If you’re interested in theater and have money you don’t mind losing, you may consider expanding your horizons by investing in a Broadway or off-Broadway show. Be prepared to lose money, though, because according to a variety of producers, only one show in five breaks even.

When a play or musical is in the planning stages, producers seek out investors to cover the costs of getting the show to opening night. After the show opens, income from the box office should pay for operating expenses. Any positive cash flow after expenses is distributed back to investors until their initial investments are paid back in full. Any profits after investors are repaid their initial investment are distributed back to the investors and producers, 50 percent to each (in the United States). Some shows never make a profit, but if you’ve backed a hit, you could see healthy returns, comfortably beating the stock market.

For the most part, individuals who wish to invest in theater, due to the risky nature of the business, must be accredited. The investor’s household must have a net worth of $1 million or more, excluding primary residence, or income of at least $200,000 ($300,000 for a married couple) for the past two years. There are ways to invest as a non-accredited investor, but the competition is higher for these opportunities because producers are limited in the number of non-accredited investors they can accept.

While the average investment from an individual is $20,000 to $25,000, you can often invest with $10,000, and sometimes with as little as $5,000. This minimum investment is lower than some mutual funds. The bigger the show and the higher probability of its success, the harder it would be to find an opportunity to invest at these lower amounts.

Ken Davenport, a Broadway producer with experience working closely with investors, took this concept of attracting smaller investors even further. When producing Godspell, Ken took to the streets, accepting investors with as little as $1,000 as a minimum investment. Investors received billing outside the theater and the chance to profit. With the play opening late last year and with the show not exactly being the hottest ticket in town, some investors in ken Davenport’s group, “The People of Godspell,” have reported that they’ve received checks towards paying back their initial investment, though the show seems to be far away from profiting for these investors.

The pioneers of attracting smaller investors to Broadway are Richard Frankel, Marc Routh, Thomas Viertel, and Steven Baruch. This team has produced seventy-five shows, and if an investor had invested $10,000 in each opportunity since 1985 through 2009, he or she would have received an annual rate of return of 27%, compared with the 7.29% of the S&P 500.

If you are not interested in Broadway or the dramatic arts, you may want to avoid investing due to risk. While financial reward is what all investors are seeking, investors in theater often look for intangible or invaluable returns. Producers will often offer investors a chance to be a part of the show, like attending opening night performances and after-show parties with the cast and creative staff, access to house seats, and in the case of Godspell and it’s pool of smaller investors, your name on a poster. For some, these benefits make investing worthwhile despite the risk.

If these benefits are not appealing to you, you may be only focused on the return of an investment, and stand to be disappointed if the show you back is like four out of five shows that never turn a profit.

Similarities to investing in the stock market. Just like a mutual fund, the best returns are reserved for investors who make the best decisions. Assuming you’re familiar with theater in the first place, you may want to become familiar with the production team’s track record before handing over any money to a show. While investors in the stock market may diversify across a variety of investments in an attempt to smooth out the peaks and valleys of investing over time, diversifying among a number of shows could be difficult. There may be only one show a season you find worth your investment, so your diversification must cover a long stretch of time.

Differences to investing in the stock market. When you invest in the stock market, you can do your research from your bedroom. You can read financial statements in the comfort of your own home, transferring money electronically to your bank account to your investment when you’re ready to purchase a stock or fund. All the information you need is available without leaving your house.

Investing in theater is more like investing in a company directly with a major financial commitment or receiving a substantial share of ownership. Before you make a major investment, giving you a substantial stake in a company, you’ll want to meet the executive team, analyze the financial documents, and handle more of the due diligence in person. When investing in a Broadway show, much of the information you need is not available online. You can use the Theatrical Index to look at every active production’s gross receipts and you can use the Internet Broadway Database to verify information about producers and productions, but it’s best to meet the producers in person, learn about the production, and determine whether you believe the show has the potential to succeed.

Early investors in Rent made a fortune; investors in Spider-Man: Turn Off The Dark probably won’t receive their initial investment back until the show has been running for four years, if it survives that long. Despite it being the most expensive Broadway show ever put into production, Spider-Man seemed like a safer bet, with a big name producer and a widely-recognized brand.

If you’re interested in getting started, here are a few suggestions.

• Ken Davenport’s introduction is a good place to start.
• Consider signing up for the Theatrical Index newsletter (linked above) to have access to financial information.
• Find producers you’d like to work with, and send them introductory letters via email. Even if the particular producers you’re interested in are not currently looking for investors, you will be on their list to be the first to know when they’re seeking investors for their next projects.
• Meet the producers in person and get to know the show in its early stages by attending table-reads and rehearsals.
• Don’t set your expectations too high.

Would you consider investing in a Broadway show?

Photo: kevin dooley
BroadwayWorld, CNBC, New York Times

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