Holly Singer, HS Marketing, & Hedge Connection’s Director of Content
On December 4th, Hedge Connection hosted its End of Year Recap and Holiday Celebration. The event opened with Mithra Warrier of TD Securities moderating a panel of hedge fund managers in a discussion of their Best Ideas for 2020. Each of the managers on the panel will have their best idea featured here on The Edge. Below we have Valerie Novakoff, Founder & Managing Director, Broadway Women’s Fund (Broadway’s first impact investing fund) walk us through the ins and outs of investing in theatre.
Investing in Broadway with a Gender Lens Strategy
More and more financial institutions are entering the world of Broadway investing, ARCIS Capital Partners was among the latest to announce its entrance into the market. The purpose of this written summary is to introduce financial institutions to Broadway investing, and share strategies to mitigate risk.
Each show that opens on Broadway, with the exception of the shows produced by non-profit theater companies, is its own privately held company, usually an LLC or an LP, funded by accredited individuals and entities just like you. Depending on the budget and the lead producer’s (usually the Managing Member of the show’s entity) access to capital, there can a couple or several hundred investors. The average investment size on Broadway is about $50,000 per production. A larger investment of about $250,000 or more will give you Producer credit, which means your or your company’s name will be above the title of a Broadway show, you will be eligible to receive a Tony Award if the show wins, and mostly importantly you would receive an additional percentage of profit.
How does an investor see a return on their investment? Each week that a show’s ticket sales are above the show’s weekly operating cost, investors receive their pro rata share of 100% of net profits until the investors recoup their original investments (importantly, checks aren’t sent weekly for administrative purposes, profit is typically distributed quarterly.) Once a show has recouped, the net profits are usually split in half, with 50% going to the producers (this is where the additional percentage of profit to above-the-title producers discussed above comes in) and 50% going to the investors.
What is the success rate of Broadway shows? Roughly 25% of shows recoup their investments. Of the other 75%, although some shows do return 0% of investments, more often they return between 0%-100%.
When considering an investment, here are the three main categories of Broadway shows, listed here in order of typical gross potential:
• Original Musicals – The definition of original musical is a show with a musical score that has not yet been performed on Broadway. Original musicals tend to see the biggest upside on Broadway. A success can run for over a decade, sending checks to their investors quarterly or more. Additionally, investors usually see income from the subsequent cast album, merchandise sales, sale of film rights, one or two national tours, and sit down productions throughout the world. In 1988, theater investor Jim Freydberg headed a team of investors who put in $500,000 in “The Phantom of the Opera”. He has earned an estimated over $15 million profit from the show and is fond of remarking that only his Apple stock has been a better investment (source: Market Watch.)
• Original Plays – Plays don’t tend to run as long as musicals on Broadway, because the market for plays is smaller than musicals. While it’s rare for a play to tour, the script is usually licensed and this licensing income can make a significant return to investors.
• Revival of a play or musical – Investors don’t typically receive subsidiary income when investing in a revival (this right would have gone to the investors of this show’s original production), limiting the upside. Similarly, revivals don’t tend to run as long as successful original shows.
Strategies to Mitigate Risk:
- Double down on cast album and tours. Investors in a Broadway production that goes on to tour and create a cast album are often given the right of first refusal to invest in these subsequent productions.
- Diversify your portfolio. Broadway investing is often compared to drilling for oil, you may have to drill a few holes, but you could get a gusher to make up for it.
- First-time investors should avoid investing in a Broadway show until it has secured a Broadway theater. This way you can calculate the show’s weekly gross potential and reconcile that against the show’s weekly running costs.
- Build relationships. Often, producers will not give first-time investors access to their higher profile projects, they reserve those for people who have invested in their other projects. You may have to wait your turn.
- Invest in women-led musicals. Musicals with more than one woman on the leadership team (written/directed/lead produced) traditionally outperform the market, with a recoupment rate of 45%.
This content is provided as general information only and should not be taken as investment advice. All content shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. Consult an investment adviser before making any investment decisions. This content contains the current opinions of Nova Theatrical LLC and is subject to change without notice. This content is for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. All material presented herein is believed to be reliable but we cannot attest to its accuracy.