Podcast Episode 15 Transcript – Dan Wasser
Ken: Hello everybody in Podcast Land. Welcome back to the Producer’s Perspective Podcast. Thank you all for the continued great feedback on the podcast. It’s been so much fun for me, reading the tweets and e-mails and hearing about all the fun places that you’re listening to this thing, from the treadmill to the airplane. So, please, keep it up and don’t forget, send me your requests for guests and I will see what I can do to deliver them. I’m having a lot of fun with these podcasts and I hope you are too, but today’s podcast is very, very serious because we’re talking about the law. I feel like we should have the theme song to LA Law or Law and Order or something. I’m sitting in the very fancy and serious Madison Avenue law offices of Franklin, Weinrib, Rudell & Vassallo, one of the top entertainment firms in the world. The firm handles all areas of the entertainment industry, from film to television to music to books . . . they actually represent that little-known author named John Grisham . . . and, of course, Broadway. Across from me sits one of the firm’s partners, Dan Wasser. Welcome, Dan.
Dan: Hey, Ken. Glad to be here with you.
Ken: Dan is a super lawyer and I mean that literally. For those of you who don’t know, there’s a publication and a website called “Super Lawyers” that rates attorneys and Dan was one that they bestowed that honor on, which ranks him as one of the top 5% in the state in the field of entertainment. His clients include . . . I can’t tell you that, of course, because they’re protected under attorney-client privilege but a few sources have given me some of those names and, let me tell you, they’re some of the best in our business. I will tell you just a few that are from the firm’s website . . . Matilda, Evita, Legally Blonde, The Producers and, of course, Dan reps me. Dan has been my attorney since my very first show and, no, I’m not talking about The Awesome ’80s Prom, I’m talking about the one that never saw the light of day. Dan is also the attorney that handled all of my legal work, including the crowd-funded Godspell. So, Dan, let’s start with this . . . a lot of people listening may not know this but I was going to be a lawyer. I took the LSATs, I got into a few places, but then I realized how much reading you’d have to do so I said, “Forget it!” And now, for all of you, every time I see one of Dan’s markups on contracts I’m so relieved that I didn’t become a lawyer. So tell me, Dan, a little bit of your journey. How did you get to be an attorney?
Dan: Well, Ken, first of all, this is something I never knew about you. I had no idea you had aspirations to be a lawyer. I spent a year after college working as a paralegal in a big law firm and at that point I decided that it would actually be fun to be a lawyer, but not in a big law firm. And thus I’ve always been with relatively small law firms where we have a chance to do a range of things. I came to this firm about 25 years ago, after having worked my first five years basically as a corporate and securities lawyer and I came here with a senior partner who also had a corporate and securities background and of course that was the plan, that we were going to develop a corporate and securities practice here at Franklin Weinrib and we arrived just as the IPO market dried up and I kind of looked around and said, “Gee, what’s everybody else doing here?” And because of my background, the first thing that I moved into was financing , film financing and theatrical financing, and there was no turning back after that. And, of course, after all these years I have learned all the intellectual property concepts, but I also have maintained my corporate and securities knowledge which is obviously useful in theater as well as in other elements of entertainment. We are able to do the corporate work that our entertainment clients need, not just their rights acquisitions.
Ken: Were you a theater fan growing up?
Dan: I was absolutely a theater fan. I enjoyed going to the theater, but I’ve got to tell you that it never entered my mind that I could actually earn a living working in the theater, at least not until I came to this firm.
Ken: It never entered my mind either! Some days it still doesn’t enter my mind that I can actually make a living in this business. Entertainment law . . . that’s what I wanted to do eventually myself . . . it’s obviously a very niche industry within the legal profession. Where do you learn this stuff? Are there courses taught, did you have a mentor? How did you learn all of this information that’s so specialized?
Dan: This is the basic catch-22, because we’re frequently approached by young attorneys who want to get into entertainment law, and our typical response is, “Get some experience in entertainment law and then come back to us,” and that’s in part because, being a small firm, it’s hard for us to train someone from the very beginning. It usually helps if there’s some base of knowledge, some familiarity. In my case I was just very fortunate that I landed in an entertainment law firm with great people and I just learned by being part of what was going on in the firm.
Ken: Can you tell me about some of your very first gigs, your first assignments as a theater lawyer?
Dan: I can tell you about my very first theatrical production. It was a show called Teddy & Alice. It was produced by a wonderful gentleman from Tampa, Hinks Shimberg. What I did here was basically the financing work, the offering documents for raising the money for the show, and I remember going to the opening and thinking to myself, “Gee, I really wouldn’t have ended the show the way that they did. They needed a more upbeat number at the end of the show,” and then one of my partners took me under his wing and said, “Dan, we’re the lawyers. Nobody wants to hear our opinion about the artistic decisions that were made in the show,” so I learned from that. It takes a very good client for me to pass on some thoughts about what I thought of the show. At least I know with you, when you ask me, you’re sincerely interested and you’ll listen to me or you won’t listen to me, but I’m actually flattered that you ask.
Ken: Teddy & Alice didn’t actually work though, did it? It wasn’t successful, was it?
Dan: No, and of course at Teddy & Alice I experienced something that I experience with all of my producer clients which is, when I go to a show, I am a passionate fan of my client’s work and the show that’s on the stage, and the fact that Teddy & Alice didn’t work was a huge disappointment. Of course, I’ve come to learn that it wasn’t exceptional in being unsuccessful.
Ken: Although maybe if they’d had a different ending maybe that trajectory would have been a little different.
Dan: You know, Ken, we should talk about getting revival rights and maybe we can straighten it out.
Ken: Dan’s going to be on that right after this podcast! What would you define as a theatrical attorney’s primary responsibilities when a producer hires you? If there was a job description, if you will, or bullet points of what you did, what would those be?
Dan: It depends on the level of experience of the producer, so if we’re working with a producer who is perhaps a first time producer, doesn’t have a lot of experience, doesn’t have a lot of knowledge about the process, we’ll sit down and run through what are the various steps in the production, what are the various agreements that we need to put into place, what are some of the key decisions that need to be made? When we’re dealing with an experienced producer we all know what needs to be done, we all know the order in which things go, we tend to be working pretty early on with a general manager, pulling everything together. It’s flows pretty comfortably and easily with an experienced producer.
Ken: When do you think is the right time for a prouder to hire an attorney? I have lots of up and coming producers and people who talk to me and say, “I don’t know what to do next. Do I need a lawyer now? I don’t have a company, I have the rights.” When do you like to be brought on to a production?
Dan: We’re always happy to meet with a producer who is planning a production and sometimes we have a meeting just to ascertain where the producer is in the process, and sometimes the conclusion is, “You don’t quite need us just yet. Do X and Y and when you’ve got that in place that would be an appropriate time to come back and we can get to work on your behalf.”
Ken: I’ll just give you a little anecdote here, I’m sitting at the same table right now that I sat at when I came into your office and said, “I’m doing this show called The Awesome ’80s Prom and I think I need some work,” and the conclusion was that I needed some work done about six weeks prior to me actually coming in the door and Dan very calmly said, “We need to get you a company.” He took care of me very well before I got into some big, big trouble. We talked a little bit about underlying rights deals but author deals, specifically, I would imagine have changed dramatically in the last 20-30 years in terms of the APC, the approved production contract by the Dramatists’ Guild, and people going off that contract. Can you talk a little bit about how you feel they have, or maybe I’m wrong, maybe they haven’t, how author deals have evolved?
Dan: The APC itself has not changed in quite a number of years. There’s always some movement towards trying to update the APC because the result is that the APC now gets supplemented by a writer, which typically runs anywhere from 20-40 pages, so there are a lot of additional terms, some of which have become relatively standard, that ultimately should be included in the APC if the APC is going to be an efficient document. Because the APC is such an old document, when we’re dealing with powerful authors, of course represented by powerful agents and attorneys, there will certainly be requests for significantly higher option payments and advance payments. There’s usually not that much of a disagreement over the royalty rates. Of course, as you’re aware, over the last 30 years or so there’s been an evolution from a time of royalties based on gross weekly box office receipts to royalties based on a royalty pool concept to royalties just based on net operating profits without being capped in a pool and also including a concept of amortization, which is deigned to further accelerate the potential return of funds to the investors. Although then, if the show were successful, the royalty participants would make it up with a premium down the road.
Ken: So let’s talk about the last piece, because I always think of the legal work on a show being authors, underlying rights and, of course, those offering documents. That’s what started you in the entertainment or the theater world. How has that changed? Obviously I’ve been a part of that a little bit over the last several years, but how have the offerings and how producers have raised money changed over the last several years?
Dan: Let me go back further than several years. Some 30 years ago, or 25 years ago, whenever it was that I first started practicing, we would prepare a private placement memorandum, we would prepare a limited partnership agreement and we would then submit it to the New York State Department of Law. The New York State Department of Law would review it, would comment on the paperwork, we would make revisions based on their comments, we would resubmit it, they would make some more comments we would resubmit it and then, finally, after a period of weeks, our papers would be accepted and then the producer could proceed with the offering. Why was everything a limited partnership then? Why were we doing limited partnership agreements instead of limited liability company operating agreements? Because there were no such things as limited liability companies. And why were we submitting papers to the New York Attorney General? And the answer to that is because, in New York at least, there were only two types of offerings that would get reviewed, real estate offerings and theatrical offerings, which I believe is some commentary on where the New York State thought that problems were going to arise. But today no one is filing papers with New York State and the reason for that is based on changes in federal regulation. In 1996, Congress passed the National Securities Markets Improvement Act and basically said that, “We’re concerned that state regulation is interfering with the formation of capital, and therefore, if you do what’s known as a Rule 506 Offering,” which is basically an offering that’s only made to wealthy individuals, people who can afford to lose their investment, “if you do that, then no state can impose substantive regulation on your offering.” Well, lo and behold, right after that was passed, theatrical offerings were being made solely to accredited investors, basically wealthy individuals. And the result of that was that there was no longer a need to file with New York State and at the federal level all that had to be filed was a form D which was just a notice filing, it didn’t involve any substantive review, so in fact it became a lot easier to do offering papers. Then along comes someone like yourself, who says, “You know something, I have a great idea. Everybody’s been involved in their high school production of Godspell. I want to create Godspell Nation and I don’t want to limit it to just wealthy people. I want to be able to let everybody participate, let everybody invest $1,000, $2,000, and let’s have a big universe of investors.” Well, the only way that we could do that would be by making a public offering. A public offering is, of course, the same sort of thing that Facebook did when Facebook went public, and those are extremely expensive undertakings. But what we came up with for you was we dug in and we found a little-used rule known as Regulation A, which had been designed as a simplified type of public offering, limited to offerings of not more than $5 million. So you said, “Let’s do it,” and we went ahead and filed a Regulation A offering for Godspell. So the result was that Godspell was actually a public offering, although a simplified public offering. Of course I don’t need to tell you but we were right in the aftermath of the Madoff scandal. I don’t know if it had anything to do with it but the attitude of the SEC was, “We may have let $50 billion go by us but we sure as heck aren’t going to let $5 million go past us.” So for this little simplified offering we had about half a dozen SEC examiners scrutinizing every sentence. It took quite some time and effort to pass through the SEC and get the offering cleared, but then we had to deal with all of the states because Regulation A offerings were not exempt from state regulation, as was the case with those private offerings made only to wealthy individuals. So as a result the Regulation A offering had to be presented to each state that you wanted to sell in. Some states said, “No way, no how, it’s not going to happen.” Other states conditioned it on, “Well, nobody who makes less than $100,000,” and at the end of the day there were only about a dozen states where the offering was cleared. So I would say to you, or as I said to you, I said, “Ken, this was a great experiment, this was great to put in place, but never to be repeated.” Well, lo and behold, fast forward to 2012 and we get to the JOBS Act, so at a time when Congress can’t agree on anything, someone brilliantly comes up with an acronym for this legislation and calls it the JOBS Act and, of course, nobody can vote against it, so the JOBS Act passes. And it stands for the “Jumpstart Our Business Startups Act,” and there are three elements to the JOBS Act that are of particular interest to theater producers and theater attorneys. And of course the JOBS Act is not designed for theater, it’s designed for any sort of enterprise, but we’re looking at it from the point of view of theatrical production. So the JOBS Act, as passed by Congress, allowed for equity based crowdfunding. What do I mean by “equity based crowdfunding?” When people use the term “crowdfunding” they mean a lot of different things. First there was the donation-based model, the Kickstarter type of model. When you give money to a Kickstarter project you’re participating in crowdfunding, but you don’t own a piece of that company that you’re supporting. In exchange for the money that you contribute you may get a piece of merchandise, you may get a recording, whatever it is you’re supporting, but you don’t own a piece of that business, you don’t get a share of that business’s profits. So that’s a donation-based model of crowdfunding. The equity-based model of crowdfunding involves actually owning a piece of the business that you’re investing in and the fundamental principle behind crowdfunding was that if nobody is investing too much money then nobody can get that badly hurt, and therefore the federal government and state governments shouldn’t invest a lot of time in regulating these offerings. So in the JOBS Act Congress said, “We agree with that and we’re going to allow crowdfunding,” but Congress put a number of bells and whistles on it . . . namely, they limited it to $1 million . . . and then they said to the SEC, “Even though we passed this law, it’s not going to become effective until you guys at the SEC come up with regulations to govern how it’s going to operate.” The SEC clearly does not like crowdfunding. They have come up with proposed regulations which, in my view, will make this $1 million exception unworkable because it will just be too expensive to comply, and those rules have not yet gone final. So as of right now, nobody can actually do equity-based crowdfunding, at least as passed under the JOBS Act, but as I said, when people say “crowdfunding” it can mean a lot of different things. So the next element of the JOBS Act that’s of interest is a provision which basically creates an oxymoron. It allows for the publicizing of private offerings. So all of the theatrical offerings, with the exception of Godspell, are private offerings. And basically what that means is that they’re sold to a group of sophisticated investors, often with whom the producer has a pre-existing relationship, and they’re not sold by means of general advertising or solicitation. So if you were to put an ad in the newspaper saying, “I’m doing a private offering to raise money for my show,” the SEC would pounce and say, “That’s not a private offering anymore. That’s a public offering. You’ve got to do a full registration statement if you want to sell interest in that offering.” Well, lo and behold, in the JOBS Act, Congress said you can publicize private offerings, you can advertise a private offering, but only a special type of private offering, namely, a private offering where all of the investors are actually accredited investors, which is a term that basically refers to individuals who have a $1 million net worth or who have income in excess of $200,000 a year. So if all of your investors are accredited investors and this can be verified by a third party . . . in other words it has to be verified by more than just self-certification . . . then, as far as the SEC is concerned, it’s fine to advertise or to seek investors through a general solicitation. So of course what this means is that, in theory, a producer could put an ad in Playbill saying, “Gee, you’re sitting in the theater, you must love theater. If you’ve always wanted to be involved in a show, give me a call. I’m putting together the financing for a new show and we’d love to get you involved.” But even more significant than that, it really unleashes the internet as a means of advertising and soliciting for investors. This is not to say that you can try to induce people via the internet by saying, “We’ve got a sure-fire, no lose, absolute success show on which you will double your money,” because the anti-fraud provisions still apply, but you can try to get people interested in contacting you and learning about your show and, to me, I thought this was going to be an absolutely groundbreaking new development but the Broadway community is quite traditional and it really hasn’t taken off. This interview is actually very timely because it was only last week that the third element of the JOBS Act actually became effective. And, by the way, I should clarify that the equity based crowdfunding, that $1 million crowdfunding, that’s not currently effective, but the publicizing of private offerings, that is effective, and what we’re going to talk about next will become effective in about 50 days from now. In about 50 days from now the rules will become final, and what we’re talking about is a Regulation A offering, just like we did with Godspell, except now, instead of $5 million, the cap has been raised to $50 million, although there is quite a bit of detail to go through. In fact you can probably see here on my desk a three inch stack of paper. Those are the new rules for this modified Regulation A.
Ken: Here’s the sound that they make when they hit the desk so you can hear how heavy they are.
Dan: So this potentially solves two major problems. One, it’s no longer $5 million, now we’ve got a $50 million cap, and two, for certain types of offerings made under these rules, the problem that I described before with Godspell, having to clear it with each state, that will no longer exist. The states will not have the ability to regulate certain types of offerings to be made under this new rule. So what this means is that you don’t have to go the private route. You can actually create a simplified public offering involving a significant amount of money and reach out to a very broad swathe of the population as a potential investor.
Ken: And that elimination of the state requirement, that was the biggest issue for me on Godspell and, as I’ve written about on my blog, I did an interview with the Office of Congressional Oversight after all this happened and that was the thing that I railed about the most because it was so expensive and so time consuming and some of these states never even got back to us. That was my favorite thing. Minneapolis had a shutdown in Minnesota so we didn’t hear from them for a long time, so it’s very exciting to hear that it’s moving in the right direction. It sounds like it’s still going to be a little bit onerous but I’m sure I’ll try it at least once. That is an incredible assessment of the JOBS Act and I could use that as its own podcast right there but I have a couple more questions. A big part of what you do, of course, is negotiating which I know some people are frightened of or some people think they’re really good at it but they’re not. Do you have a style of negotiating? What do you do before you get involved with a very high power attorney or agent?
Dan: Sure, first of all I try to be prepared. Nothing beats being prepared and sure and confident of your position. At the same time, being confident of your position doesn’t mean that you’re blind to the other side. And one of the things that we do here is we don’t just represent producers. We’ve been on the other side of the table. We represent composers, lyricists, directors, book writers, so we know the arguments both ways so we have an appreciation for the position of the other side. My personal style is I’m not a wild man, I’m not going to be slamming my shoe on the table, I’m not throwing fits. I try to be courteous and cordial and, most of all, I try to be thoughtful. I love it when we have good attorneys on the other side because that’s the best and easiest way to make a deal. When you’ve got an inexperienced attorney who really doesn’t know what the implications are of positions that are being taken, that’s when it becomes difficult to make a deal.
Ken: Dan doesn’t scream or yell or bang his shoe on the table. He just leaves that to me, that’s a lot of what I do, which is why I love working him. You’ve worked with a lot of producers over the years. What are some of the characteristics that you think make up really successful producers? You can name names if you like but we won’t require that.
Dan: You can think of a producer as a business manager, you can think of a producer as a creative director. I actually asked one of my producer clients what would best describe his job and his response was, “Keeper of the asylum.” So what makes a good producer? I’ve found that it’s a producer who’s hands-on, a producer who likes to get involved but knows how to choose when to do so. So a producer who comes in to help problem solve and help the parties understand that they’ve actually got common interests, and at the end of the day, if the producer makes money, everybody makes money and we should be collaborating. And of course, theater is often referred to as a collaborative process, much more so than, for example, the motion picture business where a producer acquires ownership. There’s such a different between the motion picture world and the theater world. In theater, the author is king. You can’t change a word that the author has written without the author’s approval. The author gets to approve all of the key participants in the production, from the director to the choreographer to the actors. The first-time author in theater gets those sort of approval rights that the greatest film writers only dream of because in the film world, and I think this is based on economics, a large amount of money is paid upfront for rights and then the backend is mostly nonexistent. In the theater world, the author doesn’t get, relatively speaking, that much upfront. The author makes money when the show is up and running and the author receives royalties. I think those economic models are tied in with the ownership models. In the film world, in exchange for this big payment, the author is giving up ownership and now the producer can do whatever the producer wants with the author’s work. They can change it, revise it, they can bring in another writer, it’s entirely up to the producer. Unlike theater, where there hasn’t been that much money changing hands, the author retains ownership of the play, the producer is just getting a license to produce and present the play for as long as the producer is doing so in a continuous run, which of course is a term of art which involves lots of definitions and extensions and so forth . . . and then the rights revert to the author, so the author has property to protect, thus the author doesn’t want to allow any changes unless the author approves of them. But in exchange for having mounted a successful production, the producer is deemed to have increased the value of the author’s property and thus, when the producer is done producing his or her own productions, rights revert to the author but the producer gets an ongoing financial participation. The producer gets a backend in the form of subsidiary rights income.
Ken: Do you think there’s a chance that that model would work here on Broadway? That someone with a lot of money could come in and offer an author $1 million if they gave up royalties? Could that work here?
Dan: Absolutely. While Disney keeps its deals private, I would think that in many instances they would probably tend towards that type of approach, certainly given their film background. They’re used to controlling productions. But of course when they deal with very powerful theatrical people there’s pushback, so accommodations are made.
Ken: Let’s get to my final question which some people are now calling the genie question . . . speaking of Disney. Imagine that the genie from Aladdin came into this room right now and said, “Dan, you’ve been a very good attorney. I want to give you one wish. One wish. With the snap of a finger I’m going to grant you one wish and you can change anything you want about Broadway. Whatever’s been keeping you up at night, driving you crazy, whatever makes you actually throw a fit and get angry . . . there’s got to be one thing . . . with the snap of a finger, a wave of my wand, I will change it just like that.” What’s the one thing about Broadway that bugs you the most that you would fix in an instant?
Dan: Well, I’ve got to tell you, what makes me nuts is seeing how critics can destroy a show and so many times it’s completely undeserved. I see a lot of shows and there are times when I see reviews that are just vicious. And while I understand the need for a critic to make distinctions, if you ask me what I could change, I would like to see more user-friendly reviews.
Ken: And with that I want to thank Dan for spending time with us today and giving us that incredible education, especially on the JOBS Act, which is going to certainly change the course of financing and theater financing over the next several years, so pay special attention to the stuff that he said. Thanks again to all of you for tuning in and we will see you next time. Thanks so much.