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10: Losing Money by Investing in Independent Films with Scott Anderson

December 08, 2016

Scott Anderson is a farmer and entrepreneur from South Dakota.

About four or five years ago he invested in an indie film in Los Angeles. If you’re asking yourself why a farmer from South Dakota invested in an independent film across the country, you’re not alone.

We’ll get into that in this episode. And just wait till you hear the name of the movie…

Resources:

In the episode, Scott recommended the book The Richest Man in Babylon by George S. Clason

Green Flag: A Taste of Hollywood

Most people who live in the northern Corn Belt tend to be snowbirds during the winter months. I was no different. It’s really cold there, and I didn’t have any animals, so spent the winters in Los Angeles, Brazil, and other warm areas.

One winter in L.A., I met a pretty well-known actor and we became friends. He told me he wanted to do a movie. I said, “Great! I’d be interested in helping you out.”

Famous last words.

He sent me the movie script, and I thought it was interesting. It was a niche movie, tailored to a specific market. The deal looked good. Plus, he said he knew all kinds of people in Hollywood and could keep the cost low by shooting in their houses and not paying fees.

The economics looked good, and he raised about $30,000 on a crowdfunding site. So I put in $13,000, 10% of his budget.

Red Flag: The Budget Grows

It was smooth sailing for a while. I was back home in South Dakota for harvest. He shot for a month and I went to take a look at the progress. The shooting was looking good.

But when I went back after Christmas, while I was on set, he said they were running out of money. They only had a couple of weeks left of filming, but they probably weren’t going to make it.

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I asked what they could cut. We found out they had too many people sitting around. They let people go, but still he said the budget would have to double.

Uh oh.

At that point, I was invested. I could either cut my losses or double down.

I made a bad decision which almost never works out: I doubled my investment. If I would’ve pulled out, they would have ended filming.

Black Flag: The Budget (Still) Grows

We’d now finished the movie, and they were doing the editing on the backend. Turns out it’s a ton of work.

We signed a deal with a distribution company. I figured the money would trickle back in slowly. But after we’d doubled it once, the movie ended up costing another $100,000. Thankfully, at least, I wasn’t a part of that portion.

But like a lot of movies out there, it just never made it. The movie’s still out there: you can watch it on Netflix. It’s called “Hot Guys With Guns.”

That’s right: my initial conversation with my acting friend went, “I’ve got an idea for ‘Hot Guys With Guns.’ Do you want to invest?’ And I said yes.

It’s an action-comedy film that hits a particular niche: the two lead characters are an interracial gay couple. As I saw it, having a product for everybody never works, but having a product that seeks a niche is something you can sell. That’s what I liked about it.

It made a lot of sense, it just didn’t catch. The sales of the distribution company never covered the expenses, so there was nothing to pay off the debt.

It won a bunch of awards at film festivals: it just didn’t make money. Most movies don’t, because of huge production costs. Movies are just a bad, bad investment.

White Flag: A Worthwhile Experience

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I lost $26,000 that I’ll probably never see again. But I had a lot of fun making the movie. I feel like I walked away better emotionally, if not financially—kind of like graduating college.

So my white flag in this case was giving up on the financial return of my investment. I walked away with a really good experience.

Checkered Flag: People Over Money

I’m still good friends with Doug Spearman, the actor. At the end of the day, money’s not worth losing relationships over. Money comes and goes, but people don’t.

When you’ve worked with money enough, you know you might lose a million dollars, but you can make it all back. You’re not going to die tomorrow.

Now I look at the places I haven’t lost money: farmland, real estate in general, etc. They’re tangible assets, and the returns are lower, but the risks are dramatically lower too.

Failing Forward

In each episode of How to Lose Money, we’ll be asking our guests to answer a few questions about failure. Here’s what came out of this episode:

  • Why did this failure experience happen to you?

Just using right-brain, emotional thinking. Who doesn’t want to be an investor in a movie?

  • What’s the single most important lesson you learned from this experience?

Never get attached to your money, especially when you’re speculating with it. Never forget that people are more important than money.

  • How do you protect yourself from failing in this way again?

Do your homework. Ask somebody if the opportunity is realistic. If I’d talked to someone in the movie industry, they probably would have told me I’d lose all my money but have a lot of fun.

  • What’s the most important skill for people in your industry to develop?

Financial planning. One of the biggest challenges farmers face is taxes. Financial planning isn’t fun or interesting, but it’s super important.

  • What advice would you give someone in a similar position to the one you were in?

I’d tell them to get a mentor and make sure their investment ideas check out with their mentor.

This post is based on an interview with Scott Anderson, Founder of Cash Cow Farmer. To hear this episode, and many more like it, you can subscribe to How to Lose Money.

If you don’t use iTunes, you can listen to every episode here.

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