, hiring the director, etc.. Perhaps your friend shouldn't be "producer". Maybe you're the producer / director and he's the director of finance and investor relations. Titles and implied purpose can change a lot of expectations you know... Or perhaps you hire him as an independent consultant who secures investments for a small fee. His main payoff comes when the project completes, so it's in his best interest to do everything to help your production succeed.

Anyway, I'm just speculating here... I don't know your whole situation and there's so many possible ways to structure such business deals. Hence the suggestion for seeing an attorney. A good sit-down with one could really help iron a lot of this out. You say this guy is a friend, but you're talking about being able to fire him. In my experience, business and friendship usually mix very well or not at all and it's the in-between relationships that can kill you. Do what you can to secure your friendship while protecting both your interests in a fair and legal manner.

Yeah. Well he's really a friend of a friend, though we are planning to meet up this summer at Burning Man or Moab and do backpacking and stuff. So it's kind of an unknown at this point. It really doesn't matter to me, though, because no matter who the person is, I could not get myself into any situation where any one person had the power to pull the money from my project or cut off funds in any way, because I would essentially be at that person's mercy.

Maybe what I should do is make him exec producer, and share producing credits with a tough-as-nails line producer who really handles the day-to-day producer work?

My whole production is meant to be super simplified, with only three actors and a streamlined, mobile crew, all of whom are working professionals and longtime friends of mine. The only missing link for me is the money and a producer.

 

[Jonathan L. Bowen]

This has been a great thread, as far as reading what everyone wrote and the advice given. Some good advice here, I think, Tom, definitely stuff to consider.

I personally would not make this guy a producer if I were you, if it's your project, then he wasn't really a producer, he is more of a fundraiser for you, I think you're the producer and director, he's just an investment consultant of some sort. These guys are right to say that usually a producer's job, under a standard production company, would be to put an entire project together from the start. The producer is in fact (normally speaking) the only person who works on a project from start to finish. Even the director's involvement pales in comparison. The producer looks over scripts, chooses something he believes in, and looks for investors to produce it, either before or after having signed talent for the project. Obviously it could be the case he attaches some talent, then goes to investors to look for money based on who he has doing it, that probably happens most commonly I would imagine, then from there the investors are buying into this project based on the idea, the strength of the script, and the strength of the people involved. The director comes aboard sometime in pre-production, and finishes sometime in post-production, but there are five phases to film production, only three of them in which the creative professionals are generally involved (pre-production, production, and post-production), then two others (development before those three, then marketing and distribution after those three) the producer and his company / team manage. So it sounds to me like in this case you are basically involved from the start, it's your project, you have developed it, written it, and basically are producing it yourself because you've put together the talent. You are just looking for investment capital.

I'm going through a similar situation on a movie I want to make for even less, about $50,000, and although I know I could seek outside investment (lots of wealthy connections), I want complete control of my project in all phases up until distribution, and then I will decide whether to work with a third party (I would prefer this, obviously) or whether I'll have to go ahead and distribute it myself, too (much harder, more work, more profit per DVD sold maybe, but much less exposure and a tough uphill battle I'd say; a backup option). That being said, I don't intend to take producer credit on the project, I don't think, I will list myself as executive producer, maybe co-producer I suppose, but I'd like my friend and business parter David to produce the film if possible, which will not involve raising capital but it will involve setting up the entire production, an LLC for the production, a bank account from which we can make payments to cast and crew, and I'd expect him to find a distributor and do basically all of the business work. If he wants a 25% cut, anyway, otherwise I'll do it myself glady and take 100%. I consider it somewhat of a gift because I'm very confident in my project and wouldn't offer anyone else 25%, but I believe in his ability to give me opportunities to make cash at other points, too. That being said I can't have a producer who doesn't know what he's doing, so if he isn't really up to snuff about everything that being a producer entails it's not going to work.

From what I have read, which is a bit discouraging, about 90% of feature films that are made at any level never get distribution. I was kind of shocked by that. Obviously if something is made for $60 million by Paramount or something it's going to be distributed, but overall 90% of features don't see the light of day. Then you're stuck with an expensive paperweight basically, but the backup option is to distribute it yourself, something I think is possible if you spent a very small amount of money on it. Your break-even point is low.

Investors have to understand with something like this that they are taking a big risk and they will either lose everything they invested or perhaps make a large payoff if it works out. That's my attitude, but it's a heck of a lot easier to invest money in yourself and your own talents than someone else's talents, unless you really believe in them. I get calls very often from production companies asking for capital because I'm an accredited investor ($1M net worth or $200,000/yr income), but I always turn them down for now because I'd rather invest in something I'm doing myself since I'm in the same industry. The only way I'd "invest" in someone's project is if it were basically like, "Hey I want to shoot this movie, I got a friend who is going to DP it, I'm directing it, I wrote it, I'll give you 20% of the profits if we can use all of your equipment for the shoot without charge," and I read the script and thought it was a wonderful idea. Then I can see me doing that, but that's because I feel more actively involved than just giving money away to be spent.

Best of luck to you with this, Tom, I'm sure you'll figure out a way to make sure all goes smoothly. It may not sound nice, but I understand your desire to have the power to fire your producer. Not many directors have that ability, but if it's your project it's possible. George Lucas didn't produce any of the Star Wars prequels, but it was all his money, and lots of it, so he could have fired his producer (Rick McCallum) at any point. That's how I like to operate, too, not that I would ever want such a scenario to arise, but if I'm directing a movie I want complete control -- one reason I have virtually no interest in ever directing a mainstream movie with someone else's money for a major studio. It makes me sick what happens to many films when the suits get control. I was reading about Sliders (the TV show) the other day, and how Fox execs not only overran the story idea and forced the creator off the show in the third season, but from the very first season they were airing episodes completely out of order (ruining plot continuity and embarrassing the creator and the directors involved) on a regular basis, just to boost ratings during key periods. That's bogus to me. I have no interest in being treated that way. I'd rather just direct small movies that limited audiences see, so long as I make them my way. That's how I am.

 

[Curran Giddens]

daaaaaaamn, LB, you make $200k/yr! :greedy:

I actually set up my company (Solar System Studio) as a C corp. instead of an LLC. My company was issued 1500 shares of stock. Depending on how much money I need to raise for my first feature, say $200k is divided by 1000 shares ($200/share). The remaining 500 shares will be divided between my crew. When the completed project is sold to a distributer for a profit, then investors can sell their stock. If that $200k turns into $2M, well, you do the math. Investors can also hold onto their stock, which works out better for them if the next production is even more expensive. Investors can sell their stock at any point. There will also be monthly meetings (iChat?) where we update the shareholders on our progress and let them know what the current stock price is.