BROADWAY INVESTING BASICS
Investing in Broadway is a great way to be part of the inside of the theater industry. Broadway investing comes with many perks. Some investors may be part of the developmental process of a show, where the investor gets to go to rehearsals, industry readings, developmental labs and showcase productions of a musical before it even gets to Broadway. Investors may get tickets to the Broadway show's opening night, and even meet the cast at an opening night party. They may get access to premium house seat tickets, or backstage tours. If the show is successful, the investor may also see profits on their investment.
A 2013 Wall Street Journal article asked, "Is Broadway a 'Wicked' Good Investment?" An article in Forbes may have answered that, titled "'Wicked' Has Now Made Over $1 Billion On Broadway." By 2014, according to Crain's New York Business, "Wicked has not only thrived for 10 years, but it also has rewarded its investors with a return of more than 1,000%."
Shows like Wicked, Hamilton, Kinky Boots, and Cats, for example, are what help keep Broadway investors coming back. Statistically, some reports say that 1 out of every 5 shows recoups its money. There are some producers with a much healthier track record, with maybe 2 or 3 out of 5 recouping their money. There is an old showbiz motto that you can't make a living on Broadway, but you can make a killing. So even if an investor lost money in 4 shows, they could possibly make enough in the 5th to still be ahead.
Broadway is a very risky investment, but it can also be incredibly lucrative. Some people invest in Broadway for the love of the arts. Some people invest for the chance of a big return. Some invest knowing there is a good chance they will lose their money, but they'll get so much out of the perks that it pays for itself. Some invest to enjoy the process, and are happy getting some or all of their money back if the show does well, or potentially much more if the show recoups its investment and is profitable.
Accredited Investors Can Invest In Broadway Shows
The SEC regulates many investments, including some in Broadway shows. Generally, an accredited investor, in the context of a natural person, includes anyone who: a) earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR b) has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
Corporations, trust, partnerships and banks, among others, may also be accredited investors in Broadway shows. This generally includes any trust, with total assets in excess of $5 million, not formed to specifically purchase the subject securities, whose purchase is directed by a sophisticated person, or any entity in which all of the equity owners are accredited investors.
Most Broadway shows limit investment opportunities to those who are "accredited investors". Investment groups, banks, business people, and those in wealth management may consider Broadway theater investing as a means to diversify a portfolio.
How Much Does It Cost To Invest In A Broadway Show?
Every show is different. Most Broadway shows will accept a minimum of $25,000 for an investor share of the production, with some shows as low as $5,000. Producers may need to raise or invest at least $150,000 to $250,000 or more. Some investors work with other investors to share in the investment, like an investment group or partnership. For example, if a minimum investment share in a Broadway show is $25,000, some shows will allow two people to come in together with $12,500 each and split the investor share.
Most shows are funded by a large team of co-producers. A show may have a total capitalization of $10,000,000, and 20 co-producers who raise $500,000 each. The producers often split the profits with the investors after the total investment has been recouped.
How Does Someone Get To Invest In A Broadway Show?
There are several opportunities every year to invest in a Broadway show. However, most of these opportunities are offered privately by lead producers to their inside group of trusted co-producers and investors. We've built wonderful connections over the years and are grateful to have several shows pitched to us each year with the option to invest or co-produce. Many of these investment opportunities are not advertised publicly, and it is through relationships that investors and co-producers often connect.
How Does Broadway Investing Work?
Generally, a show has a budget and they try to raise enough money to capitalize the budget. Many top Broadway shows may need to raise anywhere from $8,000,000 to $14,000,000 or more. There are typically one or more lead producers, who may put their own money, or open the opportunities to other co-producers or investors to "buy in" to the company. Like a business model, the show is set up as a corporation usually, and broken into shares based on the total capitalization of the show, called "units". Producers may offer one unit for $25,000, which gives the investor a certain interest in the production. When the show starts to make money beyond its operating expenses, the money generally goes to pay the investors back first. Once the capitalization has been recouped, the investors are generally paid back. Thereafter, the next step is the profit.
There is typically an investor pool and a producer pool. When a show is profitable, the profits are then typically split 50/50, with 50% going to the investor pool and 50% going to the producer pool. The profits are then split within each pool based on the shares in each pool.
EXAMPLE: Let's say a show has a capitalization of $10,000,000 with $25,000 per unit offered, and an investor buys 1 unit. If the show is profitable, the investor is paid back the $25,000, and then continues to receive a portion of the profits. 50% of every dollar profit goes into the investor pool, which is divided between the investors based on the number of units they own.
Every show is different, but the concept is fairly general. The idea is to pay the investors back first, and then the producers share in the profits if the show is successful. It is very risky of course, because if the show is not successful, you may lose your investment, or may lose part of it. The good news is that you should not be responsible for the losses beyond what was invested. In some types of businesses, partners share in the profits and the losses, where they have to reach into their pockets to cover the loans or losses. Broadway investing is not supposed to be that way.
Why Invest In Broadway?
We've met lots of different types of investors over the years, and there is no one answer. There are many, many reasons why people invest year after year in theater and Broadway.
The love of theater - A theater lover investor just loves theater. There is excitement meeting Broadway stars, going to Opening Night, getting invited to the Opening Night Party, getting perks like exclusive merchandise, having access to VIP house seats, and being a part of the inside of Broadway.
Diversify a portfolio - Broadway investing is a way to diversify a portfolio, with extra perks. When investing in stocks, there is often a dry buy and sell. Broadway investing offers high risk investments, but may also offer high rewards. There are also fun perks with Broadway investing that a professional investor may not get elsewhere, like Opening Night tickets, meeting Broadway stars, and watching a show develop.
Successful investors and professionals - Broadway Across America and other regional theaters are filled year after year with professionals who enjoy theater. Some love the entertainment. Some love the sophistication. Some were actors as children and always wanted to be on Broadway, but life got in the way. We've met many Broadway investors who are attorneys, doctors, real estate developers, house flippers, Silicon Valley successes, real estate investors, cattle ranchers, teachers, oil industry business people, hedge fund financial people, wealth management consultants, entrepreneurs, and more who have invested in shows.
To meet others - Broadway often brings like-minded people together. Investing in a Broadway show may give access to other investors at show events, like preview performances, meet and greets, social events, and opening night festivities. We've met others who we connected with on other projects, and find investing as a great networking opportunity for us.
You could win a Tony Award - Investors at certain levels are eligible to receive Tony Awards, and can even take one home.
Broadway investing brings many perks. While there is a risk you may lose your investment, there are often lots of perks that come along with investing in a Broadway show, which may include:
Opening Night tickets
Access to VIP house seats
Opening Night party
Access to invest in Broadway tours and cast recordings
Meet and greet with the Broadway cast
Exclusive merchandise, like opening night gifts
Being called a Tony-award winning producer
Great networking opportunities
Free preview performance tickets
Getting lots of perks and getting your money back if the show recoups
Turning a profit on your investment if the show makes money
Getting an inside view of the Broadway community and how shows are made
If you are ever interested in investing in a Broadway show, we'd love to connect with more like-minded people. Feel free to contact us for more information!