# Advice From An Expert: Vol II. A Gamblin’ GM speaks

I jokingly twittered from a casino in Palm Springs last week wondering if the odds on the craps table were better than the odds of investing in a Broadway show.

Well, craps and Broadway are no joking matter to my good friend and uber-General Manager, Mark Shacket, who is currently in office at Alan Wasser Associates, one of the largest General Management firms on Broadway.

Mark worked it out . . . so I thought I’d include his musings on the subject as volume II of our Advice From An Expert series! Enjoy!

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CRAPS – EXPECTED LOSS

If we assume the following things:

– that a typical craps table rolls the dice every 30 seconds

– that the point or seven hits every 5 rolls (meaning each “cycle”

from the coming out roll to the end of the session is 5 rolls on average)

– that you play the pass line bet with maximum allowed odds every time, with

max odds 3X-4X-5X (House edge: 0.37%)

– that you make 2 place bets every “cycle” (Average House edge:

4.06%)

– that you make a hard way bet every other “cycle” (Average House

edge: 10.10%)

– that you make 2 prop bets every “cycle” (Average House edge: 12%)

– that your craps session lasts 2 hours

then the expected loss for your 2-hour session is 37.48%.

BROADWAY – EXPECTED LOSS

If we assume that for every 10 Broadway musicals produced, the following

results are achieved:

– 0.25 musicals are HUGE hits (Wicked, Phantom): 1000% return

– 0.75 musicals are big hits: 250% return

– 1 musical is a hit: 130% return

– 5 musicals lose some money: 60% loss

– 3 musicals loss everything: 100% loss

And we assume for every 10 Broadway plays produced, the following results are

achieved:

– 0.25 plays are HUGE hits: 250% return

– 0.75 plays are big hits: 150% return

– 1 play is a hit: 120% return

– 5 plays lose some money: 60% loss

– 3 plays lose everything: 100% loss

then the expected loss for your average Broadway investment is 36.88%.

(It should be noted that the above assumptions are based on little more than my

whim.)

Therefore, Broadway has a slightly better expected return than craps (36.88%

loss for Broadway vs. 37.48% loss for craps). Ken’s question was which

has “better odds”, and these figures suggest Broadway investing has

better odds. But not so fast! Broadway investing may have a better

average return, but the mean return is far lower. What does that

mean? Let’s look at an easy-to-understand example:

The New York State Lottery paid out 54.7% of their receipts in prize

money. Does that mean that if you play the lottery regularly that you can

expect to make a return of $0.547 on each dollar? No! In fact, your

return will almost certainly be far less than that. Consider how much of

that 54.7% payout is paid to the small handful of multi-million dollar jackpot

winners. That will most likely not be you. So playing the lottery

may have an average return of 54.7%, but the mean return (what

the majority of people experience) will be much lower, since they don’t share

in the big payouts.

The Broadway investment analysis above assumes you can invest in every Broadway

show evenly, which you can’t. Broadway’s average loss is mitigated in

large part by being able to invest in the huge hit. In fact, if you

remove only the huge hits from the equation, the expected loss on Broadway

jumps to 52.50%! But because investors can only put their money in select

shows, there is a good chance that they will never find the very rare, huge

hit. Note that 8 out 10 times you invest, you will lose 60% or

more. So the average return on Broadway may be slightly higher

than on craps, but the expected return (ie, the mean return; what most

investors will experience) is much lower. Broadway is therefore a far

RISKIER investment than craps, even though the overall average expected loss

rate is lower.

What can we learn from this? Well, first, only invest in hits. But

there’s another important thing to remember: When you’re rolling the dice on

the felt, you have absolutely no information about what the next number rolled

will be. But when you’re rolling the dice on a Broadway investment or

producing opportunity, you have plenty of information to consider. Who is

the producer and what is their reputation and track record? How does the

budget look to you? What does the current marketplace look like?

Are there other similar shows on the boards and how have they performed?

Who is in the cast or on the design team? Is the script well-structured?

Is the show marketable? Read, learn, and study everything you can about

your investing or producing opportunity and you will be sure have more than

your share of the success.

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Thanks, Mark! See you at the tables!

I think you’re using some confusing terminology when considering the “average” and “mean” return. In statistical terms, “average” and “mean” are the same thing.

I think when you say “mean” return, you really are thinking of the “median” return, that which 50% of the people get more than, and 50% of the people get less than. I do agree that is important to distinguish “average” and “median” in this case, since the big payouts skew the data for the average (as it the case in the real estate market as well – always look for the median price rather than the average!).

Great website you have here but I was curious about if you knew of any discussion boards that cover the same topics talked about here? I’d really like to be a part of online community where I can get advice from other knowledgeable people that share the same interest. If you have any suggestions, please let me know. Thanks!