Who we are and why we’re telling you this.
We are Robert and Carol Walport. We are, and we want to make this incredibly clear, investors, not producers. We’ve invested in over 30 productions of various sizes and shapes in the United States and the United Kingdom. We have some co-producer credits (we’ll explore what this means), and one even won us a Tony Award (we’ll talk about this too!). What we do not do is the challenging work of making a show happen.
Almost all education about the theater industry comes from producers, which makes sense! They’re trying to get people involved and raise money. One of the best ways to do that is to educate. In practice, however, most producers don’t invest their own money, and even if they do, they don’t see things through the same lens as someone whose primary involvement is financial. As we’ll explore below, producers make the most money when investors are doing well, but they can also make plenty of cash when investors are doing poorly. Projects that make sense for producers don’t always make sense for investors. Or if they do, it’s for different reasons.
So that’s what this is, everything you’ve ever wanted to know about putting your money into commercial theater from two people who regularly put their money where their mouths are. It’s really the guide we wish that we’d been able to read when we first started. While it is predominantly U.S.-focused, we invest a fair bit in the U.K., so have tried to add colo(u)r where possible. We cover the basics, but you can find our contact info at the end if you have any additional questions!
We should also note that these are our opinions about investing in theater. We hope you learn from it, but it isn’t financial or investment advice. None of it relates to specific real-world productions. The numerous examples are all fictional, created by us based on the hundreds of actual docs we’ve seen. We’ll talk a bit about how we made them as we get to them, and if we mention an actual project, we’ll only reference publicly available information.
Why invest in Theater?
You could have many possible reasons for investing in theater, but rather than speaking in hypotheticals, we want to tell you how we got into it and why we keep investing. Since 2016, we’ve invested in an average of four to five productions per year. We didn’t intend to be so active when we started, but we got the bug and just kept going. We started the way many investors do, as avid theatergoers (ok, extremely avid theatergoers attending more than 100 shows per year) who were presented with the opportunity to get involved. Simple as that!
Our first offer came with the Broadway transfer of The Play That Goes Wrong. We’d just gotten married, and it seemed like such a cool thing to do together. We didn’t know what we were doing, but had seen the play in London and recognized it as a great show with mass appeal. The idea of going to opening night was thrilling, and playing a small role in making a show happen felt awesome. We got lucky in many ways. We met Stephen Colbert at opening night, made great friends with one of the show's creators, and ended up recouping our investment. And as we’ll explore below, that one investment turned into three, with additional opportunities arising from the tour and Off-Broadway run.
Since that first show, theater investing has become a big part of our lives. Loads of our friends are involved as well, some of whom are investors and producers like us, but we have also met actors, directors, marketers, assistants, and others we would never have encountered were it not for our involvement in the theater world. Showing up to a reading, you might not love the show, but you’ll surely meet some incredible people. Have we made much money? As it happens, we’re doing pretty well! But so much rides on finding a big hit. In our case, that finally happened with Six in 2021, if you’d asked us before that when we were about 20 shows in, we would have had a different answer. Cards on the table—we’ve had plenty of shows that have recouped our investment, but seldom to the degree that they made up for the small number of shows that resulted in significant losses. Like any high-risk investment, a lot will go to zero, but get one Phantom, Wicked, or Chicago, and everything else is paid for.
Unlike other high-risk investments, however, we enjoy investing even if a show fails financially. Some of our most satisfying projects have lost the most money, something we generally thought likely going in. Theater can’t happen without investors, and we are immensely proud to be small, albeit crucial, cogs in the system. We’re also pretty heavily involved in the nonprofit theater world. This guide focuses on the commercial sector, but please reach out if you’d like to chat about the nonprofit world!
How do you assess a show?
You can analyze any investment opportunity in myriad ways, but we’re going to discuss two: financially and artistically. On the financial side, we’ll cover significant production types (e.g., new musical vs. musical revival) as they present very different opportunities.
For any given theatrical opportunity, you will receive variations on the same crucial information:
- Some sort of splashy pitch doc with imagery, cast, creatives, etc.
- A budget that contains all the costs to get the show to opening night plus projected weekly running costs once it opens
- A recoupment chart that projects how long it’ll take to recoup depending on ticket sales
Recoupment: "The point at which the production has repaid investors the initial capitalization, that is, all the money raised to develop, mount, and produce the show."
Like any business plan, such estimations and projections are subject to change. In many cases, they are borderline fantastical, and it’s up to you to work out whether you think they make sense. If you choose to move forward, that’s when they’ll throw the thick legal document at you, and you can choose whether or not to sign.
Below you’ll find some sample budgets. As we mentioned above, these are entirely fictional, but based on many actual production docs that have crossed our desks. (We’re lucky enough to see the docs for a lot of what makes it to Broadway, another perk of investing if you’re nerds like us!) Any specific show may be quite different from these samples, but because of the broad restrictions imposed by unions and the small number of supporting businesses, Broadway shows generally fall into relatively similar cost bands based on the size of the theater, cast, and orchestra.
In general, as an investor, you only care about three numbers:
- Capitalization, or how much money is being raised to get the production to opening night. This is also the amount the show needs to profit before investors are made whole (recoupment).
- Weekly running cost. If the show isn’t grossing more than this, it’s losing money!
- Weekly potential gross. This is a pie-in-the-sky approximation, and where you will really need to unpack the numbers provided by the production. It’s directly proportional to the number of seats, and so largely dictated by which theater the show is in. The ceiling is largely limited, though in rare cases, premium and dynamic pricing can push it higher.
As a rule, anytime you’re sent a recoupment chart, you’ll want to see what top average ticket price the producers are projecting. It may be given (it should always be given but frequently isn’t), but if not, you can calculate it using this formula:
This assumes eight performances a week and gives the mean price of a ticket. If that number is more than $200, you will want to realign your expectations. Unless you have Hugh Jackman or your title character is on a banknote, it’s not happening. On the flip side, we’ve seen show docs that put this number around $120, which is too low. Hit shows regularly earn more than that, so in those cases, you can adjust up.
You are buying a percentage of a show, and so you must consider how these factors relate when you’re evaluating your potential investment. A cheap capitalization means getting a more significant percentage for the same money. Low running costs mean you need lower gross to make a profit, and when you do, the money will also return faster.
In theory, a capital-intensive show that still has low running costs, say a production that’s been through many iterations, might be a great bet. Whereas a show with that didn’t cost much to put on, but costs a lot to run, not so much. On the flip side, big productions can do spectacularly well, and scale can be a central selling point (e.g., Moulin Rouge, Phantom).
Investing in the art(s)
Before we get into the financial weeds, we’d like to add our take on the artistic side and why investing in theatre is important regardless of the financials. The sections below focus on money, which is critically important. But if that’s all this is to you, we’d recommend you tread carefully. There are easier and safer ways to invest your money. Investing in theater is a whole lot more than just financials. We’ll talk about the soft perks later (parties!), but here we’d like to talk about the impact you can have. Theater simply wouldn’t happen without investors and donors. When you invest in a show, you make it happen. We’ve never invested in a show that meant nothing to us, regardless of how financially great it looked. On the other hand, we have invested in shows that we knew would not recoup because we thought it was important for the world to see them.
You can align your investments with the theater world you want to see. How you choose to do that is up to you. You can support particular writers you love, genres you care about, directors trying something new, international pieces, etc. It can be relationship driven or specific to a single show.
We just hope that whatever decision you make, you make it an educated one. It’s a balancing act between opportunity costs and limited capacities; we only have so much money we can risk, and unless you possess unlimited resources, that’s probably true of you too! One show we cared about a great deal, we decided to pass on. When we did the back-of-the-envelope calculation, determining how long we thought it would run and how much subsidy each ticket was getting from investors, we decided it wasn’t worth it. We thought we’d be better off giving the money to a nonprofit. (A discussion for another time, but nonprofits can produce theater at a much lower cost). For us, it’s always worth considering the financials alongside the impact; either can tip the balance. Gloriously with that particular show, other investors reached a different conclusion, and the show still happened! That won’t always be the case, but you should never feel pressured to invest in something that doesn’t fit the bill for you.
All that said, the financials absolutely matter. Few will see a show that can’t financially sustain itself, regardless of its importance. We’ll start with a mid-sized new musical and work down in cost. The individual line items are essentially the same, no matter the show. It’s just how much is in them!
What does a new musical budget/recoupment chart look like?
New musicals are generally the only type of theater investment that can make for financially high-quality investments. With the exception of Chicago, all the long-running blockbuster shows on Broadway are musicals in their original production, and these have returned colossal profits to their investors. On the flip side, the majority fail, sometimes very quickly and often with 0% return, and some (most painfully of all) will just plain suck. New musicals typically cost more, having been built through many iterations plus one or more workshops and try-out productions. These costs are why you’ll often find a whopping development budget line. Some budgets unhelpfully categorize this under general & administrative.
New Musical Production Budget
|General & Administrative||$2,000,000|
|Total Hard Costs||$15,000,000|
|Bonds & Advances||$1,000,000|
This budget shows you roughly how much things cost. The Physical Production, Production Fees, and Salaries are the price of putting on the actual show, and they scale reasonably linearly with the show’s size. We discussed the development above, but these costs cover everything before the production got to its current state. General & Administrative is a ton of minor things that add up to quite a major number. It’s always the most opaque box, but contains things like Lawyers, General Managers, Producers’ Fees (we’ll talk about these later), Travel, Opening Night Party Costs, and anything that doesn’t fit into other categories. The lower this number is, the better, but don’t be surprised by anything $2 million or less. Advertising is a crap shoot, and the numbers thrown around tend to be on the order of a couple of million dollars, scaling with theater size. The more seats you have to fill, the more you have to spend.
Bonds, Advances and Reserve are all, to some extent, the same thing, namely money to cover things the show can’t cover with revenue, either because sales are bad or it hasn’t opened yet. They are broken into multiple buckets, however, because the show can use them in a variety of ways.
Reserve is just that, reserve cash, money that will sit in a bank and—ideally—never be used. For example, a Reserve could be tapped if a budget line exceeds expectations. It is also used to keep the show alive if revenue doesn’t cover the running costs. We’ve seen reserves grow quite a bit since the start of the pandemic.
Bonds are contractual and union payments that cover costs if things go badly. For example, Actors Equity, the performers union, requires two weeks' salary to be held in bond, so even if a production collapses, members still get paid out two weeks' notice. Established producers can get waivers on some bonds, which will lower this line item, but we’d argue it only pushes money around. If a show is closing, the money to pay people for the last two weeks has to come from somewhere. It must be in the Reserve if it’s not in the Bonds.
Advances cover things like royalties, where the author might get an upfront dollar amount that is then paid down through weekly royalties. If a production closes quickly, they still get this amount at a minimum. But again, if things are going well, this cash never gets spent as it’s otherwise a weekly running cost.
New Musical Weekly Operating Budget
|General & Administrative||$60,000|
The lines here are much the same as for the initial budget. The oversized new line item is the Theater Fixed Cost, which is a whopper. The highest single cost for a Broadway production, by a wide margin, is its real estate. Of the commercially owned theaters, all but four are controlled by three organizations. These organizations exert immense control over what gets produced, as there are nearly always more productions that need theaters than theaters available. They can also charge more or less whatever they want, which generally is a fixed fee between $150K and $300K, based on the number of seats, plus about 7% of gross. This often amounts to 30%–40% of a show's running costs. There’s not much a producer can do about these; they look the same for every production.
The table that follows is the recoupment chart. These look confusing at first glance, but are relatively straightforward once you understand how they work. Each column is essentially an individual scenario that could occur based on the percentage of the maximum gross achieved. They reveal how long it would take to get your money back if a show grosses from 100% of capacity down to about 50% (generally, the lowest percentage given represents when the show tips into losing money or is about to). Some charts include 110% or even 120% cases. This is objectively silly, but no different from everyone else’s 100%, the dream of where ticket prices might reach. Do the average ticket calculation we looked at earlier and see what they’re aiming toward! You’ll notice that the gross potential given and the 100% net gross are different. This is because there are fees associated with selling tickets, for credit cards, ticket sellers, etc. Most shows take roughly 8% off the top to account for this, which is what we’ve done here. These recoupment charts vary in their level of fantasy, and it’s up to you to work out what you believe is possible.
New Musical Recoupment Chart
Chart assumes venue has 1,400 seats and total gross potential of $1,792,000.
|Theatre Percentage (7%)||$63,473||$69,243||$75,013||$80,783||$86,554||$92,324||$98,094||$103,864||$109,635||$115,405|
|Net Operating Profit||$93,27||$169,941||$246,603||$323,265||$399,926||$476,588||$553,250||$629,912||$706,573||$783,235|
|Royalty Pool (40%)||$37,312||$67,976||$98,641||$129,306||$159,971||$190,635||$221,300||$251,965||$282,629||$313,294|
|Weekly Total Profit (Loss)||$55,968||$101,965||$147,962||$193,959||$239,956||$285,953||$331,950||$377,947||$423,944||$469,941|
|Weeks to recoup budget||269||148||102||78||63||53||46||40||36||32|
|Weeks to recoup capitalization||313||172||119||91||73||62||53||47||42||38|
The royalty pool is the main element we haven’t mentioned before. This money goes to the authors, creatives, rights holders (if the show is based on preexisting content/music), producers (on occasion), and others. We’ve set it at 40% here, which is pretty typical though we’ve seen it vary from the mid-20s to the low-50s. It also often goes up post-recoupment (or 125% of recoupment), so it’ll be 37.5% to 42.5%. We’ve kept this super simple here as a flat 40%, but they’re almost always more complicated at the edges. There’s also usually a minimum regardless of profits. There are multiple ways of calculating these percentages that can change the numbers dramatically, so multiple recoupment charts are often included. Fortunately, producers and investors are aligned here and work to minimize these.
Finally, you’ll see two lines, weeks to recoup budget vs. weeks to recoup capitalization. These fields demonstrate that the Reserve/Advances don’t have to be recouped if the show goes well so that you can recoup quicker than the entire capitalization might suggest. This matters more with plays where the reserve can be a big chunk of the total budget.
So there you have it — a sample budget for a new musical. Your investment decision is based on this core financial information. There are no hard and fast rules, but remember that the time to recoup also measures how quickly profits will flow back after recoupment. If it takes more than a year to recoup, then that means even in the 100% smash hit case, your returns will potentially be limited. This doesn’t mean you should never invest in an expensive show, but you should be aware of the ups and downs of scale.
Now let’s move on to a revival and see the differences!
What does a star revival musical budget/recoupment chart look like?
Revivals, which are often but not always star-driven, are safer investments, but generally worse bets than new musicals. They already existed, so the quality of the material is known, and they have an inbuilt degree of audience awareness. Getting a major star for a revival is much easier because they’re not risking as much on the unknown. Going into Evita or Sweeney Todd or Gypsy, you know what you’re getting. All this reduces the likelihood of a show failing quickly and you ending up wishing you hadn’t invested. On the flip side, the run is invariably capped by either the star leaving or interest dwindling. When you factor in the soft benefits, you can have a great time with musical revivals, all the perks with somewhat reduced risk, but purely from a financial standpoint, you’re seldom going to make much money.
Musical Revival Production Budget
|General & Administrative||$1,500,000|
|Total Hard Costs||$10,500,000|
|Bonds & Advances||$1,000,000|
There’s not much to delve into that’s different from a new musical here. The big difference is development costs are almost nothing, as you don’t have to develop something that already exists! We made this a mid-sized revival, but they can be cheaper (or more expensive!) depending on the scale and style of the show.
Musical Revival Weekly Operating Budget
|General & Administrative||$60,000|
This looks just like a new musical. This imagined production is going into a slightly smaller theater, which has reduced costs.
Star Led Musical Revival Recoupment Chart
Chart assumes venue has 1,300 seats and total gross potential of $1,976,000
|Theatre Percentage (7%)||$69,990||$76,353||$82,715||$89,078||$95,441||$101,804||$108,166||$114,529||$120,892||$127,254|
|Net Operating Profit||$229,866||$314,399||$398,933||$483,466||$567,999||$652,532||$737,066||$821,599||$906,132||$990,666|
|Royalty Pool (40%)||$91,946||$125,760||$159,573||$193,386||$227,200||$261,013||$294,826||$328,640||$362,453||$396,266|
|Star Royalty (3%-7%)||$29,996||$54,538||$59,082||$63,627||$68,172||$72,717||$77,262||$114,529||$120,892||$127,254|
|Weekly Total Profit (Loss)||$107,924||$134,102||$180,277||$226,452||$272,628||$318,803||$364,978||$378,430||$422,788||$467,145|
|Weeks to recoup budget||98||79||59||47||39||33||29||28||25||23|
|Weeks to recoup capitalization||121||97||73||58||48||41||36||35||31||28|
The big difference in this example star-led revival is a hefty chunk of gross going to said star! They typically scale based on the total gross. In this case, from 3%–7% as the gross increases. The right star is worth the money, and the structure is usually such that if they don’t sell as many tickets as expected, they don’t cost as much! If you did the calculation we recommended, you’ll notice this recoupment chart also assumes a higher top average ticket price of $190. Let’s hope it’s a big star!
Assessing this, you’ll see on the face that the numbers look much better than for a new musical. Best case, we’re recouping much faster, in a mere 23 weeks. This is a great thing, but as we discussed earlier, the production likely has a much shorter shelf life, so it has to recoup quickly if you’re going to see any return. You should also always ask how long the star is contracted. If they only committed to six months, then recouping in 23 weeks at 100% isn’t a great prospect!
What does a play budget/recoupment chart look like?
We’ll just do just one budget for plays, as financially they are similar to revivals. Really the only difference is the post-Broadway life, which has more upside for new plays than revivals. From a purely financial perspective, plays are sadly mostly lost causes on Broadway. On the plus side, they’re cheap to mount (by Broadway standards) and don’t cost too much to run. However, most never find an audience, and even when they do, they won’t run long enough to make much money. The audience for plays is just far, far smaller than it is for musicals. Harry Potter and the Cursed Child is currently the longest-running play, approaching 1,300 performances as of January 2023. If you don’t have the most prominent literary brand in the world behind you, however, the drop is precipitous. The next longest run is Leopoldstadt, at about 130. Another upside of new plays is you get an ongoing percentage of licensing, which in rare cases can amount to real money. It won’t bail you out if you lose everything on Broadway, but it can add up over time.
Revivals of plays aren’t worth investing in purely financially. You’re less likely to lose everything, for the same known quantity–reason as musical revivals, but even if you have a smash hit on your hands, you won’t make much. You might get your money back if you’ve got a megabucks name attached, but that’s about it.
Don’t get us wrong, we’ve invested in loads of plays. They’re often the most rewarding things to be involved with. But if your primary interest is financial, we’d suggest giving them a wide berth in most cases.
New Play Production Budget
|General & Administrative||$600,000|
|Total Hard Costs||$4,000,000|
|Bonds & Advances||$200,000|
There’s nothing fundamentally different between a play budget and a musical budget except, as you’ve probably noticed, they’re much cheaper! The line items are all the same and pay for the same things.
New Play Weekly Operating Budget
|General & Administrative||$40,000|
The same goes for the weekly budget. Identical line items, but all the numbers are less.
New Play Recoupment Chart
Chart assumes venue has 850 seats and total gross potential of $1,020,000
|Theatre Percentage (7%)||$32,844||$36,128||$39,413||$42,697||$45,982||$49,266||$52,550||$55,835||$59,119||$62,404||$65,688|
|Net Operating Profit||$21,356||$64,992||$108,627||$152,263||$195,898||$239,534||$283,170||$326,805||$370,441||$414,076||$457,712|
|Royalty Pool (27.5%)||$5,873||$17,873||$29,872||$41,872||$53,872||$65,872||$77,872||$89,871||$101,871||$113,871||$125,871|
|Weekly Total Profit (Loss)||$15,483||$47,119||$78,755||$110,391||$142,026||$173,662||$205,298||$236,934||$268,570||$300,205||$331,841|
|Weeks to recoup budget||259||85||51||37||29||24||20||17||15||14||13|
|Weeks to recoup capitalization||323||107||64||46||36||29||25||22||19||17||16|
The recoupment chart for a play will have a far faster recoupment speed than a musical. (Again, they cost so much less!) Even with lower ticket prices and generally smaller houses, they break even at much lower numbers, and recoupment can come quickly. Your upside is still capped because the audience will inevitably dwindle, but it’s possible to do alright.
However, the Achilles’ heel of plays is that the slow-burn recoupment path doesn’t meaningfully exist because theater owners don’t like it. A cheap show that makes just enough money to get by also results in the theater owner doing poorly financially. They don’t care about your show’s bottom line, only the gross. Their percentage is the same regardless of a show’s costs. We won’t get too into the weeds, but most plays are only given the theater for a fixed period, sometimes extendable, sometimes not. Even in the open-ended cases, which are common for musicals, theater owners have a stop clause that allows them to close a production if the gross falls below a certain number. This is not common but did famously occur with Beetlejuice being turfed out for The Music Man in 2019.
What does a West End budget/recoupment chart look like?
The West End vs. Broadway is a fascinating cultural and regulatory divergence exercise. The shows are almost exactly the same (about 50% of what’s running at any given time is identical), but the financials look very different. Shows are much, much cheaper to capitalize and a fair bit cheaper to run in London. We’ve seen the exact same show cost more than six times the amount on Broadway that it cost in the West End. The reasons for this discrepancy are more complicated than we can dig into here, but suffice to say, it is the reality we’re all working with.
This doesn’t mean the West End is necessarily financially better, but it does mean different projects have a greater chance of success. The dramatically lower initial costs mean revivals and plays are much better bets in the U.K., and larger, splashier shows can have an easier time getting going. That said, the biggest hits tend to have lower returns because the cheaper running costs are not fully offset by lower ticket prices. In recent years, the West End has got far more aggressive in premium pricing, however, so this isn’t as true as it used to be.
How you assess a show is the same on either side of the Atlantic. Productions pitch in the same way using the same types of budgets and projections.
West End Musical Production Budget
|General & Administrative||£50,000|
|Total Hard Costs||£1,160,000|
There’s nothing fundamentally different here, but everything costs about one-third to one-fifth as much as it does on Broadway.
West End Musical Weekly Operating Budget
|General & Administrative||£6,000|
West End Musical Recoupment Chart
Chart assumes venue has 1,100 seats and total gross potential of £440,000
|Net Operating Profit||£17,600||£34,760||£51,920||£69,080||£86,240||£103,400||£120,560||£137,720||£154,880||£172,040||£189,200|
|Royalty Pool (20%)||£3,520||£6,952||£10,384||£13,816||£17,248||£20,680||£24,112||£27,544||£30,976||£34,408||£37,840|
|Weekly Total Profit (Loss)||£14,080||£27,808||£41,536||£55,264||£68,992||£82,720||£96,448||£110,176||£123,904||£137,632||£151,360|
|Weeks to recoup budget||82||42||28||21||17||14||12||11||10||9||8|
|Weeks to recoup capitalization||107||54||37||28||22||19||16||14||13||11||10|
We debated whether to include a sample recoupment chart for the U.K. because, unlike in the U.S., they vary quite a bit structurally. The biggest reason for this is that London theater owners are far more collaborative with producers. They charge somewhat less for their venues and enter into varied agreements, in some cases taking a fixed fee, a percentage, or some combination that might vary pre- and post-recoupment. To facilitate discussion, we made this one comparable to the Broadway examples.
The eagle-eyed reader may have noticed that the difference between the listed gross and the 100% net gross is much larger than 8% on this chart. This is because New York theater tickets have no sales tax. In the U.K., however, VAT is paid on every single one, so a cool 20% of the ticket price goes straight to the government.
The lower cost of real estate permits far more variation in what goes into the theaters. It creates opportunities for shorter runs, multiple shows in the same venue at the same time, and much more theater-hopping for productions. (As of January 2023, Danny Robins’ 2:22 is in its fourth theater in three years, which could never happen in NYC). On top of that, there’s a greater variety of theater sizes, allowing for even more flexibility. We’ve seen a recoupment chart that theoretically allowed the production to recoup in one week. (Dear reader, it did not recoup at all!)
Overall, U.K. recoupment charts, despite the lower numbers, are probably a bit more rosy on average than those in the U.S. The market’s more varied, with a lot of discount tickets and plenty of empty seats. It’s still possible to do incredibly well, and we think it’s often wise for U.S.-based shows to use London as a launch pad since the costs are so much lower. In our experience, though, it’s not quite as impressive as the raw numbers might suggest.
Producers and Investors?
The basics are the same for every Broadway show. Up to recoupment, investors get 100% of the running profits. After recoupment, the profits are split 50:50 between investors and producers.
In London, this can vary, and a show might have a 60:40 split toward the investors. On Broadway, it’s always 50:50. There is no hard and fast reason why it has to be this way, it just is.
Financial nerd sidebar. Coming from the private-company financial world, this implied valuation approach to Broadway is daft. In essence, at the time of raising for Broadway, every show is valued at twice its capitalization, with a 1x liquidation preference. It’s so arbitrary it’s hard to know where to start.
Throughout this guide, we're principally talking about investing as a show reaches Broadway, when the bulk of the money needs to be raised. It is your most likely opportunity to make your first entry into theater investing. However, investing earlier in a show’s life, even before it has been written maybe, offers additional financial rewards that are usually structured as some portion of the producer’s 50% cut. This is called “front money.” Investing at this stage is far riskier as the show might never even reach the stage!
So who are all these co-producers?
Co-producers have either invested a substantial amount of their own money or raised substantial amounts from others. The minimum is generally $250K, but it can be upwards of $1 million. We’ve done this on several shows by offering our friends and our wider network the opportunity to invest with us.
We do this for two reasons (and we imagine others have similar reasons):
Primarily, we think it’s great to get involved like this and see no reason our friends wouldn’t as well. If you’re reading this now, you probably see the appeal yourself.
And co-producers get perks! The biggest one is having your name listed above the title and in the playbill, which means that if the show wins a Tony Award, you get one! We have a Tony Award, for Best Revival of a Musical for Once on this Island, with our name on it sitting at home. It feels slightly daft to us, but raising money is hard, and Broadway needs its co-producers.
Co-producers also get financial perks, usually a share of the producer’s profit. This percentage is based on how much the co-producer raises, so if a co-producer raised $500K, they might get a one-quarter share, or 25%. This means that once the show starts making money, they will receive profits—out of the producers 50% share—equivalent in this example to having invested $125K (25% of $500K). Investors always keep their complete 50%. It can be a significant amount if you co-pro a big hit, but as mentioned above, raising money is hard and the producers only offer this perk because they can’t raise the money without it. This is also why some shows have few producers listed. The lead producers keep more of their 50%, if they use fewer co-producers.
So producers make money only after recoupment?
The basic model goes producers make nothing until a show recoups, after which they take 50% of the profits. So far, so beautifully aligned. Producers do well when investors do well. Everyone’s happy!
Except not really. Producers almost always receive other fees that are quite substantial in some cases. (It’s worth noting that co-producers do not ordinarily share in these fees; they only do well when their investors do well.) These usually come in two forms:
- Weekly, fixed “office fees,”which are usually in the $2K–$5K range — a pittance in the overall budget but nothing to sneeze at.
- A small percentage of the gross, or sometimes (more agreeably) of the weekly net profits, which is usually at most 2%, but 2% of $1 million is $20K!
We’re not here to argue right and wrong, and we certainly don’t begrudge producers making money. Putting on a Broadway show requires an enormous amount of work, and many shows fail long before they open. Being a producer often means overseeing — and paying — a large staff as well. However, as an investor, you should be aware that because of these extra income streams, even a well-intentioned producer can be making plenty of money on a show that has no chance of recouping. It’s a situation that can create tempting incentives to keep a show running when closing up shop and returning the money in the bank to investors would be the better financial approach.
Who can invest?
We’d love to say anyone, but that’s not the reality. One rule cannot be circumvented: Investors in Broadway shows must be accredited. Being an accredited investor is a federal standard that says you must have one of the following:
- A net worth of at least $1,000,000, excluding the value of your primary residence; or
- An income of at least $200,000 per year for each year for the last two years (or $300,000 per year combined income for married couples) and the expectation of making the same amount this year.
This rule isn’t specific to Broadway and applies to most investments in private entities in the U.S. (You might have seen crowdfunding platforms allowing for non-accredited investors, but as yet, the demanding nature of these specific regulations has prevented them from working effectively for Broadway.)
Now, in all transparency, most Broadway entities don’t require proof of your accreditation, but we strongly recommend not lying — though we’d wager more than a few people do.
Ok, I’m in. How do I invest?
Practically speaking, the production will send you some paperwork, which you’ll review and sign, then wire them money or mail a check. The production should countersign it, but distressingly few do unless you ask. The hard part, however, is getting the opportunity to see that paperwork. It’s illegal to solicit or advertise investment opportunities on Broadway, so most investors come through existing networks, resulting in something of a closed shop. Press releases announcing who is producing a specific show can be an excellent entry point, however, providing you with a name to reach out to, through a website or other avenue.
Some shows, especially potential hits, will only be offered to people who producers have worked with before, but remember, raising money is hard. Few producers have unlimited networks, so there are often ways in. You’re welcome to reach out to us through the form at the bottom of this page. A lot passes across our desk, and we’re happy to forward opportunities (though, boring legal disclaimer, this is not an offer to invest, which can only be made in offering documents). As mentioned, we also sometimes raise money as co-producers, although we make a point never to ask anyone for money if we aren’t also investing our own money.
How much do I have to invest?
Generally, the smallest unit is $25K, and most productions won’t take less than a half unit, making the minimum amount $12.5K. Many bigger musicals have moved to $50K or even $100K units, which shifts the minimum to $50K or more (in practice, we’ve not seen anyone turn down $50K). The unit thing is arbitrary, and there’s no legal or financial reason for it. It really just keeps things simple. If for whatever reason though, you wanted to invest $40K, most producers would take it.
In the U.K., everything’s much cheaper. Units are often £10K, and minimums can go as low as £2.5K.
What do the offering docs look like?
They look horrendous. We’re not lawyers, and our lawyer might not agree with that assessment, but once you see them, we’ve no doubt you’ll agree. The most recent one we received is 124 pages… and the font is not large.
They’re incredibly detailed, covering just about every plausible scenario… and they protect the producers over the investors in almost every case, which makes sense because they had the docs drawn up, after all. Make peace with the fact that the producers have all the control and sign away. If you’re a huge investor, you can occasionally negotiate concessions on some terms, but in practice, you take it or leave it.
We’re often asked if you need your own entertainment lawyer to review these docs. This is entirely up to you and your own personal situation. We’d argue that if you’re just getting started and taking a unit or two in an upcoming Broadway show from a reputable producer, there’s not much to be gained by doing so. You’re getting what everyone else is getting, and you’re either in or out. That said, it’s an individual decision, and a good lawyer will give you peace of mind. You just might end up spending a non-significant additional percentage on top of your investment on their fees. On the plus side, these docs are 95% boilerplate, so once you’ve read and understood one, every show after that just needs to be reviewed for differences.
We should note that in the U.K., the equivalent docs are about ten pages long, remain almost entirely readable, and seem to achieve the same thing. We’ve never been in a huge legal dispute on either side of the pond, so your mileage may vary. (Remember the “we’re not lawyers” disclaimer above!)
What should I expect after I invest?
With most financial investments, you hand over your money then wait for them to give it back, hopefully with a hefty return on top. Investing in theater offers so much more!
There are two main, soft (i.e., non-financial) perks that you receive as an investor:
- Opening night tickets and party passes: These are often fabulous affairs and a chance to rub shoulders with all sorts of interesting and famous people.
- House seats: You can purchase reserved tickets in the best parts of the house at regular top ticket prices. This is great because one, just getting a ticket can be challenging (especially for a buzzy show), and two, in this era of premium pricing, you won’t have to pay upwards of $200 to see your own show! When you’re involved with a big hit, this can be quite a significant perk, as you can also get house seats for friends and family.
There are other perks as well, though they depend on the show and the lead producer. If these aren’t offered, it’s always worth asking. The worst they can do is say no. Additional benefits can include:
- Dress rehearsal and first preview tickets: Seeing the earliest performances, particularly for a new work, can be incredibly exciting.
- Tech rehearsals: These go on for many days and are very, very slow, but they’re also how the sausage is made, and getting a glimpse behind the curtain is always a thrill.
- Backstage tours: The pandemic has put a stop to these for now, but hopefully, they’ll be back soon!
- Access to Tony Awards tickets : These are pricey ($750+), but it’s always a grand evening, and if your show is nominated, there’s also possibly a party for you to attend afterward.
How do I track the show?
Broadway is a seriously unusual industry in that despite having no legal requirement to do so, every show releases weekly revenue numbers. It’s pretty mad when you think about it, like all Times Square restaurants releasing weekly numbers of diners. But it’s also fabulous because anyone can see how any production is doing. You can’t understand the overall picture without knowing the underlying costs, but you can get an excellent indication of each show’s health.
You saw the initial budgets as an investor, so from opening week, you should be reasonably sure where your show stands. However, they were only budgets and projections, so the reality probably didn’t quite match what you saw when you signed and mailed your check. That’s the reality of running any business, but as an investor, you will eventually receive financials detailing the health of the production. These don’t come as often as we’d like, however! Depending on the production, it can be anything from six times a year to once a year, but whenever they arrive, they give complete transparency.
How do I get paid back?
We can only share our experience as investors, but it should not be construed as tax or legal advice. Talk to a lawyer or accountant, as your situation will vary.
Broadway productions form production-specific LLCs (occasionally LLPs) and are treated as pass-through entities. It’s a passive investment, so investors get an annual K-1 for tax purposes. If the production goes into profit, the income reported on that K-1 is taxed as ordinary income, and any losses are passive until the LLC is closed, at which point you’ll get a final K-1 and can write off the loss. Factoring in the tax write-off, even if the production never returns a cent, you’ll eventually get whatever your tax rate is back when you file your taxes. Since you have to be accredited, this is likely to be more than 30%. An investment going to zero is painful, but the tax deductibility results in your maximum loss being about 70% of what you invested.
A successful show will send checks/wires/ACHs at irregular intervals based on the cash flow of the show. Depending on a myriad of factors, mostly relating to the overall health of the show, producers may hold onto more or less cash at any given time. Even successful shows have quieter weeks (Broadway is quite seasonal), so some producers hold onto significant amounts to ensure they can weather the slow periods.
What about the tour?
The national tour that inevitably follows even unsuccessful Broadway shows is another place where money can be made. Tours are usually financed independently of the Broadway production, but the opportunity to invest your pro-rata share is usually given. We’ve seen fewer Broadway docs guarantee this right in recent years, which is a trend we don’t much like. Winning on Broadway is rare, and the opportunity to double down on wins by investing in the tour is a significant opportunity that producers should not take away.
The biggest difference between a tour and a Broadway run is tours get minimum guarantees from their venues, meaning that even if sales are awful, the touring entity still gets paid a decent amount, often at least enough to cover costs. This assurance makes tours far safer bets financially, though the length of the run is also capped, so a tour will never make the megabucks that an unlimited Broadway run can.
Some producers may suggest as they are trying to woo your investment, that a show will lose money on Broadway and make it up on the road. There is some truth to this, but it’s the producer who stands to benefit the most. The 50:50 split when a show goes into profit applies to the specific production entity, meaning that the producer can start making large sums from the tour long before you’re made whole. Full example below:
- You invested $1 million into the Broadway entity, which raised $10 million. As a result, you own 10% of the production.
- It fails on Broadway, returning $0. Oh, Dear!
- The tour is well booked, so you decide to keep your 10% in the tour. The tour costs $5 million, so you invest your full share of $500K.
- The tour triples its money earning $15 million! A fantastic outcome, but…
- Not good enough! You get back your $500K plus 10% of 50% of the $10 million profit, which is $500K
- So your $1.5 million investment has returned $1 million, and meanwhile, the producers have made a cool $5 million from the tour.
So having invested in Broadway following on into the tour was worthwhile. However, the original gambit of Broadway to Tour worked for the producers but not the investors.
We’ve seen more tours funded directly out of the Broadway entity in recent years, and this is generally very positive. Still, it does come with added risk for original investors who might not want to be involved in a tour that can lose money. We’d argue the fairest solution would be for tours to pay back the producers’ share of the profits to the Broadway entity until the Broadway entity has recouped. However, producers are unlikely to do that as they benefit too much under the current system.
In the U.K., tours are far riskier as the guarantees are much lower (if they exist at all). This isn’t to say you can’t do well (we’ve made some healthy profits on U.K. tours), but the downside risk is higher.
And the album?
Albums are primarily funded independently and pay the original mother company (usually the Broadway entity) some fee based on sales. You might be offered the chance to invest directly in the album, though not all investors get the opportunity as producing the album costs much less than the Broadway run. In practice, this is no big deal. Albums don’t sell a ton these days, so the money involved is not huge.
So what are my odds?
Since we started investing in the theater, we’ve seen lots of numbers bandied about, but the reality is virtually no one knows. Some shows publicly announce recoupment, but not all; and those that do announce, don’t keep reporting how much they make. Only investors and producers know what the final return on investment amounts to. On the flip side, no one ever announces what percentage they’ve returned if they don’t recoup and there’s a big difference between a 0% and 90% return.
As we discussed above, you can shift your odds heavily by investing in certain types of shows. There’s a category of theater project that nearly always loses its money, and though that doesn’t mean you should never invest in such passion projects, you should be able to identify them and make educated decisions based on all the facts. Star-driven theater generally has a higher floor but a lower ceiling. You’re unlikely to lose everything, but the limited run with a big star means even in the massive-hit scenario, you’re probably doubling your money at best. A new musical is much more likely to fail than succeed, but if it resonates and breaks through, you could receive checks for decades, plus get follow-on opportunities to invest in albums, tours, etc.
We’d recommend going into every investment expecting to lose. However, if you stick at it and place enough bets, you’ve every reason to expect some return over the long haul. On a purely financial risk/reward basis, you’re better off in more conventional investments. But if you’re thinking about theater purely financially, you’ve missed the point, which is the absolute joy and privilege of being a small part of a fantastic industry.
Get in touch
If you’re interested in learning more, please reach out. We’re always down for a chat with folks interested in this world! Since we started investing, we’ve wildly expanded our horizons and look forward to continuing to do so!
Note that contacting us indicates your interest in learning more about theater investing and nothing more. An actual investment can only be made for a specific production after you have received, reviewed, and signed offering agreements. This is not a solicitation or offer to invest, nor to advise you on any investment.