Investing 101

Introduction

Broadway investing has its own jargon, but it is fairly simple to master. The key, like any investment portfolio, is to have a diversified strategy, and know your risk profile. As the playwright Robert Anderson famously once said, “You can make a killing in the theatre, but not a living.” While he was speaking of playwrights, he could easily have been referring to investors. Given the risks, Broadway investing is limited to those individuals and entities who meet the test for accredited investors, which for natural persons requires a net worth (individually or with the person’s spouse) of at least $1,000,000, excluding the value of the person or couple’s primary residence, or income of at least $200,000 each year for the last two years (or $300,000 combined income if married), and a reasonable expectation of the same income in the current year.

Basics

For every show, whether a play or musical, the lead producers form a LLC that holds the rights to the Broadway production. Investors buy units in that LLC, typically $25,000 for a play, and either $25,000 or $50,000, for a musical. Every show has a capitalization budget, plus projected weekly operating expenses. At the outset, the lead producers of a show will provide potential investors with a recoupment chart that has certain assumptions about how long it will take for investors to recoup, or get paid back, their original investment. If a show recoups, then it goes into profits, and at that point, profits are typically split 50/50 between investors and the lead producers, with co-producers receiving a negotiated share of the lead producers’ share of the profits.

A successful show will often go on tour after the Broadway run closes, or even while the Broadway run is ongoing if the show is particularly successful. A separate LLC is formed for most tours, and the investment process is the same as the Broadway show. Tours are often more profitable than Broadway, given lower costs and built-in subscription bases in most cities. The only way to get in most tours as an investor is to be an investor in the Broadway production, as those investors get first dibs.