Why the difficulty in spotting a hit could make it difficult to turn a profit
If starring on Broadway has long been a dream but you can't sing or dance, investing in a Broadway show might be the next best option to see your name on the marquee – or at least in the production credits.
Investing in Broadway is a high-risk endeavor, with only two out of 10 shows ever turning a profit, according to several producers. But for those that hit their mark, the returns can be truly astounding. Universal Pictures, which produced blockbusters like Jaws and E.T., recently announced that the popular musical Wicked is on track to become its most profitable venture ever, the New York Times recently reported.
Like most investment opportunities in the entertainment industry, the traditional way to invest in a Broadway show is to network with producers and industry insiders in order to learn about upcoming investment opportunities.
“Some producers have more than enough investors in their roster already, but people may approach producers,” said Bob Ost, executive director at Theater Resources Unlimited, a nonprofit organization that helps producers.
The typical amount invested in a Broadway theatrical release ranges between $25,000 and $250,000 but can sometimes go much higher, according to producers. Investors are given shares in a show, which is usually set up as a limited partnership. Musicals cost on average between $6 and $15 million, while plays cost between $2 and $8 million. Investors are entitled to a pro rata profit once a show recoups its initial cost.
One of the biggest challenges for investors, of course, is the difficulty of spotting a hit. Successful investors say it helps to know the track record of a producer and whether or not there will be celebrities cast in the show, but there are always surprises. One need only look at the problems facing the blockbuster Broadway musical “Spiderman Turn Off the Dark” during its first months of production, which were plagued by bad reviews and cast injuries.
For those looking to invest in Broadway but not willing to write a large check, there are alternative ways to invest smaller amounts.
One is crowdfunding, which allows producers to pool micro amounts of money from large numbers of people for a particular project. “If producers could lower the minimum investments to something more digestible, they could find more investors,” said Ken Davenport, a Broadway producer and author of the blog theproducersperspective.com.
Through the Securities and Exchange Commission's Regulation A, a form of simplified public offering that limits fundraising to $5 million, Mr. Davenport funded the musical Godspell, accepting investments as little as $1,000.
Another way to get in on Broadway's action is through a broker-dealer. Opening Night Capital, a new venture that focuses exclusively on raising capital for a portfolio of Broadway plays and musicals. Ruben Brache, a Broadway producer and founder and CEO of Opening Night Capital, said he wants to democratize the way people invest in Broadway. The company became registered with the SEC in 2012 and plans to be fully operational before the end of the year. “Given the odds of success, it's better to invest in 10 shows instead of one,” said Mr. Brache, also noting that since he has a fiduciary duty to his clients, it presents a safeguard for prospective clients.
Financial advisers also urge caution when it comes to turning to Broadway for returns – even with the glamour of the opening nights and visits backstage.
“Investing in Broadway sounds very risky and [is a] long road to making profits,” said Michael Goodman, president of Wealthstream Advisors in New York.
