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Seduced and Abandoned, a 2013 mock documentary about the absurdities of indie film finance that was directed by James Toback and stars Alec Baldwin, hasn’t aged well. Baldwin and a pre-#MeToo Toback (the director’s career was derailed in 2017 after hundreds of women accused him of sexual misconduct, charges that he’s denied) are seen at the 65th Cannes Film Festival, lurching from one fabulous lunch to another as they wine and dine assorted film executives and billionaires. They are supposedly trying to drum up money for a modern-day remake of the 1972 erotic drama The Last Tango in Paris set in contemporary Iraq (working title Last Tango in Tikrit). Their desired budget: $15 million to $20 million, and Baldwin to star alongside Neve Campbell.
Again and again, Baldwin and Toback get shot down. Veteran indie sales exec Mark Damon, founder of Foresight Unlimited, scoffs at the idea and calls Baldwin, then ending his 30 Rock run, a TV actor who “does not denote a theatrical movie.”
Nu Image’s Avi Lerner, another indie film heavyweight, tells the pair bluntly: “When I make a movie, all I think about is the profit.” If they want to get investors for Tikrit, he says, they should slash the budget to $4 million or $5 million.
As Baldwin learned in Seduced and Abandoned, getting money to make independent movies has never been easy. In recent years, cobbling together capital has become trickier as American producers have found it harder to fully finance movies using the “presale” model, in which a film “package” — a script, a director and key cast for an upcoming project — is shopped around country-by-country to regional distributors that sign contracts agreeing to buy the movie for their territory once it’s made.
But for several years now, worldwide presales have been shrinking as a percentage of a film’s budget, in part due to the decline of the home entertainment market after the booming DVD era. So independent filmmakers are looking to new financing models. Many have turned to Section 181, an otherwise obscure provision in the U.S. tax code that provides tax breaks for investments in film and television.
Essentially, Section 181 allows a producer to write off the first $15 million (as much as $20 million in certain cases) invested in a film or TV production in the U.S. in the year the money is spent and not — as would normally be the case — when the film is released and starts to generate income in the form of box office, home video sales, etc.
If an investor in a high tax bracket (say the 35 percent bracket) puts $1 million into a qualifying production, theoretically they could write that off their taxes, recouping $350,000 that otherwise would have gone to the IRS.
Streamline Global, one of the seven companies credited as producers on Rust, has turned Section 181 into a business model since the company’s 2017 launch, acting as a broker between wealthy investors and indie film projects, with Section 181 and other production tax incentives used as vehicles to create tax breaks. It also helped finance Aaron Sorkin’s The Trial of the Chicago 7 as well as The Pale Blue Eye, starring Christian Bale, which has been acquired by Netflix for $55 million.
Streamline Global co-founder Emily Hunter Salveson, 36, an executive producer on Rust — her business partner Ryan Donnell Smith is credited as a producer on the film — had little experience in the indie film world before launching the company. Her previous professional endeavors included surf instruction, retail sales, assistant at a rehab center and assistant at the firm of her father, Kent, a seasoned Orange County, California-based tax attorney who himself advocates savings through investments in film and TV projects. Streamline describes his role as an adviser.
Salveson’s most notable previous involvement in entertainment was co-hosting a YouTube show called Bath Time. All parties conversed in a suds-filled tub. The tagline: “Bare it all.” Guests included reality show contestants, up-and-coming actors and assorted influencers. “I have never worked with anyone with a bigger heart and more intelligence, drive and passion,” says fellow host Jessie Morrison. “I know she is bringing that same passion and compassion to the film industry.”
“Emily’s path to Streamline was not unconventional,” says Streamline spokesperson Sallie Hofmeister of crisis communications firm Sitrick and Co. (Salveson declined The Hollywood Reporter’s request for an interview.) “Probably only a few dealmakers in Hollywood have Harvard MBAs.”
By her own account, in an interview with FilmDaily in March, Salveson said she was inspired to become a “financial industry disrupter” by family example, noting that her grandfather Melvin Salveson created the system that facilitated the operation of MasterCard and that her great-grand-uncle was the legendarily contrarian Wall Street trader Gerald Loeb, who was a founding partner of brokerage E.F. Hutton & Co. (Loeb, who knew Ayn Rand, himself executive produced 1949’s The Fountainhead.)
“I decided it was time for me to disrupt too, so I paced my apartment for about three months, writing ideas on poster boards on my closet doors and reading book after book by famous venture capitalists, and eventually created the model on which Streamline Global is based,” she explained. “I still have those poster boards — they are so special to me and remind me of what we’ve built.”
Salveson raised eyebrows at the 2017 Cannes Film Festival, when, while speaking at the Carlton Hotel, she appeared to claim that Streamline had created a novel way of using Section 181 to ease wealthy individuals’ tax burdens through film investment: “We do tax equity finance, and we created a new financial model for the film industry that allows investors to get significant returns on their investment.”
The model, however, wasn’t new. Industry watchers with long memories will recall similar promises from the U.K. sales-and-leaseback investment schemes of the late 1990s and early 2000s. Taking advantage of a generous tax break enacted by then-Prime Minister Tony Blair’s business-friendly New Labour government, aimed at stimulating a British film industry, film investments groups with names like Little Wing and Ingenious sprouted up, offering wealthy investors the promise of a juicy tax break and guaranteed return.
The funds helped bankroll Hollywood projects but the system was ripe for abuse. In some cases, film budgets were artificially inflated to create a loss on paper, enabling investors to claim greater tax repayments; money claimed to have been spent on development or production was just shuffled back and forth among various offshore accounts. The founders of Little Wing, for example, were found guilty of investment scam and sentenced to lengthy prison terms. Other groups, including Ingenious, have successfully appealed charges of tax avoidance. The company remains an active investor in film, recently backing Oscar-winner Judy and the Oliver Stone-directed documentary JFK Revisited: Through The Looking Glass. The U.K. sale-and-leaseback scheme was eventually shut down by the U.K. government in 2006.
Schuyler Moore, a partner in the corporate entertainment department of Greenberg Glusker, sees a direct parallel between the U.K. sale-and-leaseback scandal and the potential (mis-)use of Section 181 in the U.S. indie film sector. For the independent film world, Section 181 “is a hill of beans and doesn’t amount to anything,” says Moore.
The only way to make Section 181 work, in Moore’s opinion, would be to “heavily leverage” your investment by borrowing the money you put into the film.
“So instead of your investment being $100, you put in $10 and borrow $90. If your rebate on the $100 is $35, it looks like you’re ahead,” he explains. “But it’s all just leverage, just a bunch of debt. [It’s] the same old nonsense that was used [in the U.K.].”
For Streamline’s part, Hofmeister contends that Section 181 “works both with and without leverage. The potential investors brought in by Streamline want to make a profit, and Section 181 provides incentives that help them achieve that goal.” She adds that the company “does not provide tax advice and specifically instructs investors to rely on their own tax professionals,” noting that Salveson’s father, Kent, “has interfaced with attorneys and CPAs retained by investor clients.”
But Moore says anybody using Section 181 as a tax shelter to finance films is playing “the audit lottery.”
He notes, “You can game the system for a while, but if you get audited, you will absolutely get blown apart.” Replies Hofmeister: “Audit risk is dependent on the skill and knowledge of the tax preparer and the complex formulas and calculations used by the IRS. Streamline does not believe that Section 181 leads to a higher audit risk and the experience of its clients supports that belief.”
Phil Hunt, CEO of London-based Head Gear Films and a 25-year film financing veteran, knows the model well: “That deal is a great deal because you’re making money even if you lost money. … That’s how it used to be [with sale-and-lease-back] and was totally abused. … If I [didn’t care], I would do that deal every day of the week.”
There’s no evidence that the use of Section 181 by independent film financiers has led to safety issues or other problems on film sets. But Robert Szanto, an independent producer who was a production consultant on The Father and also worked in development at Broad Green Pictures for half a decade, believes the system opens the door “to independently wealthy but highly inexperienced or flat-out unscrupulous producers to gain access to a filmmaking pipeline that they shouldn’t be entering without another producer who actually knows how to pull off the film they’re trying to make.”
Alex Ritman contributed to this report.
CORRECTION: An earlier version of this story incorrectly stated that Avatar had been partially financed using the U.K. sale-and-leaseback tax scheme.
A version of this story first appeared in the Nov. 10 issue of The Hollywood Reporter magazine. Click here to subscribe.
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