An early Xmas present for Broadway Investors: Tax Relief!!!

Santa came early for Broadway Investors and Producers this year.

After months and months of lobbying (some of which YOU helped with back when I posted this blog), Congress approved a change in an archaic tax law that will benefit Broadway Investors.

Finally!

The gist of the change is this . . .

Previously, Broadway Investors were required to pay tax on paper profits as reported by the show, even if the Investor had not yet received the money for those profits.  Confusing?  Exactly.  That’s why they changed it up.

I can’t tell you how many angry phone calls and emails I’ve received from Investors (usually around April 14th) saying, “Ken!  I finally got a hit!  And now I’m writing a check to the IRS, even though I don’t have the money that I’m paying that tax on?  Tell me why am I doing this again?”

Now, under the old system, the cash would eventually straighten itself out, but boy oh boy was it confusing.

Under the new law?  That “phantom income” concept is gone.  You only pay tax when you get the profit.  (Duh, right?)

What does this mean?  Well, it simplifies Broadway Investing, and anything we can do to make the process simpler (especially when paying profit) and easier to understand gives us a better chance of Investors continuing to play our game.  Too many complications and things that don’t make sense (especially about taxes, which I’m convinced only about 7 people in the world truly understand), and suddenly, just writing a check to a non-profit, which allows the Investor to take the loss right away, seems that much more attractive.

Will the change mean a flood of new Broadway Investors to our market?  Nah.  But we’ll have less Investor attrition for sure.

The bigger win here has nothing to do with the law.  It’s the tip of the hat and the deep bow that Congress just gave Broadway.

What you may not know is that TV and Film already had this tax benefit, but no one ever cared enough about us in DC to make the change.  Broadway was the only entertainment industry treated in this unfair manner.  After the past several years of record-breaking seasons, after multi-billion dollar economic impacts on NYC, after headline-getting news like Universal announcing Wicked would be its most profitable venture ever, after visits from the Obamas to many of our shows, and after our shows making so many appearances at the White House, Congress finally realized that they needed to give our cottage industry a second look.

Yep, this 13-year-old, pimply-faced girl with braces just grew up into a supermodel.

So yeah, I’m happy about the tax change.

But I’m even happier about the Aretha Franklin-sized R-E-S-P-E-C-T that the lawmakers just gave us all.

Major kudos go to the Broadway League, and its Government Relations Committe (led by the Two Toms, Tom Ferrugia and Tom Viertel) for their tireless efforts on our behalf.

 

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First comes Streaming, then comes Crowdfunding, then comes Kenny cooing like a baby in a baby carriage.

What a week Broadway is having!  It’s like innovation week here on the Great White Way.

Yesterday I e-talked about the two positive steps forward we’ve taken in the streaming race, and today there is some news out of Washington that will eventually trickle down and affect us all.

Crowdfunding, like streaming, is another one of those subjects that I’m uber-fond of, mostly because of how I raised money for Godspell back in the day by day.  In order to raise that $5mm, we used an antiquated regulation known as Reg A, which has since been revised, thanks to one of the few bipartisan bills passed in the last decade, the JOBS Act.  The JOBS Act had a number of provisions, including the revision of Reg A, the removal of the general solicitation rules, and what everyone has been waiting for (especially you readers out there based on the # of emails I get about this subject), the legalization of for-profit crowdfunding.

So in typical government fashion, they revised Reg A and removed the solicitation rules, but they’ve sat on the crowdfunding and have failed to write the rules and regulations that would allow it to be used.

But they couldn’t wait forever.

This Friday, the SEC will vote to finalize the rules on “Title III” of the JOBS Act, which will finally allow crowdfunding for non-accredited investors (click that link for a definition of what that is).  And from everything I’m reading, it’s expected to get a go-go-gadget yes vote.

Then what happens?

Well, don’t go raising money for your show from any Tom, Dick or Harriet just yet.  The vote will approve a set of rules for crowdfunding.  Those rules will mostly apply to the portals that the JOBS Act insisted must be set up to accept these investments (3rd party portals at that – so there is a intermediary between investor and raiser).  Once the rules have an effective date (and I’ve heard everything from 60 days from the yes vote to 360 days from the yes vote) then you’ll start to see these portals pop up and start accepting money.

How will this affect Broadway?

Eh.  Early assessments are that this may have zero effect on Broadway shows, since we already know there is a cap of only $1mm that can be raised through this method.  Find me a Broadway show that costs $1mm these days, and I’ll find you a room at Bellevue because you’re living in the 50s, my friend.  That said, once these rules are published and revealed, maybe there will be a few workarounds.  Who knows?

But Off Broadway?

I’ve blogged about this before, but this is where we could see an immediate and important impact.  And frankly, this is exactly why JOBS was enacted . . . to jump start small businesses.  Off Broadway is the small business of the theater industry, and JOBS could play a big role in helping revitalize this beaten up little brother of Broadway.

So if you’re looking to raise money for your Off Broadway show in the coming years, you might just have an easier way to do it than ever before.

Man, streaming, crowdfunding, what’s next . . . plenty of bathrooms?

 

(Got a comment? I love ‘em, so comment below! Email Subscribers, click here then scroll down to say what’s on your mind!)

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What Investment Guru Peter Lynch taught me about Broadway Investing.

You know me, I love to look outside our industry for tips on how to improve what I do every day.  Since I’m a big believer in the theory that the entertainment industry should be its own investment asset class, I read a lot of investment advice to see if I can apply it to how I screen shows.

One of the best pieces of Broadway investment advice I ever received comes from one of the most important investors of the 20th century, Mr. Peter “Legend” Lynch, who took one mutual fund from $18 million to $14 billion.

So when Peter Lynch talks, people punch other people in the face to get them to shut up so they can listen.

One of Peter’s most important investing axioms didn’t have anything to do with P/E ratios or earnings per share or anything financial at all.  It was simply . . .

Invest in what you know.

Peter believed that you should invest in companies that made products that you used every day.  Not only do you understand those products, but more importantly if you used them, and if you were passionate about them, then other people would be too.  And hopefully there would be enough of you to make that stock jump up.

I’ve applied that rule to picking Broadway shows to invest in or produce.

I only produce or invest in shows that I love.  Or to put it in Peter’s terms . . .

Invest in shows that you would see every day.

The reasons why are twofold:

First, see above.  If you are a huge fan of a show . . . and it gets under your skin and into your heart, there are probably a lot of other people that feel the same way.  While that’s not a guarantee of success, it is a sign that you’re headed in the right direction.  I would never invest in a show that someone else loves and you don’t, regardless of how much money you think it might make.  Making a decision because you think you’ll make a lot of money is a surefire way to lose it.  And be unhappy in the process.

Second, when you invest in something you love, and it doesn’t work out, it doesn’t hurt as much.  Because you loved it.  You are proud of it.  You are glad it’s in the world, even though it might have cost you some money.  You helped put art into the world that will have ripple effects all over this planet.  (One of the shows I’m proud of that didn’t work here on Broadway was Mothers and Sons, from two seasons ago.  While we didn’t recoup our investment, that play will be done in regional theaters and international locations for years, helping people understand how to heal with the AIDS crisis.)  To use an analogy, I often refer to Broadway shows that you invest in like your kids.  They are expensive, and they’ll often disappoint you.  But you love ’em anyway.  🙂

Yes, I analyze budgets with a fine-toothed spreadsheet when considering investing in a Broadway show.  Yes, I look at the pedigree of the creative teams before I write a check.

But I always start out with the simplest Lynch-like question . . . would I see this show every day?

Ask yourself that, and while you might not make money every time you invest, you will never go wrong.

Looking for more tips on investing in Broadway shows, or are you raising money and want to better understand the Broadway investing process?  I’m teaching a seminar on the subject next Saturday, November 7th at 2 PM.  Click here to learn more.

 

(Got a comment? I love ‘em, so comment below! Email Subscribers, click here then scroll down to say what’s on your mind!)

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FUN STUFF:

– Listen to Podcast Episode #43 with Broadway Director John Caird!  Click here.

– Win 2 tickets to Story Pirates!  Click here!

– Want to learn the ins and outs of Broadway Investing? Click here to sign up for my Broadway Investing seminar on 11/7.

 

How you can help get tax breaks for Broadway Investing.

If you ever felt like theater was the little bastard brother of the entertainment industry, wait until you hear this.

Section 181 of the Federal Tax Code allows investors of certain television programs and movies to deduct their investment from their income taxes in the production’s first year.  But somehow theater investing was excluded from 181. (It’s pretty simple why, actually.  The powers that be who make these tax codes know that most commercial theatrical investments are on Broadway.  And Broadway, because it’s a place, not an industry, ain’t going anywhere.  As opposed to film and TV, which has already traveled all around the world  (Vancouver, anyone?) and taken jobs and tax revenues with it.)

Buuuuut, that’s starting to change.  As theaters become less and less available . . . and as producing on Broadway becomes more and more expensive . . . I know many a Producer who are looking to London to start their shows.  And I know many an investor who are investing in art in other ways than the theater (or just not investing at all).

The Broadway League and its relatively new Government Relations Committee (which has been doing bang up work, by the way, and is worth the cost of our dues on its own) has taken up arms to revise this tax code.  And, politicians are starting to take notice.

Two Senators have shaken hands across the aisle (Schumer (D-NY) and Blunt (R-MO)) and added the theatrical exemption into a recently proposed bit of legislation.

But it’s not done yet.

This is where you come in.

The League sent out a call to arms yesterday to everyone in the theater industry to urge us to contact our reps to get them to support this common sense addition to the tax code.

Here’s what you can do to help little brother Broadway be heard.

I’m pasting a letter composed by the Broadway League that you can use to send on to your rep.  Just copy it, paste it, fill in the blanks, and send it along.  Need to find out who your rep is and how you can reach them?  Click here.

Take a minute and do it.  It will help.  And you will help the theater.  Because when this legislation passes, it’ll be easier for all of us to raise money.

Let’s raise a ruckus!

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Dear Representative _________________________.

On behalf of __________________________, we urge you to cosponsor  HR 2405 – The Film Act, introduced by Representatives Crowley (D-NY-14) and Collins (R-GA-9) – and encourage you to contact your colleagues on the Ways and Means Committee and Leadership to push for its inclusion in the tax extenders package under consideration in the House.    This language has already been included  in the Senate’s recently proposed tax extender package. 

Section 181 allows investors, when capitalizing a live production with a budget of under $15 million, to deduct the investment from his or her income taxes in the production’s first year.  Currently, only TV and movie producers may benefit from 181, while investors in live theater must use an ‘income forecast’ method and estimate profits over the anticipated duration of the show.  In successful productions this results in tax liability before producers even earn back their initial financing.  Expanding 181 to include live theatre will eliminate a massive disincentive to investing in live productions, while the Joint Committee on Tax estimated this revision, part of the overall tax extenders bill, will cost just $1 million over a ten year period.

In addition to promoting new projects, this modest tax change will help the US compete with other theater centers around the world, particularly London, in attracting new productions.  The same tax treatment we are seeking through Section 181 is currently afforded to England’s live entertainment industry.  This, in addition to many other tax incentives not offered to US investors, has made it far more advantageous develop shows overseas.  While a small number of foreign productions may ultimately tour the US, our economy loses millions of dollars spent on creative development, all rights to the intellectual property and future revenues generated from these productions (which would otherwise flow back to America).

Please note that this amendment is not a tax credit or subsidy, as it merely affects the timing taxes will be paid by successful productions.  However, the revision would benefit all investors, production companies and venues that present commercial theatre and/or commercial tours.  More productions translates to more product for the nation’s theatres and performing arts centers, more ancillary spending and more economic activity.  Just as importantly, the majority of live performance venues that present Touring Broadway in the U.S. rely on the income generated from Broadway shows to subsidize their education, neighborhood outreach and audience development programs.  

Again, we urge you to cosponsor and urge the Ways and Means Committee to include HR2405  in the 2016 tax extender package to facilitate investment in live theater productions in the U.S.    Thank you for your consideration and please feel free to contact me if you have any questions or if I can provide further information.

Sincerely,

 

___________________

 

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How to raise money when the stock market is in the $hitter.

As I mentioned yesterday in my Broadway Market Correction blog, the Dow dropped 2k points in a week.

We’ve grabbed a few points back, but as China continues to stumble, it’s obvious we’re in for a bumpy ride.

Not the best environment to raise money for a risky investment like the theater, now is it?

Because the theater is such a high-risk venture, I find that investors look for a reason . . . any reason . . . to say no. “I’ve got too many things on my plate,” or “I don’t want to read the documents,” and at times like these . . . “I can’t make any investments because the stock market is so bad.”

Excuses, excuses.

But you can’t say that to someone you’re trying to get to invest in your show, now can you?

Of course not. So what do you say?

Well, one of the things that I say is that the volatility of the stock market actually makes the theater look a lot less risky. So much for the “set it and forget it” strategy with stocks, right?  🙂  Simple spin.  But true!  I once had an investor say to me, “Hey, I just got hammered in the market, I might as well take a chance on Broadway, at least it’s more fun than Bio-tech!”  #TrueStory

But honestly, the most successful thing I say in times like this is . . . nothing.

When you know people are inclined to say no to what you’re asking, don’t ask. Because once you get a no, it’s super hard to get them to change their mind. (It’s a psychological trend called “consistency” – once people say one thing, they stick to that one thing – read this book to learn more.)

So, this is a great week to take a break from actively raising money.

Now, that doesn’t mean you stop your raise altogether. Oh no. But I’d focus this week and probably next on just getting lots and lots of leads, so when the market stabilizes, and when your potential investors no longer have the markets as an excuse, you’ve got more and more people to ask.

Raising money in any market is difficult. Don’t make it harder on yourself by raising money in this one.

Oh, and if you’re raising money, and want more tips on how to guarantee you raise what you need when you need it, check this out.

 

(Got a comment? I love ‘em, so comment below! Email Subscribers, click here then scroll down to say what’s on your mind!)

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FUN STUFF:

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– Follow Spring Awakening‘s journey to opening night!  Click here to read The Associate Producer’s Perspective.

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