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Inside Track stumps to raise $150 mil in prod’n coin

Ingenious backed Pathe pix 'Suzie,' 'Girl'

LONDON — Tax-break season is in full swing in Blighty. A bewildering variety of new film funds is being launched this fall to tempt investors who are seeking shelter from the taxman.

But one that stands out from the crowd is Inside Track from Patrick McKenna’s Ingenious Media.

Ingenious is widely regarded as the blue-chip operator among the U.K.’s tax financiers. A year ago, it became the first company to win official approval from the Inland Revenue for its sale-and-leaseback scheme.

Now it has quietly created a more aggressive equity fund, dubbed Inside Track, which is raising £50 million ($77.5 million) to invest in 15 films before the tax year ends in April.

It is already backing three pics from Pathe — “Suzie Gold,” “Girl With a Pearl Earring” and “Code 46” — plus “Blackball” from Midfield Films and “30 Things” from Samuelson Prods.

McKenna predicts that in its second year the fund will raise more than $150 million. He has held talks with the Hollywood majors and expects to back studio movies as well as indie pics.

Inside Track — spearheaded by commercial director Duncan Reed — typically makes an equity investment covering 35% of a pic’s budget. An S&L deal on top brings the total contribution to near 50%.

This scheme is unique in two crucial ways. First, and most surprisingly, Inside Track does not use Section 48, the tax break for film production. It relies instead upon basic U.K. accounting principles, which allow a company to write off its trading losses against tax.

Each film is made through a specially created partnership. The total production expenditure, minus any pre-sales, is written off as a corporate loss on the first day of shooting, which the private investors can offset against their 40% tax bill.

Avoiding Section 48 means that Inside Track is not confined to British movies, nor to films budgeted under $23 million, the upper limit for Section 48 relief. And whereas Section 48 films must be completed by the end of the tax year, Inside Track pics only need to start shooting by then.

The second distinctive feature is that Inside Track negotiates a recoupment corridor from first dollar, rather than waiting on line behind the banks.

That’s not a soft deal for producers or co-financiers. It’s particularly tough for the banks to accept, but it enables the investors to cover their tax bill on any revenues earned by a film before it makes a profit.

Other schemes offer easier terms — Inside Track also charges a hefty 5% exec producer fee — but this represents a genuine effort to give its investors a realistic chance of making money.

“It’s not outrageously great for the producer and the co-investors, but it’s good enough,” says Marc Samuelson. “That feels more real that some of the other schemes that seem to promise nirvana.”

Samuelson previously worked with Ingenious in the complex financing of “The Gathering.” “They are honest and straightforward, and that’s one of the reasons they are the first choice for so many people,” he says.

McKenna argues that Inside Track should not be regarded as a tax scheme per se, but rather as a genuine attempt to make profits from hit movies. “We are here to invest in films that are going to be successful. We are going to get our returns from the sale of the film. We are just using tax to mitigate the risk.”

The company is putting its faith in producers to make the creative decisions. “Our creative choice is limited to picking the right producers, not to reading scripts,” McKenna says.

McKenna, who previously headed the media division at accountancy firm Deloitte and Touche, and then served seven years as chief exec of Andrew Lloyd Webber’s Really Useful Group, founded Ingenious in 1998. Since then, the company has become a key power broker behind Blighty’s media scene.

Aside from tax financing, it acts as a corporate advisor, brokering such deals as the recent $100 million pact between Robbie Williams and EMI, and the sale of TV producer Talkback to Pearson. It also manages an $80 million venture capital fund, through which it has acquired stakes in Simon Fuller’s 19 Group (the force behind “Pop Idol” and S Club), and the nightclub brand Cream.

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