Why Entertainment Still Lacks a Common Underwriting Language

Entertainment finance has an extensive vocabulary. What it lacks is a common standard for what that vocabulary is worth.

Presales, minimum guarantees, tax credit loans, completion bonds, collection accounts and recoupment waterfalls are well understood by the people who use them daily, but a bank, a producer and a family office can use the same term and assign it three different values.

The result is an investment category mispriced in both directions. Private capital overpays for access to projects it cannot independently evaluate, while declining well-structured opportunities it cannot distinguish from poorly structured ones.

I wrote yesterday about three rooms I sit in each week. A development room where I'm the student, an investment committee where I'm the educator, and a family office where I'm pushing for better governance. I said the hardest was the middle one, because there you're expected to have the answer.

Here's why. In the development room, everyone shares a vocabulary, they can disagree about whether a script or show works, but they're disagreeing in the same language. In the family office, everyone shares a vocabulary too. The investment committee is where those two languages meet, and there's no exchange rate between them.

What an underwriting language actually does

Look at asset classes that have a settled one.

Commercial real estate has cap rate, debt service coverage ratio, loan-to-value. Credit has spread, duration, probability of default. None of these eliminate disagreement. A developer and a lender will argue fiercely about the right cap rate on a building. But they argue productively, because the number means the same thing to both of them. The disagreement narrows to an honest difference in assumption rather than a difference in definition.

That's the function. Not certainty, commensurability. A shared standard is what lets two parties disagree about the same thing.

Entertainment already has the vocabulary

This is where I'd correct anyone who claims the industry has no financial language, including an earlier version of myself.

A specialist film lender, a completion guarantor and a sales agent share a dense and precise technical vocabulary. They know what a gap facility is and how it's collateralised. They know the difference between a presale and a minimum guarantee, and why the distributor's credit quality determines whether the paper is bankable. They know where a collection account manager sits relative to the waterfall and what an audit right is actually worth.

That vocabulary works well within its own community. The problem appears at the boundary.

So what's actually missing?

Four things, in ascending order of discomfort.

Most original projects are prototypes. Comparables are the foundation of any underwriting standard, and they behave differently here. Genre, budget, cast and release strategy do carry real information. Comparables are weak predictors, not useless ones. But they can't control for execution, marketing spend, competitive congestion or cultural timing, which is where much of the variance lives. Note this is a claim about original project-based work. Music catalogues with cash flow histories, contracted licensing receivables and touring businesses with attendance data are not prototypes, and shouldn't be underwritten as though they were.

Equity revenue is often structurally opaque. The path from a consumer's ticket to an investor's distribution can pass through exhibitors, platforms, distributors, sales agents and senior lenders, each taking defined deductions. The number that matters isn't headline revenue, it's the portion contractually inside your waterfall after permitted deductions, and that requires reading the documents rather than the trades. This opacity is worst for contingent equity and profit participations. A lender against a verified, monetisable tax credit, rebate or incentive has a far more legible repayment source.

The two populations are trained in different disciplines. Creative executives are trained to assess story, talent and audience. Allocators are trained to assess cash flows, downside protection and governance. Plenty of individuals bridge both. Producers with finance backgrounds, specialist entertainment bankers who read scripts properly. What's rare is a decision-making system that requires fluency in both, which means most institutions default to whichever language the loudest person in the room speaks.

And the honest fourth: some participants benefit from the opacity. Not all complexity is manufactured. Much of it reflects genuinely fragmented rights, territory-by-territory licensing, legacy contracts and real forecasting difficulty. But information asymmetry also protects fees, control and negotiating leverage, which reduces the incentive for certain intermediaries to make the system more legible to outside capital. Nobody defends this openly. It doesn't need defending, it simply never becomes anyone's priority to fix.

What breaks at the boundary

The mispricing runs both ways, and that's the part outsiders miss.

Capital overpays for access. Without a way to evaluate the asset, investors evaluate proximity instead. Who made the introduction, whose name is attached, how the room felt. That's a rational fallback when the underlying thing is unreadable, but it prices relationship quality rather than asset quality, and those correlate more weakly than anyone would like.

And capital declines the good ones. This is the more expensive error, and because it's invisible it never gets counted. Consider a project with a qualified and monetisable incentive, presales from creditworthy distributors, a completion bond, and a collection account manager appointed. That is a materially different risk proposition from one with none of it, but only if you can say precisely which risks each of those addresses.

Here's the precision that's usually missing:

A tax incentive reduces net capital at risk. It does nothing about audience indifference, and it carries its own risks. Qualification failure, eligible-expenditure limits, payment timing, monetisation discount, audit and recapture.

A presale or minimum guarantee provides contracted revenue and may be bankable. It introduces distributor credit risk and delivery-condition risk in exchange.

A completion bond protects against completion, delivery and defined cost-overrun risk. It says nothing whatsoever about commercial performance.

A collection account centralises defined receipts and enforces an agreed waterfall. It cannot make a distributor remit money it has decided not to remit.

Bundle those four together as "de-risking" and you've told an investment committee nothing. Separate them, name what each covers and what it leaves exposed, and you've given them something they can actually price. Most producers have done more genuine risk work than they get credit for because that work has never been translated into terms an allocator can evaluate.

I've watched good investments die in the room. Not because anyone judged them badly, because nobody understood them well enough to judge at all. Unfamiliarity reads as risk, and a "no" you can't explain feels safer than a "yes" you can't defend.

What a common framework would need

I don't have it. But the requirements are getting clearer.

It would have to be format-specific, because a Broadway musical and a limited series don't share a risk profile and shouldn't share a scoring model.

It would have to test correlation and concentration rather than assume either. A slate can carry shared exposure to the same buyer environment, distributor, genre cycle, production team or release window. It also contains genuinely idiosyncratic title-level outcomes.

The work is distinguishing systemic slate risk from project-specific risk, not declaring in advance that losses are independent, and not declaring that they all move together.

It would have to treat incentive stacking as an underwriting input, properly discounted for qualification, timing, financing cost and recapture risk, rather than as a footnote.

And it would have to be honest about its own limits. Explicit about which parts of the judgment it can carry and which remain irreducibly human. A model that pretends to price taste will be wrong and trusted anyway. A model that says clearly here is what we can assess, and here is where you are making a call is more useful precisely because it's narrower.

I'll work through those pieces in public over time. See if you agree with what I ponder on.

The point

Entertainment isn't short of financial tools. It's short of a shared standard for what those tools are worth and that gap is where the mispricing lives, in both directions.

The distance isn't between good projects and bad ones. It's between the room that knows whether something is good and the room that knows what it's worth.

Frequently asked questions

What is underwriting in film finance? Underwriting is the process of assessing what a project is worth and what could go wrong before capital is committed. In film and television it typically covers budget verification, the recoupment waterfall and the investor's position within it, tax incentive qualification and monetisation, presale and distribution commitments, completion bond terms, collection account arrangements, and the producer's execution record. The vocabulary is well established among specialists. What varies enormously is how consistently outside investors apply it.

How do investors evaluate film investments without reliable comparables? Comparables built on genre, budget, cast and release strategy provide useful base rates, but they cannot control for execution, marketing, competition or cultural timing. Disciplined investors therefore weight structure more heavily than forecast. What proportion of budget is covered by non-equity sources, which risks each protection actually addresses, and where the investor sits in the waterfall. The emphasis shifts from predicting upside to understanding the downside.

Why do family offices invest in entertainment? Some family offices are well suited to it. Long horizons, flexible mandates, tolerance for illiquidity, and interest in assets with cultural or legacy value. That flexibility can also generate proprietary deal flow. The corresponding disadvantage is that most lack dedicated entertainment underwriting infrastructure, making them more dependent on intermediaries and more exposed to adverse selection. For some families, engagement or next-generation participation is part of the return, a legitimate motivation, but one that should be identified and budgeted separately from expected financial performance.

Is entertainment a viable alternative asset category? It can be, though it behaves differently from most alternatives. Returns are highly dispersed and outcomes depend heavily on deal structure rather than asset selection alone. A properly constructed slate reduces exposure to any single title failing, but diversification does not repair weak underlying economics or eliminate shared exposures to distributors, genre cycles or release windows. Structure, portfolio construction, governance, reporting and control over receipts often matter as much as creative selection.

A well positioned loan against a tax credit, or securing an investment against a tax rebate can provide security against all or some of the investment, but in general, entertainment as an asset class relies on time and strategy, just like venture capital and direct equity investments.

Do you agree with my thoughts on entertainment as an asset class? Do you think it would be worth a conversation with you family office? Follow along and give me your feedback and thoughts as the rest of 2026 unfolds and I keep pondering on how to showcase this asset class to investors and make producers and independent studios think of their businesses in entirely new ways.