| I get a lot of questions from readers, all over the | | | | or Off-Broadway show is something you definitely |
| world, expressing interest in investing in a | | | | want to do, you should step through my checklist |
| Broadway or an Off-Broadway show. Usually they | | | | of how to decide whether or not to invest in a |
| are unsure about how to get involved and, more | | | | particular show. |
| importantly, they want to know how to pick their | | | | Broadway Investing Rule #1: Have Passion for the |
| first show. Since this seems to be such a hot | | | | Project. |
| topic, I thought I'd dispel a few of the nasty | | | | Broadway shows are often referred to as the |
| rumors associated with investing in Broadway or | | | | "children" of Producers and Investors. Shows need |
| Off-Broadway shows, and also give you my | | | | the same type of care, hand-holding, and |
| checklist of how to choose shows to invest in. | | | | unconditional love; so much love, that even when |
| First let's tackle the rumors, and then the | | | | your kid F***s up royally, you (as the parent) will |
| checklist. | | | | still love him, right? Unfortunately, the odds are |
| Broadway Investment Rumor #1: Investing in | | | | that your "kid" is going to disappoint you, so you |
| Broadway Shows is Only for the Super-Rich. | | | | better make sure that your bond is so tight, you |
| Because Broadway capitalizations can range from | | | | won't care either way. This theory is based a bit |
| $2 million for a Play up to $20 million for a | | | | on famed investment guru Peter Lynch's theory |
| Broadway Mega-Musical, many people fear that | | | | of "invest in what you know." Peter believed you |
| the "entry point," or the amount of money | | | | should put money into companies that make |
| required for an initial individual investment, must be | | | | products which you see and use every day (and |
| astronomically high. Not true. While the average | | | | products that you can't live without). I believe this |
| small investment in a big Broadway show is | | | | can, and should, be adapted to entertainment |
| probably about $25,000, I have seen many shows | | | | investments as well. Invest in shows that you |
| where investors were able to get in for as little | | | | can't see NOT happening. Invest in shows that |
| as $10,000, and even a few where the entry | | | | you believe are important to be seen; whether |
| point was only $5,000! There are a lot of publicly | | | | that's because it has a socio-political message, |
| traded mutual funds that don't allow you to get in | | | | whether that's because it features an amazing |
| at that level. Lower investment thresholds are | | | | performance by an legendary actress, or whether |
| particularly common in the Off-Broadway arena. | | | | that's because it's so much fun, that the |
| What determines the lowest investment level? | | | | audience's day will be better just by experiencing |
| Here's how it works. | | | | the show. Invest in shows that you love. |
| Capitalizations are divided into 'units,' just like stock | | | | Broadway Investing Rule #2: It's All About Who's |
| shares, and what defines each unit is up to the | | | | Driving the Boat. |
| Producer. Some Producers like to have a round | | | | Before investing in a mutual fund, Wall Street |
| 100 units per show, regardless of the capitalization. | | | | geeks will tell you to look at a variety of factors, |
| Some like to pick the lowest amount they can | | | | one of the most important being who is managing |
| accept as an investment (since some shows are | | | | the fund. You've got to know who is making the |
| limited to the number of investors they can | | | | day-to-day decisions. What is their track record? |
| have). And some just make it up arbitrarily. | | | | Where did they learn to do what they do? How |
| Regardless of how the unit is determined, here's a | | | | long have they been doing it? These are all |
| tip: If you're considering a show and get sticker | | | | questions you need to ask before investing in a |
| shock when you hear the price of one unit, ask | | | | Broadway show. Look at the Producer's resume |
| for a partial. Splitting units ain't like splitting an | | | | (you can find them all on the Internet Broadway |
| atom. It can be done with ease. Depending upon a | | | | Database ibdb.com). Have they produced shows |
| variety of circumstances (including how hot the | | | | that have recouped? How many hits do they |
| property is, who the producer is, and whether or | | | | have? How many misses? Would you have |
| not other investors took "round units"), it may be | | | | produced similar shows? Do you have similar |
| possible for you to invest in a smaller amount | | | | tastes? Choosing to invest with Producers with a |
| than the "ask." The key, of course, is to never be | | | | proven track record is one of the best ways you |
| pressured into investing more than you're willing to | | | | can reduce your risk when investing in a |
| lose. If the entry point on one project is too high, | | | | Broadway or Off-Broadway show. |
| don't worry, there will be others. | | | | Broadway Investing Rule #3: Just Like an Actor, |
| Broadway Investment Rumor #2: Investing in | | | | You Have to Know Your Objective. |
| Broadway Shows is Only for the Super-Crazy. | | | | What do you want out of investing in a |
| Many people think that it's bonkers to get | | | | Broadway show? Different objectives will greatly |
| involved with Broadway. The fact is, if you're an | | | | affect what projects you choose to do. Do you |
| individual of a certain net worth, your traditional | | | | want to make money? Do you want to get |
| financial advisor will probably recommend that you | | | | access to opening night parties, etc. so you can |
| allocate a certain amount of your investment | | | | network? Are you looking to get inside access to |
| portfolio (usually about 10%) to higher risk | | | | agreements and figures, etc., so you can learn |
| instruments, or so-called Alternative Investments, | | | | more about how to produce your own show? Do |
| in order to diversify yourself. Most Alternative | | | | you want to support the work of a specific |
| Investments require investors to be considered | | | | playwright? |
| 'accredited,' which in the U.S. means a net worth | | | | One of my favorite "objective" stories is about |
| of at least one million dollars, or having made at | | | | the investor who was thinking about graduate |
| least $200,000 ($300,000 if joint-income) for the | | | | school as a way to learn how to produce. They |
| past two years. Although many Broadway shows | | | | decided against it, and took the money they were |
| also prefer accredited investors, this is not the | | | | going to spend on tuition and invested it in several |
| case with every show. | | | | shows. They thought there was more to learn by |
| Why would Broadway, with its high risk but | | | | playing the game. Last I heard, they were doing |
| potentially high return, be excluded from that list? | | | | pretty well and beating the odds.There are a zillion |
| In fact, it isn't. According to Wikipedia's entry for | | | | reasons to invest in a Broadway show. Make sure |
| Alternative Investments, they are an "investment | | | | you have at least one. |
| product other than traditional investments such as | | | | Broadway Investing Rule #4: Don't Try and Be a |
| stocks, bonds, or cash" and that "wine, art and | | | | One-Hit Wonder. |
| antiques, Broadway shows, movies, indeed any | | | | We all want our first time to be perfect (I even |
| store of value, might also be considered an | | | | wrote a show about it!), but often our first time |
| alternative investment." Alternative Investments, | | | | out isn't what we hope it will be. Don't expect to |
| including Broadway and Off-Broadway shows, are | | | | knock one out of the park your first time up at |
| undoubtedly high risk. The commonly quoted | | | | bat. When signing up to invest in Broadway, |
| statistic is that only 1 out of 5 Broadway shows | | | | imagine that you're a baseball player playing a full |
| recoup their investment (that ratio is even lower | | | | nine innings. If you strike out the first time (or |
| for Off-Broadway shows). But this is not, by any | | | | even the second and the third) don't worry, you |
| means, the only high risk instrument on the | | | | could hit a homer in the bottom of the 9th and |
| market. | | | | win the game. |
| Investing in Broadway shows is a lot like investing | | | | If your first show doesn't make it, have a |
| in a restaurant or, frankly, in any entrepreneurial | | | | post-mortem with yourself (and with the |
| start-up. In fact, according to a recent article by | | | | Producer) and try and determine why it didn't |
| Nick Malawskey in the Centre Daily Times: "For | | | | work. Learn from it, and apply those lessons to |
| every 10 businesses that start, seven will cease | | | | your next time up at bat. Your odds of success |
| to exist in 10 years. Two will break even. Only | | | | should get better each time. Just don't pull |
| one will really succeed." This puts the success rate | | | | yourself out of the game. |
| of start-ups at the exact same percentage as I | | | | Broadway Investing Rule #5: Examine the Lay of |
| just quoted above - 20%! See, it's not as bad as | | | | the Land. |
| we thought. And, with proper due diligence you | | | | It's impossible to time the market. But, in a playing |
| can increase those odds. | | | | field as small as Broadway, with its limited |
| And remember, with big risk can also reap big | | | | audience, it's important to take a look at your |
| rewards. Even if you do end up performing | | | | potential competition. Are you doing a new musical |
| according to the stats, the goal and hope is that | | | | at a time when six other new musicals are |
| the 1 show out of 5 which does recoup, ends up | | | | opening? How do your stars match up against the |
| paying for any other previous losses (it's a | | | | other shows' stars? Are you the only classic play? |
| marathon not a sprint), and then some. Imagine | | | | Are you the only comedy? The big TV networks |
| what it would have been like to invest in "Annie," | | | | program their seasons so they can appeal to all |
| "West Side Story,""Cats" or "Wicked." | | | | of the appropriate demographics, without too |
| Broadway Investment Rumor #3: Investors in | | | | much weight on one type of show. Since |
| Broadway Shows Belong to an Exclusive 'Club' | | | | Producers are mostly independents, we can't |
| that Doesn't Accept New Members. | | | | program collaboratively, but as an investor you |
| While it is true that there are a lot of Broadway | | | | can look to see if your show is going to get lost |
| investors that have been in the circle for a long | | | | in a sea of other similar shows, or if it will stand |
| time, it's not as closed door of a club as you think. | | | | out amongst a lack of competition, without having |
| While it can be hard for a new investor to get in | | | | to place $125k New York Times full page ads. |
| on the hottest shows coming to town, it's not | | | | So there you have it! The above are the five |
| impossible. And, Producers will sometimes let you | | | | basic questions I first ask myself when |
| get in on a 'sure-thing' (which doesn't exist, by the | | | | contemplating investing in a Broadway or |
| way) if you also agree to come into something a | | | | Off-Broadway show. There are countless others |
| bit more risky. However, it is a relationship | | | | you should ask when you get into the details of |
| business, and preferential treatment is often given | | | | the production after you examine the budget, find |
| to investors who have been doing it longer, and | | | | out who's directing, etc., but these will get you |
| to those that have been faithful to the Producer. | | | | started on the road to investing in a show. |
| So what does a new investor do? Start the | | | | You'll notice that a lot of the above rules and |
| relationship. Call a Producer. Email them. Fax them. | | | | checklists are very similar to the rules and |
| Simply state that you're looking to invest in a | | | | checklists for investing in the stock market or |
| specific show (if you know one that they are | | | | any market (invest for the long haul, know your |
| about to do), or ask to be put on the list to be | | | | objectives, risk tolerance, etc.). And that's the |
| called about their next show. It's not a | | | | most important thing to remember. Too many |
| commitment for either party, and I don't know | | | | people think investing in Broadway is a hobby ( |
| any Producer out there who would mind putting | | | | which it can be), and in those cases you'll probably |
| you on a "potential" list. Just make sure you are | | | | only hit a winner on the average 1 out of 5 times. |
| serious about your interest. | | | | But, Broadway is big business, and should be |
| Now that we've overviewed the three biggest | | | | treated as such. And if you apply the same |
| obstacles potential investors often tell me prevent | | | | principles you'd apply to other investment vehicles |
| them from taking the first step and joining the | | | | and do the due diligence, there's no reason you |
| ranks of Broadway and Off-Broadway investor, | | | | can't turn that hobby into something that is fun, |
| just how do you choose a project to invest in? | | | | educational, and yes, even profitable. |
| Once you've decided that investing in a Broadway | | | | |