Film Accounting Glossary
Hurdle rate
What is a hurdle rate?
Also called preferred return, or equity premium.
A hurdle rate is the return an investor must receive before money begins flowing to the next position in the waterfall.
On an independent film, equity commonly recoups its investment plus a premium, often twenty percent, before profits are split with producers and participants. The hurdle is what makes the order of the waterfall economically decisive rather than cosmetic.
Example
Equity of $1.8M with a 20% premium means the waterfall repays $2.16M before producers or participants see anything. If the picture returns $2.1M net of senior positions, equity is still short and everyone below it is paid nothing.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Fixed in the interparty agreement and executed literally by the collection account manager.
Common mistake
Modelling equity recoupment without the premium. If the picture returns the investment but not the hurdle, everyone below equity is still paid nothing.
Related questions
- What is a hurdle rate in film financing?
- The return an investor must receive, usually the investment plus a premium, before money flows to the next position in the waterfall.
- What is a typical equity premium on an independent film?
- Commonly around twenty percent on top of the invested amount, though it is negotiated and varies with the perceived risk of the picture.