There’s No Business Like Show Business – Part 1


In 2006, my hedge fund advisory firm SAGA Capital was approached by a Hollywood actor-turned-independent-producer who had worked with John Travolta in one of his more notorious films.

He had also produced a moderately successful film that was acquired by Showtime. Let’s call him ‘Steve’. Steve was looking to finance a slate of 10 films, in which he had some actors committed, as well as some ‘pre-sales’ financing in place, decent screenplays (yes, I actually read them) by good writers for most of his films.

My business partner, Ralf Voellmer, and I agreed to meet with Steve in one of the Hollywood crowd’s preferred hang outs in New York City, the SoHo Grand. At that point, the closest thing I knew to film financing was securitization of music royalties, a very different animal. I did not know much about financing in the film segment. My firm had some exposure to a tangential part of the business, the private acquisition of film tax credits issued by New Jersey and Arizona. This was a pure arbitrage strategy that involved buying tax certificates from the producers, below par value.

I thought that the worst that would come from meeting with Steve would be that I would learn something new, since I really thought I would never get into film financing. Like most of the population, I perceived it as a very risky business. I wrote some programming scripts, gathered some data related to movies, dumped it into an MS Access database, and the picture I got was that the movie business had some interesting juice (spread) in it. I called it “Spread Over Budget”, or margin. It looked like it was increasing rapidly, and that somebody was making good money in the movie business.

Spread Over Budget By Decade
Spread Over Budget By Decade

I did not have enough data to know who was keeping the spread. Was it the Paramount Pictures of the world? The Steven Spielbergs? The Weinstein Brothers? What about hedge funds? Banks? Film distributors? Advertisers? What about the conglomerates that own a lot of Hollywood outfits such as Sony, News Corp, etc? Are some of them making money, all or them, none of them?

A lot of questions, but I was already starting to like the research part of it. The meeting with Steve was interesting, but I couldn’t imagine fitting a quantitative algorithm into any aspect of the movie business. Little did I know that the meeting was going to be the introduction to one of the most fascinating aspects of my professional career.

FYI, the chart above was pulled straight out of a presentation that my firm put together months later, for some banks and hedge funds (including Lehman Brothers & Goldman Sachs), who showed interest in some of the things I found out about show business and that I will explain in later posts.

As always, please feel free to leave your comments and questions below. Thanks!


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  1. Luis:

    Happy to have you join the film finance market. Here are titles to a couple of my books that may help you in identifying who is benefiting from that spread between box office gross and film budgets:

    “The Feature Film Distribution Deal — A Critical Analysis of the Single Most IMportant Film Industry Agreement” and “Hollywood Wars — How Insiders Gained and Maintain Illegitimate Control Over the Film Industry”.


    John Cones, Attorney, Author, Lecturer

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