MOVIE MAGIC
Joker’s Toronto financier earns his investors up to 11% by bankrolling Hollywood,
Jason Cloth manages risk in his film-financing business just like he did as an investment banker, scrutinizing deals with one big question in mind: “How do I not get screwed?”
That means staying focused on business and not getting bedazzled by the glitz and glamour of Hollywood.
“People play on the vanity of it,” Cloth, 53, said in an interview at Bloomberg’s Toronto office. “But if you strip away the vanity, bright lights and you run it as an asset-backed lending play, then you just dig into the value and understand it.”
The approach appears to be working. For more than a decade, the founder and chief executive officer of Torontobased Creative Wealth Media has poured more than $750 million (U.S.) into backing films. That’s made him one of the biggest private financiers in the industry and generated returns of 8 per cent to 11 per cent for investors of the firm’s debt fund, according to Cloth. What may be Creative Wealth’s biggest moneymaker is about to be released: Joker (starring Joaquin Phoenix) which was shown at the Toronto International Film Festival Monday after premiering to critical acclaim in Venice, where it won the top prize Saturday. The movie could draw as much as $263 million in the U.S. and Canada after its opening in theatres Oct. 4, according to an estimate from Exhibitor Relations Co. With a budget well below typical superhero films, Joker could turn a tidy profit for Creative Wealth, which helped provide $25 million of the film’s $55 million in production costs.
Two other big projects are lined up right behind. Bombshell, about the Roger Ailes Fox News scandal, stars Nicole Kidman, Margot Robbie and Charlize Theron, and Apple’s The Morning Show, with Reese Witherspoon, Jennifer Aniston and Steve Carell.
Backing a winner is no easy feat in a field that famously devours money and relies on often-capricious audiences. The Birth of a Nation, which Creative Wealth backed, generated a lot of Oscar buzz in 2016 but flopped at the box office. Recent bombs include Dark Phoenix, a superhero film that prompted a huge writeoff at Walt Disney Co., and The Kitchen, a Melissa McCarthy action movie that Cloth also backed, but took in just $14.7 million worldwide.
To manage risk, Cloth’s strategy is to lend to multiple projects, secure the backing of top studios and surround himself with trusted people — including a team of ex-investment bankers. His clients include pension funds, high net-worth family offices and individuals.
“We focus on being an alternative debt shop,” Cloth said. “We’re an asset-backed lender, we just happen to take intellectual property as the asset, the collateral for our loans. Within every pension, there is a small allocation for alternatives and trust me, we are as alternative as you’re going to get.”
The Toronto native started his career as a fixed-income economist at Canadian Imperial Bank of Commerce, but left to start an alternative investment company focused on highyielding assets not correlated to markets. It was there he was approached by two men to loan $20 million (Canadian) to launch a new Canadian artist. “After I stopped laughing,” he said, he decided to invest a more modest sum in the artist known as The Weeknd. It was Cloth’s only deal in the music industry, but it helped introduce him to people in film and television, a sphere to which he’d always been drawn, and led to the start of Creative Wealth. One of the first films he backed was the indie flick Tumbledown with Bron Studios, who he’s now closely partnered with.
“We came to an understanding: I can bring you all the capital you need to grow, but when things go off kilter, which they do in the film world, I need the studio to stand behind me,” Cloth said.
Starting off with $5 million (U.S.) in loans from friends and family, Creative Wealth now has a $300-million debt fund and a $300-million equity fund. In an environment of shrinking bond yields, Cloth said he’s got investors knocking on the door. The financier is aiming to boost his debt fund to $750 million by the first quarter of next year, including an additional debt raise with Canaccord Genuity Corp. f or $200 million.
Partnering with Bron has helped Creative Wealth win financing rights to several big hits, including Joker, the Batman-less tale about how a failed comedian got so twisted. Creative Wealth won a share of the project partly in exchange for a commitment to bring Warner Bros. ideas from Bron Studios in the future, Cloth said. “They need to distribute other things that are not their tent poles. They’re relying on companies like Bron to bring them top-end intellectual property.”
Getting backing by well-established Hollywood powerhouses is key to surviving as streaming grows, Cloth said.
“The streamers are a real problem for the indie film space: if you’re not some sort of event, people would rather stay at home and watch it on their personal screen,” Cloth said. “If you don’t have that huge marketing push of a major marketing studio behind you, it’s a tough slug.”
So far this year, the top five grossing films account for 33 per cent of the box office ticket sales. In 2015, that sort of box office concentration was less than 25 per cent.