Investing in Broadway shows I’ve gotten a lot of questions from readers all over the world expressing interest in investing in a Broadway or an Off-Broadway show.  Usually they are unsure about how to get involved and, more importantly, they want to know how to pick their first show.

Since this seemed to be such a hot topic, I thought I’d take a couple of blogs to dispel a few of the nasty rumors associated with investing in Broadway or Off-Broadway shows, and also give you my checklist of how to choose a show to invest in.
Today, we’ll deal with the rumors.  Tomorrow, the checklist.
Ready?  Here is part I of How to invest in a Broadway show:
BROADWAY INVESTMENT RUMOR #1:  Investing in Broadway shows is only for the super-rich.

Because Broadway capitalizations can range from $2 million for a Play up to $20 million for a Broadway Mega-Musical, many people fear that the “entry point,” or the amount of money required for an initial individual investment, must be astronomically high.

Not true.
While the average smaller investor in a big Broadway show is probably about $25,000, I have seen many shows where investors were able to get in for as little as $10,000, and even a few where the entry point was only $5,000!  There are a lot of publicly traded mutual funds that don’t allow you to get in at that level.  These lower investment thresholds are very common in the Off-Broadway arena.
What determines the lowest investment level?  Here’s how it works.  Capitalizations are divided into ‘units’, just like shares of a stock.  What defines a unit is up to the Producer.  Some Producers like to have a round 100 units per show, regardless of the capitalization. Some like to pick the lowest amount they can accept as an investment (some shows are limited to the # of investors they can have).  Some just make it up arbitrarily.
Here’s a tip.  If you’re considering a show and you get sticker shock when you hear the price of one unit?  Ask for a partial.  Splitting units ain’t like splitting an atom.  It can be done with ease.  Depending upon a variety of circumstances, including how hot the property is, who the producer is, and whether or not other investors took “round units,” it may be possible for you to invest in a smaller amount than the “ask.”
The key is, of course, never be pressured into investing more than you’re willing to lose.  If the entry point on one project is too high, don’t worry, there are others.
BROADWAY INVESTMENT RUMOR #2:  Investing in Broadway shows is only for the super-crazy.

So many people think that it’s bonkers to get involved with Broadway.

The fact is, if you’re an individual of a certain net worth, your traditional financial advisor will probably recommend that you allocate a certain amount of your investment portfolio (usually about 10%) to higher risk instruments or so-called Alternative Investments in order to diversify yourself (most Broadway and other AIs require investors to be “Accredited,” although this is not always the case for shows).  Look at the Smith Barney site here to see a description of the Alternative approach.

Why would Broadway, with its high risk but potentially high return, be excluded from that list?  In fact, it isn’t.  Check out the Wikipedia entry for Alternative Investments here.  Recognize anything?

Alternative Investments, including Broadway and Off-Broadway shows, are high-risk, without a doubt.
The commonly quoted statistic is that only 1 out of 5 Broadway shows recoup their investment (that ratio is even lower for Off-Broadway shows).  But it’s not the only high risk instrument on the market, by any means.  Investing in Broadway shows is a lot like investing in a restaurant, a piece of art,  or frankly, in any entreprenurial start-up.  Look at this statistic that puts the success rate of start-ups at the exact same percentage as I just quoted above – 20%!  See, it’s not as bad as we thought.

And, if you do proper due diligence, as we’ll discuss tomorrow, you can increase those odds.

Also, with big risk can come big rewards.  Even if you do end up performing according to the stats, the goal and hope is that the 1 show out of 5 ends up paying for any other previous losses (it’s a marathon not a sprint) and then some. Imagine what it would have been like to invest in Annie, West Side Story, Cats or Wicked.

BROADWAY INVESTMENT RUMOR #3:  Investors in Broadway shows belong to an exclusive ‘club’ that doesn’t accept new members.

While it is true that there are a lot of investors in the Broadway world that have been in the circle for a long time, it’s not as closed door of a club as you think.  While it can be hard for a new investor to get in on the hottest shows coming to town, it’s not impossible, and sometimes, Producers will let you get in on a ‘sure-thing’ (which doesn’t exist, by the way) if you also agree to come into something a bit more risky.

However, it is a relationship business, and preferential treatment is often given to investors who have been doing it longer, and to those that have been faithful to the Producer.

So what does a new investor do?

Start the relationship.

Call a Producer.  Email them. Fax them.  Simply state that you’re looking to invest in a specific show (if you know one that they are about to do), or ask to be put on the list to be called about their next show. It’s not a commitment for either party, and I don’t know any Producer out there who would mind putting you on a “potential” list.  Just make sure you are serious about your interest.

Those are three of the biggest obstacles potential Broadway and Off-Broadway investors tell me prevent them from taking the first step and joining the ranks of Broadway investors.  Tomorrow, we’ll talk about just how you choose a project to invest in, once you’ve decided that investing in Broadway is something you definitely want to do.

Click here to read How To Invest in a Broadway Show:  Part II.

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Interested in learning more about investing in Broadway shows?  Learn all of my tricks and tips at my How To Invest in a Broadway Show seminar.  Click the link below to learn more and register for the seminar.
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4 Responses to How to invest in a Broadway show. Part I

  1. Reetha says:

    Nice blog& presentation. Keep it up and write more. I voted for your blog and suggested to my fnds also. I hope you are so kind to vote for my blog also. This is my voting link
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  2. Don Horn says:

    What I would like to know is that some company (mine) in Portland Oregon has been approached by several people. “we want to invest in your show as we believe it has legs.” What’s the next step? Is there someone who can help us little guys on how to get investor packets and agreements and not get eaten up by ‘entertainment’ lawyers? This is a question I need help and would love an answer to. THANKS!

  3. Merez says:

    Ken,
    I agree that there are alot of great shows out there where the price of investment is more affordable then you think…but the kicker is that most Broadway shows require investors to be “accredited”.
    I think there are alot of people out there who might be up for investing 10K in a Broadway show but don’t meet the standard accreditation of at least $1Million in assets or an annual salary of $200k or more. But most shows require this….
    The Godspell model is a bold step toward an alternative model but that’s currently one show out of many.
    Any thoughts?
    Thanks!

  4. Jesus says:

    Mr davenport
    Is there any way you could help find someone that would be willing to invest in a off broadway show. Maybe with the people you mingle. Or maybe yourself. Please give your opinion on a Idea of a Spanish musical for Las Vegas. There’s no Spanish musicals in Vegas only Spanish entertainment are boxers, Mexican singers. I got the perfect musical, 20% of Hispanics live in Vegas as neighbors we got L A,AZ,utha, plus all the Spanish that fly from all over the world. Tho market is waiting for us to tap in. You know the numbers, I went to go see the blue man show and did not like it. But my point is that I pay my ticket. And they made there money. My dauther went to go see wicked. She wasn’t to impress
    First of all my musical is perfect I ask different people and love the idea. In Vegas just alone for being in Spanish people are going to see it. Second I got the perfect artist please
    Mr davenport give me your opinion. This could make us lots of money. Those shows that I told about there not all that good and still making money. Sincerely Jesus Villarreal

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