Family Offices Investing in Broadway

 

 

Nearly 5.5 million people tuned in to watch the Tony Awards last Sunday representing an all-time low. Despite the statistics, however, it’s clear that Broadway’s strong growth trajectory will continue for the foreseeable future.

In 2018, Broadway box office revenue exceeded $1.44 billion, attendance is up close to 10 percent, and  ticket prices are increasing with blockbusters such as Hamilton and Wicked charging as much as $1000 per ticket for premium seats. Therein lies a tremendous investment opportunity to profit from very high returns over time.

Here are a few pointers from New York City-based Theatre Investor Lisa Morris.

 

Access is Critical

For  prospective investors, the key is the access to invest in multiple shows in a season. Broadway is a closed door community, so it’s essential to have the right relationships in place to get access to the right projects. The mistake most theater investors make is trying to predict winners and losers. They will put a large amount of money into one show, and then they either win big or lose big.  While there are certain metrics to be able to sniff out an investment that is definitely bad and avoid it, there is no magic way for anyone to know if a show will be a huge hit or an epic flop.  For example, most investors being pitched would assume that if they were going to place their bets, a Marvel title like "Spiderman" with a score by U2 and helmed by "Lion King" director Julie Taymor would be a hit. They would likely assume that a show with no stars in it that was a Hip Hop retelling of the life of one of the Founding Fathers of America may have no chance at succeeding. Well...the "Hamilton" investors are laughing all the way to the bank, while "Spiderman" investors are still licking their wounds. What a smart investor should know is that there are a limited number of Broadway theaters, and therefore a limited number of projects to invest in each season.  Rather than put a lot of money behind any one show, the savvy Investor would put smaller amounts into all the shows that season (excluding Disney).

 

Unique Impact Investment 

Investing in Broadway is a unique impact investment. Yes, you can make substantial returns, but the impact of the investment is far deeper than simply financial. Theater Investing involves bringing something to life that moves people.  It educates.  It entertains.  Theater positively impacts children, families and every individual who sees a show.  A show like "Dear Evan Hansen" receives letters and emails daily from kids who were suicidal but sought help because of the show. The show has literally saved lives.  It has also made huge returns for investors. As an outside-of- the-box impact investment, theatre is non-correlated to the markets and also has tax advantages.  Plus, you have something unique and interesting to talk about at cocktail parties!

 

Minimize Risk- Multiple Slate Project/Fund Models Are Best

In order to be confident of positive returns, investors are advised to invest through a fund model or individual direct investments into a multiple slate of shows versus a single production. Most shows lose money. However, the ones that hit provide exceptional returns for many years. The huge returns on the hits more than pay off the losses on the flops if you have diversified and invested in several shows rather than a few.

Every year there are approximately three big hits, a few shows that return 75-100% of the initial investment back,  and a few that lose the entire investment.  A basic VC power play model poses less risk.

While some family offices are hesitant to dip their toes into the Broadway waters due to risk concerns, others are relishing the profits and perks that come with an investment into a hit show, including access to opening night shows, star access and the bragging rights that come into play once you’ve hit the jackpot, or won a Tony award.  Similar to a high risk bond, when a show hits, it will pay off for years to come. According to Barron's, Former Wall Street trader Jim Freydberg invested $500,000 in The Phantom of the Opera when it opened on Broadway in 1988. He has earned a $15 million profit from the show and it is still going strong, and he is fond of remarking that only his Apple stock has been a better investment.

 

Additional Revenue Streams

While the Broadway production is the riskiest part, it’s important to remember that additional revenue streams are extremely profitable. National touring productions, International productions, film deals, book deals, licensing to schools and summer camps and similar opportunities are all opportunities for investors to make money. Interestingly, touring productions almost always make money since there’s a minimum guarantee of revenue in place and the risk is assumed by the local presenters in each tour market.

Family offices and high net worth investors continue to share ideas and best practices with each other and that trend will continue to increase.  Speak with an expert in the space who can answer questions on a deeper level and guide you through the process.

Lisa Morris is available for complimentary consultation to those interested in investing in Broadway and may be reached at lisa@roadconcierge.com or 917-319-1298.