Smart Money vs. Dumb Money


One of my web start-up clients recently extolled the virtues of smart money over dumb money.

My client asserted that smart money is the best way to grow a start-up. In addition to capital, smart money may provide infrastructure, personnel and the input of boards of directors and advisers. These boards provide additional expertise and guidance. Moreover the optics or perception of their association with the start-up increases the venture’s curb appeal and chances for success.

Dumb money, he cautioned, isn’t pejorative; it merely describes a cash investment with little or no oversight of the actual use of the funds other than initial approval of certain elements, cash flow and the overall budget.

To be fair, it’s like comparing apples and oranges. Smart and dumb money deals are structured in different ways to address different risks and expected returns of very different investors. Nevertheless, I was struck by the disparate thinking of movie producers and start-up entrepreneurs; film financiers and venture capitalists in their capital preferences.

My start up client preferred working with smart money from VC investors because he could leverage greater resources into the growth of his company than he could with the same amount of dumb money.

I explained that smart money is anathema to movie people unless it comes with distribution and even then, they’re never thrilled with an investor armed with approval rights over talent, budget and distribution. Dumb money shuts up and stays out of the way.

That said, we both agreed that if an investor offers up smart money, dumb money or any other kind of money, take it (provided it’s legal).

Money For Nuthin’ or Nick’s For Free


AFTRA accused Nickelodeon of improperly negotiating talent revenue participation for the cable outlet outside of Nick’s shows. A copy of AFTRA’s purported letter to Nick (I couldn’t verify its authenticity) is here.

More specifically, AFTRA’s letter asserts that Nick requires “that the performer grant to the employer a right to a ‘profit participation’ interest in the talent’s third-party income as a condition of employment” in violation of AFTRA’s collective bargaining agreement and possibly California law.

I don’t think that AFTRA has a leg to stand on or they would have cited the applicable provisions of their agreement and the law chapter and verse. I suspect that Nick’s lawyers came to the same conclusion.

What is clear is that the major studios, networks and cable outlets are looking for the next Martha Stewart or, in Nick’s case, their answer to the Disney Channel’s “Hannah Montana”; building brands on the backs of the talent they break with the goal of cashing in on their success essentially forever.

While it’s difficult to empathize with the big entertainment companies, production costs are rising and viewership is more fragmented. As a result, they’re on a desperate search for new revenue streams.

I posted about this emerging deal point several months ago when the Food Network started asking for similar language in their talent agreements. With Nick now taking up the cause, a trend has developed and it won’t be long before the rest follow suit.

What was once an unreasonable “ask,” will become – if it isn’t already – business affairs policy unless talent reps develop the leverage to collectively reject it. However, with the potential millions to be made by breaking the next Miley Cyrus and a surplus of talented kids (and their parents) hoping to make it big, I doubt that’s possible.

Talking The Talk


As in any business, there are terms of art that are commonly used in negotiations in the entertainment business. I’ve added a glossary that defines some of the words and phrases used, devised or overheard during these discussions.

I encourage my colleagues to email me any additions or corrections. You can click “Lingua Franca” on the gray strip above or here to get to the page.

This is a work in progress, so please check often for updates.