How to Protect Yourself from Investor Lawsuits in Film Financing

Investing in films is a risky and speculative business. The allure of potential 9 figure returns is extremely enticing to an investor. The business is sexy (stars, red carpets, potential big money, being a part of “Hollywood.”) However the ultimate returns often allude the very person that put up their hard earned equity.

So many factors go into the success of a film: A good script, A-list talent, a top-notch director, timing, strong marketing, word of mouth, and the list goes on. Even with all those elements in place, a movie can still go south, miss sales projections and not return the anticipated profits.

That is the gamble the investor takes when he/she invests in a film. Therefore, it is imperative that the filmmaker makes it extremely clear up front to the investor that there are zero guarantees they will get their money back let alone a return on their investment. “Full Disclosure” of potential risks is critical in the negotiation.

Work with an experienced lawyer and execute an ironclad agreement with your investor, so all of their questions have been answered and the potential risks are laid out in black and white.

This may feel like a hard pill to swallow, but better to under promise and over deliver to the investor, then have them come back demanding repayment of their investment when you’re film hasn’t made enough money. Or worse yet, have a lawsuit filed against you.

Eriq Gardner, a journalist for the Hollywood Reporter keeps a keen eye on legal entanglements that arise in the industry. His coverage of one such lawsuit filed by an investor, disgruntled about the long term performance of her investment in Worldview Entertainment, will give you an inside look at how even a top production company can run into trouble. This case is particularly interesting, because the Defendant Worldview Entertainment had a strong track record, award winning films such as BIRDMAN in its portfolio, and a robust relationship with CAA, undoubtedly one of the top talent agencies in the business.

The good news for them, is that even though they lost money, their agreements with the investors were well written and covered their backside with respect to liability for any wrong doing.

To get an understanding of the elements at play, read the full article here, and educate yourself a little bit further on the pitfalls of film investment and potential losses.