Minimum Guarantee

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Imagine you agree to sell your bike to a neighbor once you are done fixing it up, and they promise right now, in writing, that they will pay you exactly 150 dollars the moment you hand it over, no matter what. That fixed promised number is locked in ahead of time, whether the bike ends up being even better than expected or just okay.

A minimum guarantee works the same way for a movie. It is a fixed amount of cash that a distributor promises to pay the producers as soon as the completed film is delivered to them. It is called a "minimum" because it is the floor, the least the producers are guaranteed to receive from that distributor, no matter how well or poorly the movie actually performs once it is released.

Why it is so useful to producers

A minimum guarantee is valuable long before the movie is finished. Since it is a real, signed promise of future payment, producers can use it as proof to borrow money right now, using an Advance Rate to figure out how much a bank will lend against it. This is exactly how many movies raise money before a single day of filming even happens, especially through deals called presales made at markets like the American Film Market.

If the movie ends up earning more than expected in that distributor's territory, the producers may receive extra money on top of the minimum guarantee, called an Overage.

Fun facts

• A minimum guarantee is a promise from the distributor, so its value is only as good as that distributor's ability to actually pay it, which is why banks care so much about which distributor made the promise before lending against it.
• Minimum guarantees are usually negotiated separately for each territory, so a movie might have a completely different minimum guarantee amount in Germany than it does in Mexico.
• Almost every major piece of independent film financing eventually traces back to minimum guarantees being pre-sold and then borrowed against.