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Road To A Broadway Show Recouping Its Investment
The primary purpose of producing a Broadway show is to recoup the investment and generate profit for its investors and co-producers. There are various points throughout a show’s development where money gets invested, with different benefits to the investors at different amounts and timing of the investment.
Front Money Investment
When a show is first being developed, the artists, composers or writers may have a great idea, but little money to pay for the production of the show. They may look to family and friends or professional Broadway angel investors or producers to help pay to get the show off the ground.
The initial investment may help cover legal costs, copyright registration fees, and producing smaller productions, industry readings, workshops and developmental labs. These smaller developmental type of productions may help to generate interest in the show by other investors and producers. These early producers may get additional incentives because their risk is much greater of losing their money, or being out of pocket for a long time, often years. For this investment, they may have a large upside if the show is successful.
Investors in Regional Productions
When a show is produced regionally, many regional theaters will co-produce the production in exchange for theater rental space or discounted fees. Often the theater will not actually pay money, but will give the in-kind benefit of space in exchange for a small % of the production company. They could also get investor shares based on the value of their theater involvement.
Many producers also look for investors to help produce regional and local productions. There are a lot of expenses to put these on, like theater rental, costume, sound, set design, legal expenses, and actor and musician salaries. Investors may get additional deals because of the risk of either losing their money, or having their money invested for a long time as the show is developed. You may hear about 1 for 1 deals, 1 for 2 deals, and 1 for 3 deals, among others. I’ll explain this in another article, but generally, an investor in a 1 for 1 deal may get 1 producer share and 1 investor share for their investment, whereas a later investor may just get 1 investor share for their investment. If the show is profitable, the earlier investor may get twice as much of the profit as a result of their greater investment risk.
Broadway Show Investment
When you invest in a Broadway show, you are typically given a share of the company or partnership based on the amount of your investment. The investment is likened to a loan where the investors are paid back first from the profits of the show, and then any profits above the capitalization are split between the investor pool and producer pool.
Weekly Expenses To Get To Recoupment
The goal of the show is to be profitable. The more profitable, the more likely it will run for a long time and spawn tours, regional productions and international productions, increasing the show’s revenue. Every week, the show generally runs on a budget. A good producer will try to keep the budget as tight as possible without jeopardizing the quality of the show.
As the show runs each week, the weekly expenses are deducted from the gross revenue to calculate the weekly profit. Some of the profit may be set aside in reserves to account for slower weeks or non-touristy times of the year. Think about how busy NYC can get during the summer and holiday seasons, compared with say 2 weeks after New Years.
The profit adds up week after week and hopefully reaches a point where it can fully pay back the investors, while still maintaining enough money to continue to run. Thereafter, as the show continues to run, the weekly profits are divided generally into 2 groups - a producer pool and an investor pool.
The investor pool is divided between the investors proportionate to their shares. Some investors may have 1 share, some may have 20. The producer pool is similarly divided among the producers proportionate to their shares.
Investing Has Its Benefits
If you are considering investing in a musical or play, be mindful of the terms available to you and how they impact your investment. Some people are more risk averse than others and are willing to take early risks, while others want to know that the show has an opening date before they invest.
Keep in mind that in addition to the financial benefits of early investing, there are also entertainment perks like being involved in work shops, industry readings, and learning about the inner workings of the show well before the public. Certain level producers may also have input into casting and creative decisions. Whenever thinking about investing in Broadway, always try to look at the big picture of what you hope to get out of the investment. Sometimes it is more than just money.
ABOUT THE AUTHOR
Jason Turchin is an attorney, entrepreneur, producer and owner of InvestingBroadway.com.
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