New Service Launches to Pay Union Bonds (Exclusive)
For a fee, BondIt will front the security deposit required by SAG-AFTRA and other unions, relieving a cash flow problem confronted by independent productions.
Independent film producers have long groused about the SAG (and now SAG-AFTRA) requirement that they post a bond with the union at the start of principal photography to cover actors’ payroll. The so-called “SAG bond” -- actually a security deposit -- can be as much as roughly equal to the total anticipated actor payroll amount for the film, including union fringe benefits, and the problem for producers is that the amount is simply held in reserve by the union, not paid to the actors. That means producers have to fork out a similar amount to a payroll company in order to actually pay the actors.
Once the actors are properly paid, the union usually returns the bond amount to the producer, but that may not happen until several months after the end of principal photography. As a result, the producer has to pay the payroll amount in the interim and then may have difficulty funding for post-production while waiting for return of the bond. The union has a straightforward reason for its procedure -- the SAG bond is intended to ensure that actors get paid in full if the producer defaults. But low-budget films, perennially tight on funds, may have to struggle with cash-flow hiccups while money is tied up in the union trust account.
The DGA and IATSE also can require bonds. Studio pictures don’t face the cash flow problem, because the majors are exempt from the bond requirement, at least at SAG-AFTRA.
A new Internet-based service, BondIt, addresses the issue by paying the SAG bond on the producer’s behalf and receiving its money back from the union once the actors have been paid. Of course, there’s a cost: The company charges a fee that it says is typically 11.25 percent of the total bond amount. That cost becomes an additional line item in the budget, which makes the film slightly more costly. But it also means that budgeting and cash flow are eased.
“As producers, we recognized a need for this solution and introduced a streamlined process for the union members to remain protected, for the producers to abide by the guild protocol while having more access to their budgets from day one through post-production,” said CEO and co-founder Matthew Helderman in an interview with The Hollywood Reporter. Helderman is also CEO and co-founder of Buffalo 8 Productions, a feature, commercial and digital production house.
Helderman added, “BondIt is a solution for both parties, keeping the guilds protected and the producers cash-flowed.” The company’s other co-founder is Luke Taylor, COO and co-founder of Buffalo 8.
“I believe they are taking a community-minded entrepreneurial approach to improving our industry,” said veteran independent producer Ted Hope, whose 70-plus credits range over the last three decades. “The BondIts recognized that filmmakers both need/want to work with unions, and thus pay deposits, and can’t tie up their capital as the unions require. Not only did they come up with a solution, but in the process they have the potential of improving things for multiple stakeholders and bringing a greater transparency to the process.”
The company launched without fanfare in January and has fronted $310,000 in bonds to date, representing about 21 separate projects. The market is much larger, though: Helderman says there are about 8,000 deposits annually in North America, and they average $38,500 each. About 70 percent of those deposits are for films with budgets less than $5 million. The company focuses on budgets from $50,000 to $5 million. The 8,000 figure includes not just SAG-AFTRA, but also DGA, IATSE, Actors Equity and the Canadian union ACTRA.
BondIt envisions expanding overseas as well, saying that there are more than 40 entertainment unions worldwide that use a security deposit procedure.
Hope has not used BondIt himself, but producers who have were enthusiastic.
“BondIt was really, really good for us,” said Jemma Jones, who line produced the low budget Pop Star Puppy. She said the service made the difference between the picture being produced under SAG-AFTRA or going non-union, because the budget couldn’t accommodate cash-flowing the bond. In addition, she said, “I dread having to talk to SAG[-AFTRA]” -- because, she said, it was difficult to get calls returned or get consistent and knowledgeable answers to questions -- “and [BondIt] eliminated a lot of the interaction.”
“Cash flow is a huge deal,” said Jillian Stein of The Jokesters, “and BondIt was a great help.” The production paid a fee of $2,000 for a bond of about $25,000. She added, “It was nice to be able to call Matt with questions about SAG and have someone experienced.”
“BondIt made things happen very fast,” said Barry Alexander, producer of Deadly Retreat. “Everything was super smooth, and they basically saved our [production].” He said he viewed the company’s fee as a “convenience fee” that reduces the uncertainty usually associated with waiting for return of the SAG-AFTRA security deposit, which he described as normally “like a punch to the gut -- you don’t know when you’ll get your bond back.”
Although 11.25 percent is the average premium charged to the producer, Helderman says the actual amount can be anywhere from 5 percent to 20 percent, depending on how risky the project appears. The company uses a proprietary algorithm -- based on a so-called “proportional hazards model” -- that assesses risk in four categories: team (producers, actors, etc.), financials (budget, amount of debt, amount of equity), duration (days of principal photography, number of locations, number of cities) and liabilities (actors used per day, company moves, stunts, children, VFX, use of practical locations).
“It’s a great service for independent features,” said Dan Ringey, producer of Dirty. “It helps get movies made.”
BondIt has filed four patent applications for its system, although it remains to be seen how those will fare in light of the Supreme Court’s recently expressed concern about the breadth of some software patents. A decision in a Supreme Court software patents case, Alice Corp v. CLS Bank, is expected by the end of June.
Helderman also says the company has signed exclusive three-year agreements with payroll houses ABS Payroll and Entertainment Partners, and entertainment insurance agencies Truman Van Dyke and Media Insurance Brokers, under which those organizations recommend BondIt and provide the company with risk data for use in its algorithm.
BondIt is not the only service attempting to address the security deposit issue. Ameribonds, a surety bonds company not focused specifically on entertainment, advertises that it can provide “SAG bonds.” A company representative said that Ameribonds had done several, and that the cost ranges from 2 percent to 5 percent of the bond amount, depending on the applicant’s credit rating, plus a $150 fee. She added that Ameribonds requires a personal guarantee from the applicant.
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