State film loans, a flop for taxpayers

ALBUQUERQUE (KRQE) - When the state of New Mexico decided to enter the film business a decade ago, it went swimming with sharks.

Now, nearly 10 years and more than $239 million worth of interest-free loans later, New Mexico taxpayers are the ones left nursing shark bites after losing nearly $30 million in stinker film deals.

“It’s just the way Hollywood plays the game,” said Sherri Burr, who teaches entertainment law at the University of New Mexico Law School. “You have to understand the accounting system if you are going to play with the Hollywood folks. All films lose money according to Hollywood.”

And therein lies the problem, according to a News 13 Larry Barker investigation.

In order to make money on a motion picture, Hollywood insiders say, investors need to get a percentage of a movie’s box office receipts right off the top. But the deals New Mexico made with Hollywood movie producers and studios didn’t ask for that.

Instead, the state signed deals that said it would only cash in if a film turned a profit. And, like an Old West movie set, a profitable Hollywood movie is an illusion.

“When you look at ‘Titanic,’ which made $1.8 billion, cost $200 million to make, it lost money, according to studio accounting figures,” Burr said.

In 2006, for example, state officials poured $15 million into a feature-length comedy called “Swing Vote” starring Kevin Costner. Hundreds of locals were hired as extras and crew for scenes shot in Albuquerque and Belen.  But the movie flopped, and there were no profits.

So even though the  $15 million was paid back, taxpayers lost out on $1.6 million in interest.

The state Legislature authorized New Mexico’s Film Investment Program to promote economic growth and to make a profit. In other words, public money can be invested in movie productions if they offer the potential to generate returns to taxpayers.

Steve Moise, who was hired at the state investment officer last year, said those investments must be made “without taking undue risk.” News 13 asked him if he thought investing in films was risky.

“There is a considerable amount of risk in film production, yes,” Moise conceded.

In fact, out of 23 film productions in which the state invested money, only one returned a profit to the state of New Mexico, Moise said. In total, out of the $239,091, 502 loaned to film productions over the years, taxpayers should have made about $30 million in interest.

All of the principle loans were paid back to the state.

“The problem is people who are not intimately connected to the industry make a mistake,” Burr said. “Because they get thrilled about the idea of investing in films and they don’t understand how the accounting works.”

Perhaps the only winner in New Mexico’s Hollywood foray was Peter Dekom, a Hollywood lawyer with industry connections hired to review movie loan applications and recommend appropriate investments. The State Investment Council paid Dekom $2,153,566 to provide that advice.

And what did Dekom’s recommend?

There was the $3.8 million interest-free loan for a comedy-western-horror flick called “Undead or Alive,” a box office bust. And don’t forget the $1.7 million for the low-budget horror movie, “Cruel World.” And Dekom thought $15 million for a film called “Elvis Has Left the Building” might just pay off. It didn’t.

Burr said no one – Hollywood insider or not – can look at a project and predict whether it will make money.

“Unless they are psychic with really good connections, I don’t think so,” she said.

Moise said New Mexico cannot afford to continue the film program in its current form. Along those lines, the State Investment Council now has new membership, which fired Peter Dekom as one of its first orders of business.

And while the council can still make movie loans, the loans will no longer be interest-free. In addition, 75 percent of the film crew, minus a few key crew members, must come from New Mexico, and 85 percent of the film’s shooting schedule must take place in New Mexico.

So far, there have been no takers.