TN PRODUCTION VENTURE FUND – INCENTIVE POSITION PAPER
Prepared By James Sposto
There are three aspects to the film industry to consider when developing policy for Tennessee and Memphis. Capacity – the talent and skillsets and personnel available here. Infrastructure – the facilities and supporting services for production, and Origination – I’d like to address the third aspect, and propose a positive solution around that aspect that can help effect the other two.
At FuelFilm our goal is to develop the motion picture, TV and media industry here in Tennessee. To obtain that goal we suggest an alternative focus from traditional film incentives that seem to lure Hollywood and independent producers here to make films, take advantage of our tax credits, and ultimately withdraw back to the coast and reap the rewards of our incentives. That model makes us beholden to a fickle industry that continually shops for the best deal among a cafeteria of state incentive programs that lack a mandate for real, long term investment in those states economies.
We suggest following the Tennessee Investco model, which is part of Senate Bill 1203 – as many of you already know, this is how it works.
The bill sets aside tax credits and grants them to local, qualified for profit venture funds. IN Tennessee. These funds then sell those tax credits to insurance companies and use the liquid funds raised to invest in promising startups IN TENNESSEE, new businesses and industries that create jobs and growth and cashflow and tax revenue right here.
We propose using senate bill 1203 as a template to create the same type of program for Film, TV and Media companies. Qualified groups or individuals will create “Production Venture Funds”, or you might think of them as “Venture Studios” based in various parts of Tennessee. These venture studios would be awarded the tax credits, sell those tax credits and use the funds to finance locally originated productions. These “Production Venture Funds” would be for-profit entities that would have incentive to choose investments in local productions or local production companies that have the greatest likelihood of success, all while following the rules imposed by the program – to ensure the money stays with companies and productions originating in Tennessee.
Originating in Tennessee – that’s the magic phrase, what we’re talking about is growing local capacity for origination and rewarding growth from within – as Tennessee has a long tradition as a place of creative development. Our influence in the world – culturally and artistically – belies our size.
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Here’s how we see it working – let’s start with $30,000,000 in tax credits – doled out equally – $10,000,000 worth to three Production Venture Funds. One fund might be able to sell their credits for 70 cents on the dollar. Now that fund has $7,000,000 to invest in locally originated projects or locally based production companies. Each production venture fund will be required to invest in multiple projects within a two year period – with no single investment topping 25% of the fund total – in this case 1.75 Million.
As with the investcos, the Production Venture Fund would earn a management and expense fee (let’s call it 3% per year for the two years) plus the fund will also be allowed to take 50% of all revenue earned from its investments through the first $20,000,000.00 with the other 50% going back to the state to replace those borrowed tax revenues. This way if the Venture Fund earns $10MM the state gets back $10MM – after payback the State would earn 20% of all profit the fund makes from those investments.
It would be advisable to create policy for a growth feedback loop to encourage reinvestment for Production Venture funds to qualify for additional Tax Credits.
I believe a plan like this can be written with SB1203 as a foundation, and designed in such a way to grow the media, film and entertainment industry in Tennessee. The bigger and more robust our local industry is, the easier it will be to make Tennessee a first choice for productions – and ultimately lure more productions, production companies and talent to Tennessee – and give our home grown creative and entrepreneurial class more reason to stay here.
Thank you.
Jim’s old friend Boyd McCollum just sent this note about screenwriting – and we just had to share it.
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