Is Investing in Broadway worth it? — Page 2

Broadway Flash said: "If I invest 25,000 in a medium size musical that is a hit, how much money would I make?"

Kinda of a small investment. You should investigate those youre investing with,have read the properties script,and make sure. You are not investing with Howard and Janet Kalen or Garth Drabinsky.

Updated On: 8/26/23 at 01:27 PM

I predict you'll make -25,000

I've invested a couple of times personally (Broadway and London) and overall I have come out with a return (up 17%) but some shows I've lost everything. Don't really have a formula for it or anything, typically a combination of the numbers not being crazy/making sense against comparable Box Office grosses and the show being something I believe. I've definitely (maybe stupidly) invested with my heart a couple of times but sometimes even they get a return. And you do get partial returns, even if the show cannot pay back your full investment - if there is money left it gets split amongst the investors.

I work with one or two different Producers who do different styles of shows and sometimes I am not interested in a show and it does well, and sometimes I think it's a hit and it bombs lol. Someone equated investing to buying art - you buy a piece of art because you fall in love with it and want to hang it on your wall and walk past it every day and share it with everyone you know. Hopefully it will also be a wise financial investment, but you will love it nonetheless!

By way of an example:

If a show has a $15,000,000 capitalization (regardless of the production budget, the max / the min, or the reserve) and a unit size of $25,000.00 and you buy one of the 600 units, you'll most likely have purchased the right to .08% of the net profits of the show.

• Buying one unit directly from the lead producer will most certainly not come with a "sweetener" that allows you any participation in their 50% of the net profits. If you're pooling your investment into an LLC that someone else sets up to manage small buys, you may end up with less, but we'll assume a straight buy directly from someone who isn't going to "manage" your investment in any way as that's an entirely different topic.)

So, for every $100,000.00 the show makes above its breakeven after it recoups, you'll theoretically be entitled to $83.33.

Let's assume that $850,000 is the true and clean breakeven for this show and it has a one year average weekly (net adjusted) gross of $1,250,000, perhaps the average gross of a moderate-sized musical hit these days. (There's no such thing as a true and clean break even for a show, but for the purpose of simplicity, let's say that $850,000 pays the company expenses, the theater expenses, the planned/estimated marketing costs for the week, and covers the royalty pool fully. Again, another entirely extremely complicated topic that most people completely gloss over when they pretend to know anything about a show's "breakeven".)

Very, very simply: this show would have likely broken even in week 38.

Let's say the "expenses" of the show go up $100,000/week at recoup because the show now has real net profits.

So, boiled down (way more simply than usually actually happens even on a moderate hit): In it's first year the show invested $60,600,000 to make $65,000,000, theoretically netting the company $4,400,000 in profits. (Though, you'll notice that 14 x $300,000 only equals $4,200,000, so, we'll gloss over Hollywood/Broadway accounting and go with the higher number.) Your .08% share of the $4,400,000.00 would be $3,666.67.

If you'd put $25,000.00 in a one year CD where your balance is $28,666.67 at the end of the 12th month, you'd have to have purchased a CD with a 14.68% interest rate to beat this. A quick search of today's highest CD rate would give you 5.4% for a year. I'd say that that meant the difference between the two ($2,316.67) is your bet on the risk. Though, really with Broadway these days, your betting on the risk is the full amount because you could more likely end up with $0 than even the $2,316.67.)

Now, that's on the first year.

Let's say that the show is able to maintain that $1,250,000 (Net adjusted) gross and the expenses go up to a million a week in year two. The show will theoretically net a quarter of a million bucks a week, so $13,000,000 in theoretical profits for the entire year. Your share of year two would be: $10,833.33.

So, here, you've gotten your money back and made $14,500.00. So, to achieve that with a cd, you'd need to find one that is 25.75% APY ... and the CD would still be holding on to your $25,000. With this show example, your original $25,000 has been returned and can be still used to buy today's highest CD. If all this made you queasy... (and should) and the show would still be pumping out more money to you.

But this is where shows CAN be a great investment. If Lion King costs a million dollars a week to run (probably a bit too high, but easy to calculate with) and averages $1.75 million a week in (net adjusted) grosses, Disney can spin off a $27,000,000 flop EVERY year and still have $12,000,000 a year to operate the parent company with just on Lion King alone. (I have no clue what Disney Theatricals costs to operate a year.) A hit can be a LOT of money.

If it's this size of a hit, it's certainly going to tour and you'd most likely be allowed to buy your 1/600th of the tour's capitalization... further complicating an already complicated calculation... and then foreign licensing income (productions not produced by the original producers but still this production), and stock and amateur licensing things down the line... will give the original production nominal amounts of money to spin off. All absolutely impossible to calculate.

Now, I'll let you dig around the grosses to see what/how many shows actually average $1,250,000 a week for two years. (But, again, that's on a very specific capitalization and operating expense estimation, so you'll not really be able to create a 1:1 on that.)

There's a LOT of ifs and variables here:
• The actual royalty pool. The royalty pool is a tremendous cost for a show representing 35-45%+ of its net profit expense. I am in no way claiming it's an unworthwhile cost, it's just a very hard one to estimate across all shows because the royalty pools for shows are incredible complicated and vary in terms... sometimes quite tremendously depending on the property.

• The actual cost of a show. In year two, you may need more expensive stars to maintain that box office gross average. You may not need an expensive star at all, but might still need to spend it in marketing/advertising... or fixing automation, or rebuilding expensive replacement costumes.

• The costs of losing weeks if the show has big swings across the year. Deferred royalties. Priority loans. You know, cash flow ... stuff.

• Accounting periods: no show would account by the week... nor by the year. So, a six-week or twelve-week accounting period would certainly change all this.... and, certainly, not in your favor.

But, more than likely, you could end up with $0 quite quickly... and that's why shows have to make you certify that you're an "accredited investor" to put any money in.

Updated On: 9/2/23 at 03:23 PM

DaveyG said: "A close friend invested in the Bette Midler "Hello Dolly." It seemed like a no brainer to turn a nice profit. The investors recouped 105% and they felt with the business it was doing, Mr. Rudin did not serve them well."

If an investor got 105% back. I wonder what % Scott Rudin got back with management fees.

chrishuyen said: "Out of curiosity, did you lose all $50k you put into The Prom or only a portion of it?"

All of it.