What Is a Pre-Sale Agreement?
This is an effective financing tool, because the foreign distribution agreement is a form of security for investors. The filmmaker is generally required, as a condition of the pre-sale agreement, to obtain a completion bond (an insurance policy covering the cost of completing the film if the filmmaker is unable to do so). Since the completion of the film (regardless of how well it comes out) triggers the payment of the amount predetermined in the pre-sale agreement for the distribution rights in the territory covered by the agreement, the mere existence of such an agreement virtually guarantees that the investors will make some or all of their money back. The financier, in the investment agreement with the producer, obtains a security interest in the funds to be advanced by the foreign distributor pursuant to the pre-sale. This significantly lowers the risk of making an investment in the film.