The American Film Market 2020 was unlike any we’ve seen in years past. Instead of downtown Santa Monica being taken over by hordes of content creators and their would-be suitors in the form of distributors and sales agents from around the world, this year the only potential congestion was internet-related – and even that was kept to a bare minimum at AFM.
AFM Online, as it was dubbed this year, consisted of a sizable virtual campus for content creators to connect with one another as well as entertainment industry experts. The “buildings” were entered with a double-click; once inside, attendees could choose from up to 10 floors using the virtual elevator. The floors were loosely arranged by topic, with plenty of tables for attendees to video-chat together, Zoom style.
Besides the open screenings of film product for sale, which were available to all attendees on-demand, the AFM 2020 had no shortage of expert panel sessions. In addition to Media Services’ recurring role as a premiere sponsor, this year we added some programming of our own in the form of an incentives panel.
U.S. Incentives: From Application to Audit was chock full of experts in the field. Moderated by our own film incentives expert Ryan Broussard, the other esteemed panelists included:
- Nicole Ameln, President and Founder, North Star Incentives, Inc.
- David Benavente, Vice President Independent Sales and Independent Services, Cast & Crew
- David Brauer, CPA, Brauer & Co., PC
- Marco Cordova, Director of Film Finance and West Coast Tax Credit Investments, Monarch Private Capital
While dishing out practical advice on how to approach financing against a film tax credit (aka “preselling” a tax credit), finding a state with the best incentive program for your project, brokering credits in a state and getting through the audit process, the team touched on some hot-button issues. Not surprisingly, COVID-19 was one of the top ones.
On how the pandemic has affected the film tax incentive landscape
“A lot of states are broke right now because of the pandemic,” said Marco Cordova. “That’s going to be a trend I think within the next couple years: you’re going to see a tightening of belts, and filmmakers are really going to have to rely on their auditors and work with their accountants to help expedite the audit process, and get their money sooner than later.”
“Shutdown costs are now in everyone’s budget,” added Nicole Ameln. “I just reviewed a ‘COVID budget.’ So I had a TV series, it was a series budget, a COVID budget, and another budget for how many days COVID would have cost us to do the show. So what is typically just one budget for me is now three budgets.”
CPA David Brauer cautioned that when it comes to production incentives, it’s not clear that COVID costs will always be part of the qualified spend in a state. “A lot of states are coming out with guidance now, as to what types of those costs that are going to be incurred will qualify and not qualify,” he said.
What about bonding and insurance in the age of COVID-19?
While the industry figures out insurance in the face of the pandemic, bonding can be a challenge. “The bonding business is basically dead right now, because of the lack of insurance,” said Cast & Crew’s David Benavente. “There are some policies out there, one that is run by our colleagues at Media Guarantors, which is a COVID policy, but it’s so cost prohibitive we really haven’t seen people take it that much – we’ve seen it once or twice on different films.”
How has the credit market and incentives in general been impacted by the economy and shutdowns?
With fewer businesses having operated for a full tax year in 2020, you might think prices would drop on transferable tax credits. But not so, says Cordova, whose company Monarch Private Capital has actually seen an uptick in demand in popular incentive states like Georgia, where investors may need to offset some gains they’ve taken from selling off assets in the downturn. Additionally, with fewer film incentives takers this year, the supply of credits has fallen off a bit, further increasing the money filmmakers can get back on their tax credits.
“We’re seeing a modern increase in pricing that we’re paying out for independents in states like Georgia, where they were low-80 cent to mid-80 cent range,” Cordova noted. “Now they’re going to see more like 86, possibly 87 cents… depending on the type of audit. Again with the possible increase in the tax rates, and also the demand and supply, since not that many people were shooting in 2020, there are going to be fewer credits available.”
Ameln pointed out the cyclical nature of the economy and thus production business, as well as the importance of incentive programs in stimulating industry growth in a struggling area.
“In about 2007, there were budget deficits in every state,” she recalled. “If you’ve been in this game long enough, you know that we got through that. And essentially we’ve learned that there is an economic boost to a jurisdiction by filming in that location. So I think it’s going to be important to get people back to work, as many people are not.”
Tips for navigating the timing of pursuing an incentive, especially with caps in most states?
“In a lot of states when you can utilize this credit can change via tax year,” said CPA Brauer. “It’s important for people to realize that in some states, if you think you’re getting the money as soon as the certificate’s issued, there may be a delay depending on the state and when you can utilize a certificate.”
What about caps on the amounts available in a given year for a state incentive program?
“I would say, when you’re dealing with caps, you start with how much is in there,” said Ameln. “There’s also a funding per year, and you can move your tax years around… trying to make sure your costs are all in one certain year. That could also have an effect on when you’re going to get your money.”
Any last tips on incentives?
“My main tip is do your homework on the nitty gritty details, look at the caps and different breaks for the different states,” said Cordova. “Just don’t assume that you’re going to get your money right away. And reach out to experts.”
Brauer had a hint for the audit process. “I always tell people, hire your auditor sooner rather than later, on the front end. We usually charge based on a flat fee, so whether you hire us day one or the last day, it costs you the same amount of money – so you might as well get our expertise from the beginning.”
“What I would say is, with incentives you’re in it for the long haul. When I get engaged on a show, I’m in it for two or three years. It’s not quick,” added Ameln. “Just be patient, be diligent in understanding what you’re being told and how to work with your different advisors, to take all this information into account, and hire great accountants.”
Is it worth the wait? “Yeah. I don’t leave until my clients get their money,” she said.
The AFM 2020 Online sessions are available as replays to all attendees through December 14.