Broadway is a risky investment.

Duh.

But Broadway can also be ‘wicked’ profitable.

Double-duh.

But here’s the question that I’d like to see answered . . . because if the answer is what I think it is, I believe it could:

1) legitimize the business model of the industry

2) bring a whole new crop of investors to our biz

The question is:  is Broadway, as an overall asset class, profitable over the long term?

In other words, if you could buy shares of a Broadway index fund, like you can with the Dow or the S&P, and own a piece of every show, would you end up in the black or the red?

This data could be oh so valuable.  That’s why I believe Broadway should hire an independent analyst to do the following:

Examine the profitability (or lack thereof) of every single Broadway show from a set period in time . . . Let’s say, 1980.  Take the 3% return on one show and add it to the 140% return on another with the 50% return on the next and so on and so forth . . . right through to the current day.  Average it out and bingo . . . we’d see what the overall profitability of the entire industry is over this 30 year period.

My bet?  It would be a positive number, because the number of mega hits (Wicked, Phantom, Les Miz, Rent, etc.) and their massive ROIs would more than make up for the losers, resulting in a profitable industry for investors.

And for an investor, that’s more exciting than a Sports Illustrated Swimsuit Edition at a Boy Scout retreat.

Because then the pitch becomes . . . if the industry makes money, then smart investors that chose wisely, and invested with the right Producers and the right projects, could beat the ‘market’ (just like stock market investors try and beat the indexes) . . . as long as they invested for the long term and diversified over many shows.  But they are starting from a positive place.  The “market” makes money. Now it’s up to you to make it or lose it, just like any other financial market.

Proving to people that your industry and your company is profitable is the best way to attract more capital, which allows you to produce more product . . . including riskier product that pushes the boundaries of what audiences might not expect they want to see (like non-star driven vehicles, new plays, etc.).

What’s the problem with the above?  Well, I’d guess that the biggest obstacle would be getting the Producers (especially of those mega-hits) to share the data on how much they’ve made.  But that’s why an independent analyst would be key.  The data would only be submitted to a third party, non-industry, Price-Waterhouse style team that would only release aggregate results.

It only works if everyone is involved . . . but, frankly, everyone should be.  This kind of data could not only get us a seat at the big kids table . . . but it might even get us double dessert.

What do you think? Think we’d be profitable over the last 30 years?  Last 50 years?  Last 10?

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5 Responses to The Broadway Index Fund – Profitable or Not?

  1. Rich says:

    An interesting conceptual question, but probably lacking a practical mechanism to succeed. Index Funds, etc. are comprised of publicly held companies, which are characterized by fluid liquidity (stock market) and bound by accurate & timely financial performance disclosure, highly regulated by law. How many Broadway Co’s are publicly held? While privately-held theater companies have legally binding obligations to their investors, the absence both of liquidity and of uniform reporting standards would preclude index-fund type financial marketing vehicles. Then there is the volatility associated with many theater Co’s that you don’t find with e.g., members of the S&P 500. Etc.

  2. NW says:

    It could be put together as an investment pool obligated to invest its money within a set period (I’m not sure how that would be set up legally). Such an investment wouldn’t be as liquid as an index fund, but once fully invested it shouldn’t be difficult in principle to place a valuation on it. If any money was uninvested then the investors could request/require its return at set intervals (e.g., yearly).
    A big concern would be fees taken from the invested money. Expenses for a low-cost US index fund might be 0.18% of assets (Vanguard Total Stock Market Index Fund Investor Shares; Vanguard has a fund with less than half the expense, but it requires a larger initial investment). Hedge funds might take 2% of assets and 20% of profits. Where on this expense continuum would you expect a Broadway Investment Fund to fall?
    Finally, would you outline on a best estimate basis just how much money an investor in a smash hit might make? E.g., what would returns for someone who invested in a “Wicked” or “The Phantom of the Opera” look like? Thank you.

  3. Cotton says:

    I love the idea of investing in Broadway as in index fund! But only as an Index fund. As someone who is very conservative fiscally, I don’t believe in timing the market, or beating the market, or anything of that nature. For me, the appeal of the Index fund is the relative safety that comes with the diversity of its investments. I like the idea of having that “safe” way invest in Broadway.
    Although, with regard to the idea of “timing the market”, given that there is often a dip in Broadway ticket sales (and thus a closing of Broadway shows) in January, it could presumably pose a bit of an investment sticky point.

  4. linda says:

    I think if public and private elementary schools can make it part of their curriculum for kids to see shows like wed matinees ,they could get alot of youthful exposure and bring passion of theater and creativity up to date.
    how about free ticket to a show for students that excell or for birthdays?there are plenty of empty seats,,,
    I do think young parents are giving singing and dancing lessons as self esteem boosting activities to combat drugs alcohol usage especially in the tri state area.
    then again we have to accept that the poney express mail delivery is no more and times change,stage shows can become outdated.

  5. [...] P.S.  Professor Simonoff and all your Stats students, if you, you know, need some other ideas on numbers to “crunch”, let me know.  I’ve got a few ideas. [...]

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