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.
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.”