How to Invest in a Broadway Show

I get a lot of questions from readers, all over the world, expressing interest in investing in a Broadway or an Off-Broadway show. Usually they are unsure about how to get involved and, more importantly, they want to know how to pick their first show. Since this seems to be such a hot topic, I thought I’d dispel a few of the nasty rumors associated with investing in Broadway or Off-Broadway shows, and also give you my checklist of how to choose shows to invest in. First let’s tackle the rumors, and then the checklist.

Broadway Investment Rumor #1: Investing in Broadway Shows is Only for the Super-Rich.

Because Broadway capitalizations can range from $2 million for a Play up to $20 million for a Broadway Mega-Musical, many people fear that the “entry point,” or the amount of money required for an initial individual investment, must be astronomically high. Not true. While the average small investment in a big Broadway show is probably about $25,000, I have seen many shows where investors were able to get in for as little as $10,000, and even a few where the entry point was only $5,000! There are a lot of publicly traded mutual funds that don’t allow you to get in at that level. Lower investment thresholds are particularly common in the Off-Broadway arena. What determines the lowest investment level? Here’s how it works.

Capitalizations are divided into ‘units,’ just like stock shares, and what defines each unit is up to the Producer. Some Producers like to have a round 100 units per show, regardless of the capitalization. Some like to pick the lowest amount they can accept as an investment (since some shows are limited to the number of investors they can have). And some just make it up arbitrarily. Regardless of how the unit is determined, here’s a tip: If you’re considering a show and get sticker shock when you hear the price of one unit, ask for a partial. Splitting units ain’t like splitting an atom. It can be done with ease. Depending upon a variety of circumstances (including how hot the property is, who the producer is, and whether or not other investors took “round units”), it may be possible for you to invest in a smaller amount than the “ask.” The key, of course, is to never be pressured into investing more than you’re willing to lose. If the entry point on one project is too high, don’t worry, there will be others.

Broadway Investment Rumor #2: Investing in Broadway Shows is Only for the Super-Crazy.

Many people think that it’s bonkers to get involved with Broadway. The fact is, if you’re an individual of a certain net worth, your traditional financial advisor will probably recommend that you allocate a certain amount of your investment portfolio (usually about 10%) to higher risk instruments, or so-called Alternative Investments, in order to diversify yourself. Most Alternative Investments require investors to be considered ‘accredited,’ which in the U.S. means a net worth of at least one million dollars, or having made at least $200,000 ($300,000 if joint-income) for the past two years. Although many Broadway shows also prefer accredited investors, this is not the case with every show.

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Why would Broadway, with its high risk but potentially high return, be excluded from that list? In fact, it isn’t. According to Wikipedia’s entry for Alternative Investments, they are an “investment product other than traditional investments such as stocks, bonds, or cash” and that “wine, art and antiques, Broadway shows, movies, indeed any store of value, might also be considered an alternative investment.” Alternative Investments, including Broadway and Off-Broadway shows, are undoubtedly high risk. The commonly quoted statistic is that only 1 out of 5 Broadway shows recoup their investment (that ratio is even lower for Off-Broadway shows). But this is not, by any means, the only high risk instrument on the market.

Investing in Broadway shows is a lot like investing in a restaurant or, frankly, in any entrepreneurial start-up. In fact, according to a recent article by Nick Malawskey in the Centre Daily Times: “For every 10 businesses that start, seven will cease to exist in 10 years. Two will break even. Only one will really succeed.” This puts the success rate of start-ups at the exact same percentage as I just quoted above – 20%! See, it’s not as bad as we thought. And, with proper due diligence you can increase those odds.

And remember, with big risk can also reap big rewards. Even if you do end up performing according to the stats, the goal and hope is that the 1 show out of 5 which does recoup, ends up paying for any other previous losses (it’s a marathon not a sprint), and then some. Imagine what it would have been like to invest in “Annie,” “West Side Story,””Cats” or “Wicked.”

Broadway Investment Rumor #3: Investors in Broadway Shows Belong to an Exclusive ‘Club’ that Doesn’t Accept New Members.

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While it is true that there are a lot of Broadway investors that have been in the circle for a long time, it’s not as closed door of a club as you think. While it can be hard for a new investor to get in on the hottest shows coming to town, it’s not impossible. And, Producers will sometimes let you get in on a ‘sure-thing’ (which doesn’t exist, by the way) if you also agree to come into something a bit more risky. However, it is a relationship business, and preferential treatment is often given to investors who have been doing it longer, and to those that have been faithful to the Producer. So what does a new investor do? Start the relationship. Call a Producer. Email them. Fax them. Simply state that you’re looking to invest in a specific show (if you know one that they are about to do), or ask to be put on the list to be called about their next show. It’s not a commitment for either party, and I don’t know any Producer out there who would mind putting you on a “potential” list. Just make sure you are serious about your interest.

Now that we’ve overviewed the three biggest obstacles potential investors often tell me prevent them from taking the first step and joining the ranks of Broadway and Off-Broadway investor, just how do you choose a project to invest in? Once you’ve decided that investing in a Broadway or Off-Broadway show is something you definitely want to do, you should step through my checklist of how to decide whether or not to invest in a particular show.

Broadway Investing Rule #1: Have Passion for the Project.

Broadway shows are often referred to as the “children” of Producers and Investors. Shows need the same type of care, hand-holding, and unconditional love; so much love, that even when your kid F***s up royally, you (as the parent) will still love him, right? Unfortunately, the odds are that your “kid” is going to disappoint you, so you better make sure that your bond is so tight, you won’t care either way. This theory is based a bit on famed investment guru Peter Lynch’s theory of “invest in what you know.” Peter believed you should put money into companies that make products which you see and use every day (and products that you can’t live without). I believe this can, and should, be adapted to entertainment investments as well. Invest in shows that you can’t see NOT happening. Invest in shows that you believe are important to be seen; whether that’s because it has a socio-political message, whether that’s because it features an amazing performance by an legendary actress, or whether that’s because it’s so much fun, that the audience’s day will be better just by experiencing the show. Invest in shows that you love.

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