Project finance and finishing funds

What is Project Finance?

Project finance is usually provided in the form of a loan to a special purpose company established to develop one game. The proceeds of the finance must be spent on the game. The finance is usually only recoupable by the project financier from the revenues arising from the game.
 

What is a Finishing Fund?

A Finishing Fund is a form of project finance that provides the finance needed to complete the development of your game or pay for marketing, launch or other costs. The finance from a Finishing Fund is normally provided by way of a loan and repaid only from the game’s revenues.
 

How can Project Finance help your studio?

Project Finance can be beneficial as it provides a cornerstone of the finance plan for your game, which apart from being valuable in itself, may help you to unlock other finance, as third party investors may be incentivised to invest if they can see that you already have a project financier willing to invest on the basis that the game has commercial potential.

Project financiers would typically allow your studio to retain the IP in your game (although note the third bullet point below under What information and security will you need to provide to the project financier? below).
 

What are the fees/costs associated with Project Finance?

The project financier usually charges a fee from the budget of the game and/or a premium on its finance which is payable from the game’s revenues. Typically there are also legal fees involved with obtaining Project Finance, and the project financier will usually expect its legal fees to be paid for from the budget of the game. In certain instances, the project financier may also request a revenue share from the game. You should take advice on any deal proposed by a project financier, as there is usually room for negotiation of the financial terms.
 

How easy is it to find Project Finance?

As far as we are aware, there are only a few project financiers in the market, and in our experience it is not easy to secure Project Finance. This is mainly because few financiers are willing to take the risk on the commercial performance of a single game. However, Project Finance is long-established and a very important source of finance in the feature film and television industries, and there are film and TV financiers that are open to considering games projects.

In order to secure Project Finance, you will likely need to demonstrate the strong commercial potential of the project (e.g. through sales forecasts, your track record, examples of previous similar successful projects and any other relevant factors).
 

What information and security will you need to provide to the project financier?

If a project financier agrees to provide finance, its requirements will vary, but typically it would need:

  • you to set up a special purpose vehicle so that the game assets are ring-fenced in that vehicle;
  • extensive information about the budget, finance, production schedule, marketing plans and all other aspects of the production and exploitation of the game;
  • to take security (in the form of a charge or similar) over the game assets, which means that if you fail to complete the game or are otherwise in material breach of your obligations, it would be able to take ownership of the game IP and assets (in practice this is rare);
  • its finance (plus any premium) to be recouped in full before your studio or any other financiers begin to receive any revenues from the game i.e. the project financier is normally repaid in first position.

As the requirements of project financiers can be complicated, it is important to seek legal advice.
 

Where can I find out more?

Feel free to contact Alan Moss or Mark Phillips for further information about Project Finance and Finishing Funds.

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