Box office betting

Investing in a film can pay dividends. But not all films are blockbusters and many go straight to video, warns Roxane McMeeken. With equity returns in the doldrums and hedge funds looking shaky, investors may find it worth their while to take the strange step of putting their money behind the likes of football hard man turned actor Vinnie Jones. This is not because brute force has been discovered to be the route to decent investment returns. Rather, it is because Vinnie is starring in a British film which is currently raising money from individual investors. In the UK a top attraction of investing in such a project is that it provides tax shelter. This particular heist movie, “Red Light Runners”, is aiming to raise E12.5m through an Enterprise Investment Scheme (EIS). And the film looks like a good bet. Set in Chicago and London, besides Mr Jones it will feature one of the few English actresses to crack Hollywood, Minnie Driver, as well as Harvey Keitel and Mickey Rourke. Granted, the soundtrack features former Spice Girl Geri Halliwell – but you can’t have everything. Going into an EIS is one of two main routes to investing in the UK film industry. Investors in an EIS can lay out a maximum of E250,000 and can expect tax relief on up to 20 per cent of income and unlimited capital gains tax relief. But Ian Pugh, films investment specialist at UK fund manager Allenbridge Group, warns that these schemes are “very risky indeed”. This is because the costs are high and you are unable to spread risk across multiple films. The highest risk factor is the fact that the rewards depend heavily on how the film performs at the box office. And it’s not always easy to spot the turkeys. Take for example the film “The 51st State”. It featured a pair of lead actors dripping with credibility, Samuel L Jackson and Robert Carlyle, and was the ninth most successful film at the box office last year, taking E6m. However, the film cost a massive E25m to make. To mitigate against this risk, Mr Pugh advises only going into schemes with strong pre-sales agreements. This way, a certain amount of sales are guaranteed. It is also a good idea to invest in multiple EISs or find an EIS that is linked to multiple films in order to diversify away some of the risk. A safer way to take advantage of the tax benefits of investing in British films is to take the second route of entering a film partnership, says Tracy Benjamin, director of UK film investment firm Pinder Fry & Benjamin. These are almost entirely risk free. They are based on “sale and leaseback” deals which allow individual investors to shelter unlimited amounts of income and capital gains from tax over a 15-year period. Investors are repaid through the film producer’s lease, which is guaranteed by a AA-rated bank, typically ABN Amro or Abbey National. Thus even if the film is a complete flop, investors get their money. Until April of this year, film partnerships were applicable to films for both the large and small screen. However, in his spring budget, UK Chancellor Gordon Brown limited film partnerships to movies aimed at cinematic production. Since last year 70 per cent of film partnerships backed projects aimed at television, Mr Pugh anticipates a flood of new film financing products to hit the UK market in the coming months. A third way to invest in a film would be to make a straight private investment. But this is fairly unappealing because it would mean maximum risk and no tax efficiency. Mr Pugh stresses that an investment in films is very much an alternative investment. No more than 5 per cent of a portfolio should be in film projects, he says. “These are generally high risk ventures and you can’t just get out when you want to as with equities.” He concludes with a note of caution: “People like the idea of investing in films. There are certain lifestyle issues that can cloud people’s judgement.”