Readers from all over the world ask me a lot of questions about investing in a Broadway or Off-Broadway show. Most of the time, they don’t know how to get involved or, more importantly, how to choose their first show. Since this seems to be such a hot topic, I thought I’d dispel some of the negative myths about investing in Broadway or Off-Broadway productions and provide you with my checklist for selecting suitable productions. Let’s start with the rumors and move on to the checklist.
First Broadway Investment Myth: Only the extremely wealthy should invest in Broadway productions.
Many people worry that the “entry point,” or the amount of money required for an initial individual investment, must be extremely high due to the fact that Broadway capitalizations can range from $2 million for a play to $20 million for a Broadway Mega-Musical. Not true. Even though the typical amount of money needed to get into a big Broadway show is about $25,000, there have been a lot of shows where investors could get in for as little as $10,000, and even a few where the minimum investment was only $5,000! You are unable to participate at that level in many publicly traded mutual funds. In the Off-Broadway market, lower investment thresholds are particularly prevalent. What is the lowest level of investment? The process is as follows:
Like stock shares, capitalizations are divided into “units,” and the Producer decides what each unit means. Regardless of capitalization, some producers like to have around 100 units per show. Since some shows are limited in the number of investors they can have, some people like to choose the lowest amount they can afford to invest. Additionally, some just make it up at random. Here’s a tip, regardless of how the unit is determined: If you’re thinking about going to a show but are shocked by the price of just one unit, ask for a partial. It’s not like splitting an atom to split units. It is simple to accomplish. You may be able to invest less than the “ask” depending on a number of factors, such as how hot the property is, who the producer is, and whether or not other investors took “round units.” Naturally, the most important thing is to avoid investing more money than you can afford to lose. Don’t worry if one project’s entry point is too high; there will be others.
Second Broadway Investment Myth: Only the insane should put money into Broadway productions.
Getting involved in Broadway is considered insane by many. The fact of the matter is that if you have a certain amount of money, your traditional financial advisor will probably tell you to diversify yourself by investing in higher-risk instruments, or “Alternative Investments,” which typically make up about 10% of your investment portfolio. In the United States, “accredited” means having a net worth of at least one million dollars or having made at least $200,000 ($300,000 if joint-income) in the previous two years for the majority of Alternative Investments. While accredited investors are preferred by many Broadway productions, this is not always the case.
With its high risk but potential high return, why is Broadway not on that list? Actually, it is not. “Investment product other than traditional investments such as stocks, bonds, or cash” and “wine, art and antiques, Broadway shows, movies, indeed any store of value, might also be considered an alternative investment” are the definitions provided for alternative investments by Wikipedia. There is no doubt that alternative investments, such as Broadway and Off-Broadway productions, carry a high risk. The statistic that only one in five Broadway productions recover their investment is frequently cited, and the ratio is even lower for Off-Broadway productions. However, this is not the only high-risk instrument available on the market.
Similar to investing in a restaurant or, frankly, any entrepreneurial start-up, investing in Broadway shows is similar. In fact, a recent article written by Nick Malawskey and published in the Centre Daily Times reads: In ten years, seven of every ten new businesses will cease to exist. Two will be profitable. Only one of them will truly succeed.” This brings the start-up success rate to the same level as the one I just mentioned: 20%! It’s not nearly as bad as we thought. And if you do your homework, you can make those odds better.
Also, keep in mind that even great rewards come with great risk. Even if you perform as expected, the goal and hope is that the one show out of five that recovers will make up for any previous losses—it’s a marathon, not a sprint—and more. Imagine investing in films like “Annie,” “West Side Story,” “Cats,” or “Wicked.”
Third Broadway Investment Myth: An exclusive “Club” of Broadway show investors does not accept new members.
Although many Broadway investors have been in the circle for a long time, it’s not as closed off as you might think. It is not impossible for a new investor to participate in the hottest shows coming to town, but it can be challenging. Additionally, producers may permit you to participate in something a little bit more risky in exchange for your consent to participate in a “sure-thing,” which, incidentally, does not exist. However, because it is a relationship-based business, investors who have been involved for a longer period of time and have remained loyal to the Producer frequently receive preferential treatment. What then does a brand-new investor do? Get the relationship going. Contact a Producer. E-mail them. Fax them. Simply state that you are interested in investing in a specific performance (if you are aware of one that they are about to perform) or request to be included on the list to be contacted regarding their subsequent performance. I do not know any Producers who would mind putting you on a “potential” list, and it is not a commitment for either party. Simply ensure that your interest is genuine.
How do you select a project to invest in now that we have reviewed the three most significant obstacles that, as potential investors frequently inform me, prevent them from taking the first step toward joining the ranks of Broadway and Off-Broadway investors? You should go through my checklist on how to decide whether or not to invest in a specific show once you’ve decided to invest in a Broadway or Off-Broadway show.
Rule 1 for Broadway Investing: Passionate about the Project
Producers and Investors are frequently referred to as Broadway shows’ “children.” Shows require the same level of tenderness, affection, and support; so much love that, as a parent, you’ll still love your child even when he f*cks up, right? Unfortunately, your “kid” will probably disappoint you, so you should make sure your bond is so strong that you won’t care which way it goes. The famous investment guru Peter Lynch’s theory of “invest in what you know” serves as a partial foundation for this theory. Peter was of the opinion that you ought to invest in businesses that produce goods that you encounter on a daily basis and that you simply cannot live without. This should and can be applied to entertainment investments, in my opinion. Put your money into shows that you can’t see happening. Put your money into shows you think are important to see; The audience will have a better day just by seeing the show, whether it is because it has a sociopolitical message, because it features an amazing performance by a legendary actress, or because it is so much fun. Put money into shows you enjoy.
Rule 2 of Broadway Investing: It all comes down to who controls the boat.
Wall Street nerds will tell you to look at a variety of things before investing in a mutual fund, one of the most important of which is who is managing the fund. You must be aware of who is in charge of day-to-day decisions. What is their history? Where did they acquire their skills? How much time have they been doing it for? Before making an investment in a Broadway production, you should ask all of these questions. Examine the Producer’s resume, which can be found on ibdb.com’s Internet Broadway Database. Do they have any shows that have done well? How many times have you hit them? How many were missed? Would you have made shows like that? Are your preferences comparable? One of the best ways to lower your risk when investing in a Broadway or Off-Broadway show is to choose Producers with a proven track record.
Rule 3 of Broadway Investing: You must be aware of your goal, just like an actor does.
What do you hope to achieve by investing in a Broadway production? The projects you choose to work on will be greatly influenced by your objectives. Do you wish to generate income? Do you want to attend opening night parties, for example? to make connections? Do you want inside access to documents like contracts and figures, so you can get more information about making your own show? Do you wish to support a particular playwright?
The investor’s idea to go to graduate school to learn how to produce is one of my favorite “objective” stories. Instead, they invested the money they were going to use for tuition in a number of shows instead. They believed that playing the game would teach them more. At the time I heard about them, they were doing well and beating the odds. A Broadway production is worth your money for a plethora of reasons. At the very least, you should have one.
Rule No. 4 of Broadway Investing: Avoid attempting to be a one-hit wonder.
We all want everything to go right the first time, and I even wrote a show about it! However, our first time out frequently fails to meet our expectations. When you first take the field, don’t expect to hit home runs. Consider yourself a nine-inning baseball player when signing up to invest in Broadway. Don’t worry if you strike out the first time, or even the second and third times; you could still hit a home run in the ninth inning and win the game.
If your first show fails, conduct a retrospective with yourself and the Producer to try to ascertain why it failed. Take what you’ve learned from it and use it in your next outing. Each time, your chances of success should increase. Simply avoid withdrawing from the game.
Rule #5 of Broadway Investing: Examine the Land’s Layout.
The market is impossible to time. However, it is essential to investigate your potential rivals on a playing field as small as Broadway with its limited audience. Are you staging a new musical at the same time as six new musicals open? How do your stars compare to the stars of other shows? Is your play the only classic one? Do you only do comedies? The big TV networks plan their seasons so that they can appeal to all the right people without focusing too much on one kind of show. We can’t work together to program because most producers are independent. However, as an investor, you can look to see if your show will get lost in a sea of similar shows or stand out in a lack of competition without spending $125,000 on New York Times full-page ads.
That’s all there is to it! When I think about making an investment in a Broadway or Off-Broadway show, the five fundamental questions listed above are the first ones I ask myself. When you get into the specifics of the production, such as the budget, the director, etc., you should ask a lot of other questions. However, these will get you started on the path to making a show investment.