1. Where did the money come from?
    November 29, 2012 by Walden3

    One of the most commonly asked questions is how much does it cost to operate Walden Three, and where on earth did you get the money? Usually that might be something that I hold close to my chest, be coy about, answer  like a politician would, but I think it’s important. This is a new model after all, and it doesn’t help anyone to keep secrets.

    It is important to know the life cycle of W3 and what our expectations are. With a 10 year lease and a 10 year option, we are positioned to run this project for a decade and evaluate its cultural impact and the realities of our financial projections. Over the course of this decade, our projected operation costs are right around 16 million dollars, with a projected income of 13 million, operating at a net loss of 3 million dollars. As a documentary film designed to capture this decade long experiment, as is with all films in the production stage, the project operates at a loss. Whether it is Transformers 5 or or a small independent feature, all films in production mode operate at a loss until distribution. So we chalk up the 3 million as the actual budget for the film. The big difference between W3 and any other film project is the cultural impact it has during the length of production.  We expect to change Seattle culture (and fortify a global arts and culture community) in a long term, significant way well before the documentary film ever screens. But that’s a different topic. The main point is that we needed 10 million to get the project launched, and we expect the project to lose 3 million over the course of a decade. Not bad for what it delivers.

    It’s an unconventional model – a film/technology/art center hybrid, and there really wasn’t a comparable to show investors. What we did instead, is sold the project as a legacy project, and structured the investment capital in a way that kept our upstart costs and annual operations budget under tight control (held in a trust). This gave everyone the confidence that we would see the ten year mark without mismanaging or overspending in the early years. And it also makes us hustle to meet or exceed our projections. No one was going to hand us a check for that kind of money and just wish us luck – they wanted reassurance that we were going to deliver what we promised. And the way to do that was pace distributions as our outline defined – kind of like putting us on allowance. We have to be responsible and accountable.

    As for what our investors got, there were different things we had to offer, and different terms our investors put forward (which was expected). We started off with naming rights, which gave our investors  much deserved credit, as well as long term, global exposure as supporters of Pacific Northwest arts and culture. We structured it as such:

    Roof top deck/garden naming: 1 million

    Non-commercial gallery naming: 2.5 million

    Commercial gallery naming: 2.5 million

    Art school naming: 2.5 million

    Art bazaar naming: 1 million

    Since Walden 3 is operating at a loss for the first decade of filming, we can work in conjunction with Shunpike and accept these investments through a tandem non-profit structure – the idea being that the film is non-income producing in production, and after production ends, the non-profit shell can fall away like the cocoon of a butterfly. This allowed the financial backers the attractive opportunity to use their investment as a tax deduction. Since the production company is a for-profit LLC, some investors chose to go that route, writing off their losses, as the bulk of the investment is spent in the first three years – renovating the building, buying equipment and launching the project. We learned that investors at this level will tell you exactly how it is going to be done – not the other way around – so we pitched it with a lot of flexibility to meet their specific needs. What we demanded was that we had full control over creative content and the type of programming we (Vital 5 Productions and the staff of W3) programmed – no investor could veto or threaten to pull their contribution based upon our curatorial decisions and content.

    If you do the math so far, naming rights only accounted for 9.5 million – still incredible close to our projected budget, but anyone who has ever created a projected budget knows that they rarely fall the way you expect them. So we offered a stake in the content. This “content” included the footage that composed the feature length documentary film, as well as hundreds of shorted, edited films – educational programing, artist lectures, artist biographies, and all of the magic that is unfolding under the roof of Walden Three. This goldmine of documentation holds an unknown value, as it is impossible to extrapolate the future success of the project, the film and the artists involved. Ultimately, we consulted with a company that specializes in creative content (yes, companies like this exist), and the price was assessed at 2 million.

    So we have 6 capital contributors. And a guarantee of 11.5 million dollars. At the end of the first decade (and the end of our lease), we look at the books and see how far off we were from our original projections. If indeed we hit or exceeded them, we have a bank balance of 8.5 million+, which would bank roll the post-production film costs and the next ten years of the project, meaning  we exercise the 10 year option on the lease and turn W3 into a 20 year + project. This 10 year mark is a critical mark and point of retrospection – not only to gauge the perceived success or failure of the project, but to determine if we have the resources and momentum to carry W3 another ten years. I am the first to acknowledge that I have no idea what the year 2024 will look like – for art, for Seattle, or for the world. But I am also the first to acknowledge that the next decade at Walden Three will be nothing short of extraordinary.