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Thursday, 18 January 2018

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A Family Conundrum

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This topic contains 11 replies, has 11 voices, and was last updated by  Sheila Arango 3 years, 8 months ago.

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  • #17628

    Emma Walsh
    Keymaster

    Part of our family office mission is to help our kids and grandkids to get started in their careers. But how far should we go financially to achieve this goal? And what are the limits?

    #27289

    CLIVE R.
    Participant

    I was born into a rich family which gave me nothing (toughen up school) after I finished school at sixteen, but I did have a great education. “No money” gave me freedom because I was born in the wrong place. When I could, I moved to a better place, with no money, worked hard, made a little money, then married the wrong woman who looked good, but wasn’t. The death of a daughter released me. It also freed me of all my money. I had control of where I lived, but not over the person I did it with, and none over a daughter’s illness and death. The one thing I do have control of is what I do and that has kept me amused and busy through thick and thin. I live very well now in a place I like and do what I choose. It is mostly luck, or bad luck, My good luck is that I am healthy and capable. All the rest is entertainment. Money comes and goes and it makes very little difference to our happiness or what we do.
    Would I support Maria? Definitely… but not Jon. If Maria wants this, let HER make the choice to invest in the business. Let the “family office” choose to give her the money, or not. As her father, I would do all I could for her as long as she is not hurting herself with drugs, alcohol etc. If she has energy to do something imaginative, support her, not the industry she works in. Support her good character and her competence. If she falls, help her recover as much as you can. Don’t judge her choices… and love (verb) her to death.

    #27290

    NIGEL B.
    Participant

    Not at all an easy question, as I think anyone could agree. My thoughts:

    You have to avoid any suggestion of favouritism. If any other family members feel they are being disadvantaged through favouritism, you will have started to undermine the faith of the family in the “Family Trust”. This would be the road to disaster.

    One way round this would be to set up a transparent set of criteria for financing business start-ups by family members. It will help if you think of your family trust as a private equity investor and always remember the rule that you have to separate the investment decision from the financing decision. In this way, you have a chance to separate out the emotion (the financing decision) from the investment decision. The investment decision needs to be able to stand on its own before you consider how to finance it. These criteria might include:
    • a maximum % of the family trust funds that can be invested in a start-up. This gives you a $ cap
    • a maximum % of family trust investment that any one family member can request in their lifetime (to cover against the possibility of a serial, failed small investor). In this, you could net off gains from successful investments against losses from failures
    • a required hurdle rate. This has to be high for start-ups!
    • …etc

    The required hurdle rate is tricky, because it will require you to estimate the probability of success to see if you meet the hurdle rate criterion. This goes right to the core of the problem, since at first blush, you will feel that you are forced into making a wild guess. As with many apparently impossible problems, a way round this obstacle is turn the question on its head – if you come up with your best estimate of the returns to the investor from a successful movie, you can then ask: what would the probability of success have to be, to meet your required hurdle rate. Then you need to compare the outcome with the success rate experience of the Producer/Director and of the genre involved

    It’s also possible that you may be able to do better than this with some smart software. Some years ago, I had good results from applying a neural network software package to predict the sales of the subsequent video release of movies. This forecasting job had always been subject to huge errors for the video distributor, but the neural net is excellent at recognising hidden patterns in data and gave rise to huge improvements in the accuracy of forecasts. I don’t know if it has ever been applied to the forecast the probability of success of the original movie, but it might be worth investigating if you’re considering investing serious money.

    An imperfect process at best, but then investing in start-ups is always fraught will error. Bringing some transparency and some science into the process should, if nothing else, enable you to avoid schism in the family, even if your investment subsequently turns out to be a failure.

    All credit to you, Bill for having the courage to raise it in public. I hope you can find a way through the maze – all best wishes!

    #27291

    RICHARD H.
    Participant

    This post is regarding Bill’s daughter.

    I was a film producer working on the Crocodile Dundee films and the animated films FernGully the Last Rainforest..
    The word “investment” is inappropriate when it comes to films. Speculate or gamble are better words to use. And yes there are ways to minimise the risk. But “No one knows anything” still rules the day.
    If Bill as an individual and a father wants to help his daughter along – by all means put some money into her film. But it should not be done by the family office.
    Doing that would open a can of worms that will undermine all the good intentions of the collegiate approach you are trying to create. And it will open a can of worms where each other family member will seek to justify the fact that their next project should also qualify as an investment.
    Sadly talent doesn’t automatically translate to financial success. As everyone knows Van Gogh sold few – if any – paintings during his life and was financially supported by his brother.
    But isn’t it wonderful that his brother saw fit to do this?

    #27292

    ELLIOT F.
    Participant

    This also relates to the question reagarding Bill’s daughter.

    I am a tax attorney in LA and have practiced at a well-known firm here for 26 years. Most of my practice has not involved the movie business (thank God), but I have handled matters for clients that relate to film investments and other entertainment ventures over the years.
    You can call it an investment or a gamble, the nomenclature really doesn’t matter. It is a highly speculative investment and you should assume that you could lose all the money you invest (and if structured properly, probably no more than that). I will discuss the investment issues a little more later, but first I want to address the family issue. I went to Yale Law School. The real trick was getting in and then being able to pay for it. My family was of modest means and I was fortunate enough to save money from working and qualifying for low interest student loans to pay my way. Once in, work was required, but not that big a deal. In my view, one year of the right courses would have been sufficient. But the important thing was that whatever I did for 3 years, it was at Yale Law School. When I applied for jobs in the real world, I pretty much had my pick of law firms (and probably some investment banks) anywhere in the country. My Yale Law degree was my admission ticket. Today, that ticket costs about $150,000, and none of it was tax deductible. It was a required ticket (not Yale per se, but an accredited law school) for entering a career in law. With this long lead-in, my point is simply, how is that different than purchasing an admission ticket for your daughter in her chosen career? Like law schools, some admission tickets are better than others, so a certain amount of diligence is required to determine if this film investment is the right ticket for your daughter.
    As I mentioned, law school is not tax-deductible, but a loss on a film investment is. You should consider whether such a loss will have any tax benefit for the family trust. If not, it may make tax sense for you to make the investment personally. This concept is totally aside from the question of whether the Family Coucil makes the decision; which I think it should to prevent claims of favoritism. The prior paragraph, however, is very relevant to that decision.
    My experience with film investments is that, apart from going in assuming you may lose everything, you need to try to minimize your risk. The investment is highly leveraged because just about everyone involved will get to take their money out before you. You will want to know exactly how the cash flows work relative to your rights. You will also want to do your best to be working with someone whom you believe you can trust, because 99% of the time you really can’t trust anyone in the business. Even if you are comfortable that you are working with someone you can trust, you will want to make sure that your business deal (and the business deals of everyone else involved) are documented in writing (since everyone’s memories will get very fuzzy when the money has to be divvied up, regardless of success or failure). Thus, a necessary expense will be to hire a competent entertainment attorney to protect your rights and to keep you informed of where you stand in the flow of funds.
    Alot of the film business is luck. Finding someone inside the industry that will take you under their wing is the luck you need. Without those connections, the right exposure may be what it takes for a mentor to recognize your daughter’s talents. But, unfortunately, it is just as likely that no one will. So she is fortunate to have the family safety net to allow her to find another direction if she fails at this career.

    #27293

    ALISON P.
    Member

    This post also relates to Bill’s daughter.

    Similar to Bill’s family, is the odyssey of a 24 year old friend of my son’s, who is also a talented and beautiful college educated actress trying to make it in LA. She too comes from a family with a brilliant businessperson, her mother. Where this story differs is that this parent helped her daughter start her OWN production company, and the daughter is making her own movie. Her mother is NOT funding another person’s business venture. This parent has no background in the movie business, but she is talented with finance and on-line marketing. Her daughter is trained in, and is continuing to learn about all aspects of film making and production as well as acting. This is another way Bill, Maria and the Family Office could approach this conundrum, if Maria is INTERESTED in gaining broader skills and in starting her own SMALL production company with outside investors as well as family financing. Is Maria interested in studying and pursuing film making to find out if she has passion and talent for more aspects of the industry? Some people gravitate to being specialists (actors) rather than generalists (film makers) so this may not fit Maria’s goals.

    #27294

    GERRY B.
    Participant

    Bill, what a great project you handed us by letting us in on your deliberations about the movie project. The responses from our family gave me some direction as to where the family stands with regard to our family office and provided some new discussion material to move forward with.

    I am enclosing the responses I received as well as my thoughts.
    Our children and son in law are all in their early thirties.

    From older daughter, real estate business

    Tough problem. The movie business is a disaster and really not a career. The chances of his daughter making it as an actress are very small. If she were making the movies and was the director or writer or something more substantial, I could see being a little more supportive. In Hollywood so much money is wasted on looking important. For instance, the Soho club in LA is a private club that costs a lot for an exclusive membership. The reason it cost millions and millions to make a movie is because of all the waste.

    He should encourage her to get into making videos for his company as many people now prefer to receive their information via video. Over 1 billion videos are watched on YouTube a day.

    If she insists on plugging away as an actress, and he really wants to help, he should invest in making an independent film where his daughter is in staring role. He could probably get this done for under $500k. She could work all the award shows plugging herself and the movie for a year and then sell it to Netflix, who has been focused on purchasing content and comes with a captive audience.

    She needs to be less Kim Kardashian and more Ivanka Trump.

    Lastly, it is a tough line to walk when it comes to helping your children. All I have to say is that you and Mum gave me the best start ever. And I am so grateful.

    From younger daughter and son in law, oil business and home maker, new parents.

    The nice part about the offer is that it’s worded as “if I can get an A-list actor… would you be interested?”. If that means he doesn’t have to decide on participating until he knows who is joining the project, that might say a lot about it. “A” list actors won’t sign up for crappy projects.

    Janine and I both watch a lot of Hollywood and Indy style (low budget flicks) and I have to say the most often the low budget indy ones are way better than the big budget ones. Same with the music industry right now. Indy is selling, and a lot of people are favoring it. If it were me, and like Gerry says, “it would not be the ruin of him”, plus he gets to wait and see if an “A” list actor is included in project, I would be in favor of supporting her providing that “A” list actor indeed does sign up.

    From my wife, retired

    I am still very much in the learning phase of the Family Office, but I think I would have a great deal of difficulty funding with family money such a speculative project.

    I believe that Bill has given all of his children a great deal of support, guidance, and worldly experience through his ventures .

    I see Bill’s conundrum as not wanting to let his daughter down. He very much wants to do whatever he can to help her. However, the movie business, in my opinion, is not something that just anyone can get into. Yes, a few independents have been lucky with one film that seems to come out of nowhere and “make it”. However, what are the statistics of success for such independents? I think pretty much all of the “statistics” are against him. I have not viewed anything that Maria has been in, so I cannot comment on her abilities. On the other hand, is the proposal before Bill the project that might launch her career and allow her pursue her work passion?

    I think that, if it were up to me, I would recommend that Bill finance this with his personal money. As he says, it would not be the ruin of him. If it is approached as a business transaction and not as an assist to a child, then the other family members shouldn’t resent it. I guess the other side of the coin is, that if this project is going to go ahead with or without Bill’s investment and Maria will be in the movie regardless, then it might be best to steer clear of the whole thing.

    Such a dilemma! Glad I don’t have to make the decision!

    From me , retired

    I thought the “thousand other actresses” estimate was a bit low so I checked with a friend who is on the fringes of the Hollywood investment scene now. His estimate was a hundred thousand hopeful young ladies with stars in their eyes.

    The question is, are you doing your daughter any good by buying her hope that one day she could become a star or would you serve her best interests by offering some other outlet for her creativity and flair for drama. Her immediate answer to such a proposal, mid dream, is predictable, but time changes all. Workable plan B’s are a comfort when the going gets tough.

    Rather than spending her time in endless casting calls waiting for someone else to make use of her talent she could be spending her time learning the art and the business of entertainment by creating video for a wide audience via the Internet. Some topical work in this area could attract far more attention than a lifetime of waiting for a call from a casting director. By making an entertaining video she might discover talents and interests that she is not yet aware of, as well as a chance for some self promotion on a very wide stage.

    That is only one of numerous creative endeavours but one that is on the rise at least. Hollywood is not remaking old successful films because they have an abundance of good new ideas. The big studios seem to be in decline for the lack of direction, and it is probably too late to join forces with their old enemy, the small screen.

    Should Maria decide to take control of her destiny she would probably want to move back to the East coast where most of the real talent is (not just in acting) and get out of the ghetto of self interest called Hollywood where the selling of dreams is as big a business as the selling of entertainment.

    There is our five opinions, probably nothing you have not yet considered but perhaps a new slant for you. Thanks for the thought provoking discussion our family has had.

    Best regards
    Our family office.

    #27295

    JOHN I.
    Participant

    I was born into a family with no money sense what-so-ever. The only thing that saved my mother was that her second husband was very smart with money. My father died not only broke but buried in debt. With luck and a little brains I have been able to do better. Now that I am retired, my wife and I live modest but comfortable lives. Our best decision was not to have children. So my comments are based on watching others make a mess of their families.

    As for Bill helping his kids…especially the actress…run Mr. Bonner…as fast as you can. I made my living in the television and movie business. Run as fast as you can. It is your money, not your children’s…use the same standards that made you that money when investing in them…and that will be the best help you can give them.

    Those who work in and for the Family Office can benefit from it directly, those who do not work in and for the Office should only benefit from it indirectly and at no loss to the office.

    My two cents.

    John Ireland

    #27296

    GERALD C.
    Member

    What an interesting life you have created for yourself and others, Mr. Bonner. Thank you for this invitation, and also, thank you for Agora Financial. I look forward to hearing about your solution to this conundrum. I am an Airline Pilot of modest means, with a 13 year old daughter and of course (typical for pilots) an ex-wife to support. Whie I enjoy the products of the entertainment industry, I would be so sad if my daughter were to head in that direction, for all the reasons detailed by other members. I am perhaps overly pragmatic, and risk averse. You on the other hand, are bold, creative, well connected, very resourceful and probably quite wealthy. I see some interesting possibilities for you and your talented daughter.

    The digital revolution is forever changing the economic model of this industry. You have within your organization, the brainstorming talent to enable you to put your daughter ahead of most of the competition, in a new paradigm. I would put her in a room with some of your assembled futurists, and see what they can come up with.

    cheers,

    gerry cline

    #27013

    NORMAN L.
    Participant

    Long78676

    I gather that Bill has made a decision to fund Maria through a personal investment rather than “family partnership” sourced. As others have suggested on this forum, that makes perfect sense not only for Bill and the Family Trust, but for Maria as well. Bill, apply your business expertise to create the best structure for such a personal investment with an eye for tax and liability protection, as well as to empower Maria with the decision making responsibility. And as the old saying goes, hire the best specialists in that field you can afford to create that structure.

    At the same time be sensitive to the reality that dreams die hard, so be prepared not only for a loss of that investment, but how to support Maria emotionally. No “I told you so’s.”

    Whether a career choice goes south, a business venture doesn’t make it or a future marriage doesn’t work out; failure is simply a course correction. That is hard lesson to learn, but no one else can prepare you for it. It is on-the-job training. Like sailing, steering a different course and tacting to changes in the wind is not a failure. It’s part of our individual life adventure; the journey, not the destinations in life that matters.

    On a personal level, I made an ever so brief run at Hollywood in my youth back in the mid-1960’s. Attended an acting school in Hollywood fresh out of Junior College and success in college theatre productions. Clustered with fellow thespians post acting school by creating a theatre group mostly to showcase our illusion of talent and did some USO gigs along the way and made the usual rounds for auditions. In fact in those days, most of the day-time game shows used “aspiring actors” for contestants, complete with auditions and made up “roles” like Joe from Phoenix working as an accountant. Hey, it was acting a part and the production companies gave us a scripted ID to make us look like an ordinary person that an audience could identify with.

    Not being in college during the “run,” my timing sucked. I got drafted. But I did get to play a new role. a war movie set in Vietnam. You may have heard of it. It was in all the papers.

    As for dealing with changes in my life course after Hollywood and the long-running military role, I eventually got back to finish my last two years of undergrad college in my late 20’s and graduate school in my early 30’s. No scholarships. No student loans. No family support. Just my GI Bill and part-time work to get me through.

    After college, I found my niche that combined my love for acting with a need for extreme risk taking,a kind of post-war therapy. Some acting roles are hard to shake after the set has been struck. I started my own international venture capital and BDC-type company, which in my late 60’s I still pursue.

    The lesson here for Maria is, you don’t have to ever leave your love for acting, even if Hollywood doesn’t work out. I never left acting. I just changed parts and continued to take personal ego-risks. Developing a business requires you play roles. It is acting, mostly improv. And while I pursue each role, each successive venture with passion, I distance myself from the role. For when it ends good or bad, the actor simply goes on to the next acting role. It’s not personal.

    Perhaps there is a life lesson in that for Maria. Make her run at Hollywood, Give it her all. But whatever course her life and pursuits take, they will always be experiences and learning lessons for her, not about her. Learn from each one and move on to the next role.

    Break a leg…

    Norm

    #27014

    CLIVE R.
    Participant

    I am impressed that Bill will lend money to Maria for her venture. The Family Office would be rash to invest in such a risky plan, but for Bill to do it as personal support for his family member is great. I assume he would to whatever is needed for his other children too, each in their own individual interesting way.
    One of the more odious traits of old money fuddy duddies is that they are “cheap”, stingy. They wear Saville Row suits with holes in them and pretend it is charming. It’s usually because they are afraid, so cling to what they have. The real power behind money is having the ability to make it, not just have it.
    Being generous with money is the sign of a big man, one who is not afraid. Life is nothing if not a risky adventure.

    #18182

    JAY V.
    Participant

    A challenging decision with emotional heartstrings.

    Our philosophy with the Family Office ( an LLC) includes distributions of income to the members sufficient to cover taxes and generate the potential for personal savings. From these savings new personal investments can be made in stocks, real estate, start-ups, personal projects, charity…etc. If a project is too pricey then there may be other family members willing to contribute to its creation and execution based on the project’s own merits and the participants willingness to invest/contribute.

    The Family Office money is put to work in sensible, diversified, non-correlated financial instruments, income properties, various investments. The only exception to this policy, I can wrap my head around, is investing in the college education of family members, done by paying for tuition in exchange for their best effort.

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