Theater things that don’t make sense: Vol. 2. Interested?

Do you get excited when you get a big tax refund?

You shouldn’t.  It means that you just gave the government an interest-free loan for the year.  If you’re a smart saver, you’d be much better off doing some recalculating of your weekly withholding.  Why?

Because the money is always better off in your pocket then the government’s, because you can do something with it:  invest it in a stock, a show, or just let it sit in your savings account earning a few percent in interest.

What does this have to do with theater?

Well, when a show like our non-nominated friend, Young Frankenstein, announces that they have an advance of $15 million dollars, have you ever stopped to think where that money is?  And how much interest it’s earning?  And who is getting that interest?

On a hit show with a $10 million dollar advance, you could earn a 2.4% annual yield or $240,000 with a crappy Chase savings account.  That could be 30 – 50% of the costs of running your show for a week.

And imagine the interest rate you could demand if you took a bunch of advances for Broadway shows and put them together!  Well, that’s what happens.  And imagine what an aggregate $35 – 50 million dollars earns.

Advance ticket sales are not held by the Producer.  Since the theatre owner controls the ticketing agent (and may actually be the ticketing agent), the theatre owner controls the interest.  They are earning money on the money people have paid to see your product.  Doesn’t compute, does it?

Cash management is the key to big business.  There’s a reason why one of the most successful businessmen I know recommended a book to me called Buy Low, Sell High, Collect Early, Pay Late.  There’s a reason why the on-trial bosses at Livent never offered direct deposit (checks never get cashed right away, which means money sits in their account).

There’s an argument out there that Producers shouldn’t hold on to advance sales, because they might try to dip into the money to cover losses or expenses, and because the shows come and go so quickly.

This is true, but it’s also true for every company out there.

You pay for your plane tickets in advance, don’t you?  You don’t see a third party holding on to the funds until after you travel before delivering it to the airline.

You buy stuff online that doesn’t arrive for weeks from companies with only a web site, but credit card companies give the merchants the money sometimes as early as the next day.

Once again, traditional business methods that allow companies to get a leg up aren’t allowed on Broadway.

At least one of the major theater owners splits the interest with the Producer, but not the others, that I know of.

Should they?  Maybe.  Or maybe they’ll argue that there are costs with keeping track of all that cash and costs of doing the ticketing that service fees don’t cover, and that $240k has to pay those administrative fees (cough, cough).

So I’m not saying it doesn’t make sense that we don’t get the interest (although I encourage all of you to ask for the split – we need every ancillary revenue stream possible).

I’m saying that it doesn’t make sense that we don’t control the ticketing . . . and then the interest just happens to come along with it.

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Ken Davenport
Ken Davenport

Tony Award-Winning Broadway Producer

I'm on a mission to help 5000 shows get produced by 2025.

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