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.”
Leave a Reply