The business of Broadway: Making money on the Great White Way
Stocks and bonds are all well and good, but for some, the bright lights of Broadway are the investment vehicle of choice. And more and more theater fans are opening their wallets wide to get in on the action.
Last year, Broadway productions grossed more than $1.3 billion and over 13 million theater lovers packed houses. Even more people saw a touring production of a Broadway show elsewhere in America, adding another $957 million to the industry's bottom line.
To find out how the business of Broadway works, Yahoo Finance spoke to Jill Furman, one of the lead producers of the hottest ticket on the Great White Way—“Hamilton,” Lin-Manuel Miranda’s rap musical about founding father Alexander Hamilton.
“Eighty percent of shows on Broadway don’t recoup their costs” she says. “It’s sort of like investing in an entrepreneurial startup because the success rate for those companies is also about 20%.”
We found that there are as many business models for funding a show as there are theaters to house them. Take “Hamilton,” for instance. As Furman points out, the show didn’t have a typical path to Broadway in the sense of finance or fundraising because the show was a huge off-Broadway success in its run at the Public Theater in downtown New York City.
“We knew what we had off-Broadway,” she says. “We enhanced the run at the Public Theater, which is how a lot of Broadway shows get made ... which means you’re paying for it, but you have the commercial rights to move it to Broadway or off-Broadway if that’s what you want to do commercially.” That means there wasn’t a need for as many of the investors and producers that typically drum up financial support for musicals, which can cost upwards of $10 million to stage.
The Broadway investment world is a relatively small one, and it’s largely built on relationships. Traditionally, Furman says, the lead producers farm out fundraising duties to a small cadre of co-producers who find investors willing to open their wallets. She says she typically works with benefactors who contribute anything from $10,000 to $2 million.
With a large enough investment, an investor can get a producer title and go up on stage if the show is lucky enough to land a Tony Award.
Thinking of getting into the act? Don’t think you’ll have a say in the casting or staging—and keep in mind that only SEC accredited investors can plunk down cash. Jill notes that many who invest with her think of it less as an investment and more as a donation to the arts with fringe benefits like VIP tickets to opening night and backstage access.
If that hasn’t scared you yet, thanks to new financial regulations allowing for soliciting funds and loosening restrictions on crowd funding, more and more the investing exception is becoming the rule, from Hamilton’s atypical funding to producer Ken Davenport’s crowdsourcing of his 2011 production of “Godspell” with the help of 700 average theater lovers.
The funding experiment had its pros and cons, Davenport explains, "Communication with investors—that was a big thing—I wanted them to feel a part of the experience, so we came up with a system to do that. It’s more expensive to crowdfund like that, with legal fees what they are today.”
While Davenport doesn’t regret using crowdfunding to produce “Godspell,” he’s not so sure it will turn Broadway on its head just yet. It may, however, change the way off-Broadway shows are launched. “A lot of shows can be done for a million bucks off-Broadway,” Davenport notes, adding that crowdfunding is “a great way for producers, investors, artists, to get into the game off-Broadway.”
So if you’re still amped to make a splash on Broadway with your investments, the pros like Jill Furman say do your homework. “They should look at the management—the producers’ track records are important,” she notes. “How many have recouped, how many you have liked ... you want to be excited about the idea.”
