Why investing in Broadway or Off Broadway is better than investing in the stock market.

Whenever you are selling anything . . . from tickets, to why a star should sign on to your show, to a vacuum, you have to remember that you’re never selling IN a vacuum.

There is always something that your “consumer” could buy instead.  They could always get tickets to another show (or, God forbid, a movie).  The star could always sign on to another show (or, God forbid, a movie).  And they could always get a Swiffer (or, God forbid, they could just leave their apartment a mess and go to the movies.)

You not only have to sell why your product is worth whatever price they are paying, you also have to sell why your product is better than the other products that are out there.

For example, when raising money, one of the common questions that I always have to be ready for (and one that you should be ready for when you start raising money) is, “Why should I throw money into such a high risk venture when I could throw it in the stock market instead?”

Hmmm, good question, right?  Actually it’s a great question.

There are of course a bunch of reasons why someone would invest in the theater as opposed to the market:  opening night tickets, high risk but big upside potential, house seats, billing, potential tax write off, or just because they believe in you.

But most of those are indirect comparisons.  When you’re selling stuff, you need to find direct comparisons between the competition, like . . .

Yes, investing in the market is safer, without a doubt.  And you should encourage your investors to do so, to create the most diversified portfolio possible.

But when you buy a stock, you not only have to know when to buy . . . you also have to know when to sell.  Stocks go up, but they also come down.  You could invest in a blue chip a year ago that everyone was recommending and a year later it could post almost a 10 billion dollar loss.  And no matter how much your stock went up over the last year, if you didn’t get out in time, you lose.  You may have made a smart decision a year ago, but if you’re not a expert market watcher, then you could end up with a tax-write off anyway.

Here’s the thing about shows . . . once they get over that humungo hurdle and actually recoup, they never go the other direction.  Once you’ve got a winner, you’ve got a winner, and your gains only increase.  Sure, the gains may be small, or they may slow down when the Broadway show closes and when your show is only being done in high schools, but you never have to worry about selling.  Returns diminish, but never reverse (barring some sort of extreme circumstance like litigation).

When you buy a stock, you have to be smart twice.  When you buy Broadway, the pressure is on only once.

Ok, that’s not true.  You also have to figure out what to wear to the opening night party.  (And there’s another reason why people invest in the theater instead of the market – you don’t see Citigroup throwing parties for investors when they buy 100 shares, do you?)

Would the traders at Goldman Sachs punch holes in the above theory and find direct comparisons of their own to prove why investing in the market is better than a musical?  Probably.

That’s just as much their job as it is yours.

Then again, they were also recommending Citigroup last year.

So don’t sell in a vacuum.

(Insert your own Davenport-style “sucking” reference here)

 

If you are interested in learning more about investing in Broadway shows, click here.
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Comments
  • Cedric Yau says:

    Some would argue the Berkshire Hathaway Annual Meeting for shareholders led by Warren Buffet is better and lasts longer than an opening night party. And with that stock, you only have to make the decision to buy. 🙂
    As for other advantages, theatrical investments, stock investments are highly liquid–if you don’t like your Citigroup investment, you can quickly find a buyer for $10 online. It’s a little tougher to sell a LP stake, even if the show is doing well. Try figuring out how much the future cash flows from an original $1MM investment in Miss Saigon or Avenue Q are worth…
    Diversification. With a fund (e.g. mutual or exchange traded), you can buy a small portion of hundreds of companies, reducing the downside effect of investing in a dud. Standalone risk and variance are very high in theater (an est. 5/6 shows don’t recoup–so it’s all ‘er nuthin). Given a limited number of theatrical investments available at a time, your “portfolio” may not find its home run for a few years.
    Transparency. There is significantly more data available for publicly traded companies than a theatrical production. This information is provided real-time and easy to access. Yahoo Finance will not tell you if Legally Blonde is currently profitable. (Yes, BroadwayWorld tells you the gross of $554,401 but without the NUT, there is no NET.) As for Citigroup and recommendations to buy, I’ll just say that based on *public* information, some of us were able to discern a high level of downside risk with financial companies in general.
    Since you ask about Goldman Traders, who made $4 BILLION shorting subprime, I will ask if you can make money shorting theatrical investments. In the stock market, you can make money betting on success, and you can make money betting on failure. Can you profit a from young, aspiring producer wants to create The Great American Vampire Musical: “Bloodsucking Time for Hitler”?

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