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Investing in Hollywood’s brightest stars

Imagine if Tom Cruise, or Tom Hanks, was a stock you could invest in — which one would you buy, and how much would you pay? CNBC’s Jane Wells reports.
/ Source: CNBC

Imagine if Hollywood star Tom Cruise, or Tom Hanks, was a stock you could invest in — which one would you buy, and how much would you pay?

That’s sort of the idea behind a brand new venture in Hollywood involving former top executives at some of Hollywood’s top talent and production houses and Dallas Mavericks basketball team owner and billionaire entrepreneur Mark Cuban.

Cuban and his partners have just formed a company called Content Partners to capture some of the earnings potential of Hollywood’s stars, and here’s how the venture works:

The company offers up to $25 million to middle-market or top-performing actors, producers, agents and maybe even the estates of deceased actors. In exchange, Content Partners gets 50 to 100 percent of that person’s so-called back-end profit participation in movies or television shows. Back-end profits are money paid out after a studio recovers its production and promotion costs.

So, say you’re Ray Romano. You’ve got a film that’s performing well and a successful television show in syndication, but it could take years (maybe even decades) to collect all the back-end profits you are due. And you’d have to pester the studios to make sure you’re getting the money you’re owed.

That’s where Content Partners comes in — it takes the hassle away. The company is buying the asset (say, Ray Romano’s back-end profits) and taking on all the responsibilities that go with collecting them, and also the costs.

It may sound far-fetched, but CNBC has learned that Content Partners has tens of millions of dollars in offers out there right now and is just beginning to enter negotiations with unnamed top talent.

Entertainment lawyer Michael Sherman of Jeffer, Mangels, Butler & Marmaro says he has at least one high-profile client who may be interested in signing up for the service. Other unnamed entertainers are reportedly in negotiations — people who may want money now to pay off an ex-partner, an ex-wife or to simply invest.

Sherman says the deals appeal to artists because it can take well over a decade and a lot of hassle to collect these profits.

“The company will take on the burden of auditing, collection and enforcement, so now the participant doesn’t have to worry about any that; they just go along for the ride as a partner and shift the rise and expense of these enforcement mechanisms to the company,” Sherman said.

These investments may sound a little bit like Bowie Bonds, which are asset-backed securities of current and future revenues of the albums of pop artist David Bowie — essentially, loans made to the artist that are repaid by revenues from song catalogs.

But the investments Content Partners is working on are not loans or bonds. They are buyouts and work more like a private equity investment.

You pay up now and hope the talent you’re paying for is a hitmaker that will generate big profits down the road, and Content Partners will only consider stars that have completed movie and television deals. Nothing quite like this has ever been tried before in Hollywood, and it’s getting a lot of buzz in the entertainment industry.