Deferrals, Residuals, and Profit-Share: What to Know About Back End Compensation

By:  Murray A. Roth, Jr., Esq.

 8/2/25

Independent filmmaking is, at its core, a labor of love. It’s also a business that often runs on limited cash and maximum belief in the story, the team, and the promise that everyone involved will eventually get what they’re owed. Because budgets are tight and payments aren’t always immediate, structuring compensation for cast and crew often involves creative financial arrangements - sometimes very creative! Three common tools you’ll almost always encounter in indie film contracts are 1) deferrals, 2) residuals, and 3) profit-share percentages (aka back end “points”). While all relate to money paid after production has ended and are contingent upon future revenues, they work very differently. Understanding those differences (and the intricacies of each) is crucial to managing expectations and avoiding conflict.

Deferrals: Delaying Payment, Not Erasing It

What exactly is a deferral? This is often misunderstood. A deferral means someone agrees to postpone payment (either partially or in full) until the film generates enough revenue to trigger the payout. It’s a way of saying, “I’ll work now for no up-front payment or only partial payment of an agreed price, pay me in full or the remainder when the film starts making money.”

For example, let’s say you’re hiring a cinematographer whose standard day rate is $700, but your budget can only cover $300/day during production. Instead of walking away, it’s agreed that $300/day will be paid during production and the remaining $400/day will be “deferred.”

Deferrals are common in indie contracts because they keep talent and crew attached to a project that can’t afford to pay full rates immediately. But here’s the catch: unless clearly defined, deferrals can lead to major confusion — or worse, legal headaches for all involved.

A solid deferral clause should spell out exactly what the deferred amount is and when it becomes due. Is it after the film recoups 100% of its production budget? Or from first money in? Does it apply to gross receipts or net profits? These are not minor details. They are the difference between a team that sticks together for future projects and one that walks away feeling burned. Believe me, I’ve seen this happen many, many times - even among good friends. Not intentionally by anyone. Just worked out that way by failing to include the details in their contracts.

Residuals: The Union-Mandated “Thank You” That Keeps Giving

If you’re working with SAG-AFTRA, the WGA, or the DGA, you can’t avoid residuals — and you shouldn’t want to. Residuals are recurring payments to union-affiliated talent or creators when a film or TV show is reused, syndicated, streamed, or otherwise monetized beyond its initial release (which generally means a theatrical release).

It’s also important to know that union residuals are not based on profit. Almost always, they are calculated as a percentage of the “distributor’s gross” (even though the production company is the one liable). So beware, the film production company could be deep in the red financially, but still owe residuals on the gross amounts received by the distributor.

Notwithstanding, residual payments are mandatory on union films and are part of the reason many actors and writers rely on union jobs to build sustainable careers. Sometimes distributors will agree to pay the union residuals under certain circumstances (but good luck on that one!). And if the production company sells a film to a distributor or studio for a one-time price (as opposed to an ongoing license), it’s vital to have the purchaser legally accept the obligation to pay all residuals. Otherwise, the production company will be liable for the residuals for the life of the film even though its no longer receiving any more income. Think about that one!

The key takeaway here? Residuals reflect ongoing compensation tied to ongoing use, and they should be carefully considered and addressed clearly in all contracts, especially all distribution agreements.

Profit Participation: Everyone Wants a Slice, But What’s the Pie?

“Profit share” or back end “points” are among the most talked about (and misunderstood) forms of compensation in independent film. This is where things get murky, because when someone says, “I’ll do it for 5% of the profits,” the next question should always be: Which profits?

There’s a big difference between gross and net profits. Gross profits are calculated from revenue before expenses. Net profits are what’s left after all allowable costs (e.g. distribution fees and costs, deferrals and bonuses owed, residuals, investor recoupment and interest, investor profit-share, etc.). Then there is the infamous “adjusted gross” which is somewhere in the middle and can be defined in a host of different ways.

Most indie contracts offer percentages based on "net" profits which can often be engineered to vanish entirely through creative accounting by unscrupulous distributors and producers. That’s why many seasoned professionals insist on detailed definitions in their profit participation clauses — and why some producers (to avoid conflict and to truly be transparent) rely on third-party systems to manage and track payouts.

Enter the CAMA Account: Your Project’s Financial Traffic Cop

One of the smartest ways to build trust with investors, defer-pay crew, or profit-share participants is by setting up a Collection Account Management Agreement (CAMA). A CAMA account is essentially a neutral third-party escrow system that handles incoming revenue from distributors and allocates it to all parties based on a pre-agreed waterfall.

Here’s how it works: once a film starts earning money — say, from a streaming sale or international license — that income doesn’t go straight to the production company’s bank account. It goes into the CAMA account, which then disburses it according to the contracts of all involved. For example, a common CAMA set up may be to pay deferrals and residuals first,  investor’s recoupment second, investor’s profit-share third, back-end “points” fourth, and then send the remainder to the production company.

This structure protects all parties and minimizes the chances of disputes over who got paid what and when. While a CAMA account isn’t free (administrators charge fees), the cost is often worth it for the transparency and credibility it provides — especially when you’re dealing with multiple investors, high-level talent and/or lots of crew entitled to points in the production.

Wrapping Up: Don't Just Promise, Document

In indie filmmaking, back-end compensation is often the bridge between a project that gets made and one that stays on the page. But those back end promises — deferrals, residuals, and profit-shares -  only work when they’re clearly defined, transparently managed, and rooted in mutual trust. Because no matter how enthusiastic or good-intentioned everyone is at the beginning, memories fade, interpretations differ, and what felt like a shared understanding can turn into a major disagreement about who’s owed what – especially if large sums of money come into the picture, no pun intended. :)

If you’re a producer, don’t assume that a handshake agreement or a vague clause will suffice. Put it in writing. Spell out the terms of the deferral in detail. Define how profits are calculated. Clarify whether residuals will be part of the deal. And if you’re dealing with multiple parties expecting payouts, seriously consider a CAMA account — it’s one of the cleanest ways to build trust and manage back end obligations fairly.

And if you’re cast or crew, don’t be afraid to ask the right questions:

-          “When exactly will my deferred pay kick in?”

-          “If the film gets on a streamer, do I get residuals or a cut of that revenue?”

-          “Is there a third-party handling the payouts, or is everything coming straight from the producer?”

These aren’t selfish questions — they’re professional ones. “Clarity now prevents confusion later” is a common mantra, and in indie film, where relationships and reputations matter more than long paper trails, clarity in all written agreements is worth more than gold.

Disclaimer:  This article is provided for educational purposes only and is not intended to constitute legal advice. Before taking any action regarding this topic or any other legal issue, always consult an experienced entertainment attorney who can advise on your specific facts, films, and needs.