How to Invest in a Broadway Show

TheStreet.com

NEW YORK (MainStreet)—After Sunday's Tony Awards, the thought of making a little glitter and jazz hands a lucrative investment seems within reach. Broadway has always been thought of as high risk. The probability of investing in the next Wicked or Phantom of the Opera (each its own billion dollar enterprise) is always thought to be slim. However, with the stock market being a volatile creature, the thought of tangible people sitting in tangible seats is more appealing than it once was from an investment standpoint. Introductions to Broadway producers are few and far between even for the super-wealthy, and Broadway is still a referral-based business. However, understanding how this industry manufactures its products and approaches producers may be easier than imagined.

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Andy Sandberg, Tony Award-winning producer of the revivals of Hair and The Best Man weighed in on the process.

"Each project is unique," he said. "Speaking very generally, Broadway plays cost anywhere from $2.5 to $4 million on average. Broadway musicals can range anywhere from $5 to $18 million. There are always exceptions." These costs cover the salaries of the actors, the venue, advertising, and a range of other factors. It is easy to think of each play as its own start-up business. There are certain aspects of a show that give it a higher probability of being a temporary success. However, there are no guarantees. For example, a show loaded with a ton of star power or a work by well-known playwright or musician can increase the odds in an investor's favor in the short-term.

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However, Sandberg warned, "If the risk is lower because a huge box office star is in the cast, the reward potential may also be limited if that star is only able to stay with the show for a certain amount of time. Sometimes investors have the opportunity to see early readings or workshops to determine if a show seems worthy. For musicals, demo recordings are sometimes made available."

The real money gets made taking a risk on an original work that appeals to tourists and the theater crowd alike. If a Broadway work takes off, not only is there the production running in New York, but there is also a tour investors gain money from, along with licensing for theater groups and schools who want to do the production and the inevitable sound track. The bigger the success, the more products are created and the larger the cash flow.

"Broadway investing is very high risk," said producer Ken Davenport, whose credits include a Tony win last night for Kinky Boots. "Then again, so are a lot of things these days. I tell all my first timers that they need to write the check knowing that they might never see it again. I also tell my investors that investing in the theater is like investing in the market . . . it's a long-term game. One out of five shows make money. So you can't expect to find Wicked right away."

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It's a labor of love, more than an attempt at a big ROI, Davenport teaches in his class about investing in Broadway. "Most Broadway investors start investing in the theater because they love the theater," he said. "That's the best background you can have, although it's not necessary. Think about it this way . . . do you need a specific background to buy stocks in Biotech? No. You need a trusted advisor to help you make informed decisions."

--Written by Leigh Held for MainStreet

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