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How to Invest in a Broadway Show

This article was written by in Investing. 9 comments.


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.

Broadway showFor 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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Meeting With a Financial Planner From Vanguard Flagship Services

This article was written by in Financial Advice and Advisers. 20 comments.

On Tuesday, I had a phone consultation with a Certified Financial Planner from Vanguard. It was an initial meeting, wherein we talked about each other, focusing on my goals. I tried to take into account many of my own suggestions for working with a financial adviser, but in preparing for the meeting, I realized — well, I’ve known this, but nothing brings an issue more to the front of the mind than being required to think about it — that I’m not sure about the next steps I’d like to take with my life.

I’ve been running Consumerism Commentary since 2003. While I started it as a hobby and an opportunity to learn how to manage my own finances, it has grown into a business of its own, allowing me to leave my unsatisfying day job and work for myself. I don’t see myself doing this forever. When looking at the long-term possibilities, there is a significant opportunity to grow this business, but I also need to ask myself if that’s the right direction for me in the long term. I’m not particularly interested in writing a book, like many other personal finance bloggers have done. I love writing and building communities, and that’s been the core of what I’ve been doing since the early 1990s; I was just lucky to apply these interests to personal finance at the right time — a time I needed it from a personal perspective and a time at which the world would suddenly show a growing interest in independent financial voices.

It’s important to know and understand life goals before talking with a financial planner in order to devise a plan that matches those goals. When I left the non-profit arts management world in 2001, my dream was to re-enter when I was in a better financial situation. And while I thought it was an impossibility at the time, I liked the thought of starting a foundation if I ever found myself in the position to do so, never thinking I would have that opportunity. Today, I’m not convinced that is the right path for me. For now, I plan on continuing what I’ve been doing, but working harder to identify where I’d like to see myself in twenty years.

Of course, people set goals all the time, only for life’s circumstances to move in a different direction. All the best planning in the world can’t take into account changing interests and desires. Regardless of my contemplation over goals, I met with Vanguard’s financial planner. I came away with a good strategy that I can use for my investments while mapping out my future. He also helped me understand why, given the option and a desire to have tax-efficient bonds in your portfolio, it’s better in the long term to have bonds in accounts like 401(k)s and any stock funds in taxable accounts, the opposite of what I thought would be a good tax strategy. This is an idea I’ll share in a future article. Update! Read more about the investing strategy I discussed with the Vanguard financial planner.

The financial planner I spoke with is not paid by commission. He understood I subscribe to the index fund philosophy, and recommended only index mutual funds — and only four specific funds for the right diversification and asset allocation that will allow me to likely perform better than a savings account, invest for the long-term, and give myself a cushion to think about the next steps in my life.

Here are some interesting articles I came across this week, including one of my own published elsewhere. Read the full article →

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Personal Balance Sheet, October 2011 ($373,552, +9.2%)

This article was written by in Monthly Update. 15 comments.

I’ve been tracking my net worth and keeping my finances updated in personal finance management software since July 2003. I’ve done this mainly for myself. Posting my finances online helps make the numbers real. I use these monthly reports to hold myself accountable. If I write publicly about spending more in a budget category than I should, I have no one to blame myself if, at the end of the following month, I still have the same problem. I would have to face the judgment of readers who see my lack of progress. By keeping my finances public, I try to hold my money-related decisions to a high standard.

Over the past eight and a half years, this technique has helped me gain financial independence, combined with a thriving business. But this will be the final month I share my balances with this much detail. I’m moving into the next phase of my financial journey, and this requires taking back some of my willingness to bare all for an audience. I will still share quite a bit, more than most readers would expect, but the familiar balance sheet will be replaced with a different accountability measure.

Another reason to move away from posting a monthly balance sheet for accountability is the fact that the swings from month to month have more to do with stock market performance than day-to-day money management decisions. When I had very little money invested and my expenses were close to my income, every decision I made could have a strong effect on my finances. That is not the case today. Just like my need for tracking every cent has been relinquished as my budget began to allow more freedom, my daily spending has a smaller effect than decisions pertaining to the larger picture, like my investment portfolio allocation and diversification. I’ll be writing more about my investment choices in the future.

In October, my investments recovered. This contributed to an increase in my net worth. Continue reading to see the numbers.

Read the full article →

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U.S. Will Sue Major Banks Over Mortgages

This article was written by in Economy, Real Estate and Home. 19 comments.

Imagine you’re shopping for a new high-definition television. You’re looking around the store for the television with the best picture from a brand you trust. You pick the one you like, not the least expensive model but not the most expensive, either. You take it home, plug it in, and all the television can display is an image that’s been painted on. You open a panel in the bank, and where you expected to see electronics, there’s only crumpled-up newspapers. You were sold a dud, and didn’t know it until you had taken the “television” home. Furthermore, there’s no return policy.

No one should allow a company to sell a product whose components are drastically different than what’s advertised, particularly if the opportunity to evaluate the components doesn’t rise until after the product is sold. This is similar to the reason the Federal Housing Finance Agency is suing Bank of America, JP Morgan Chase, Goldman Sachs, Deutsche Bank, and other banks. The products were mortgage-backed securities. Banks sold these securities to investors as if they were low-risk investments. For a while, there wasn’t a problem. Eventually, the banks had trouble finding qualified borrowers to bundle into securities and extended loans to riskier home buyers.

ForeclosureSelling the mortgages as securities meant that every investment would be somewhat diversified across a wide selection of mortgages, and this diversification should have kept risk low, but the banks — and most likely the investors, as well — continued these transactions because everyone was profiting.

The banks were complicit in making the mortgages appear better by falsifying borrower income statements. Perhaps other parties were aware that the securities were riskier than advertised, but no company, not the investors nor the companies providing insurance for these investments, stepped in to bring attention to the risk. Every company was making too much money to stop and consider the downstream effects.

The FHFA is making the allegations and will file a suit in federal court within the next few days, according to the New York Times and the Wall Street Journal. The banking industry’s position is that a downturn in the economy caused the loss of value on mortgage-backed securities, not that mortgages offered to people who couldn’t afford them caused the downturn in the economy. Now the industry is concerned that a suit in which banks are required to buy back the investments would put the economy back on this ice.

For many years, the government (and the real estate industry and the banking industry) promoted home ownership in the United States. Owning a home became the new definition of the “American Dream.” Owning your own property is the only way to be free, and this philosophy stemmed from feudalism in England. Those who owned land ruled over others. It’s not quite the same in the United States; homeowners are still subject to their local governments, but the feeling of freedom that accompanies home ownership has persisted. Land ownership in feudalism was for the aristocracy, and unlike feudal times when there was little socioeconomic mobility, the promise of America meant that anyone could be a land owner — anyone could be in the upper class.

This drive to live a better life and increase social status led to the market finding ways for more people to afford to be homeowners, from the proliferation and expectation of bank-financed purchases through mortgages to creative ways for increasing supply like condominiums, home ownership without land. The business of home ownership is profitable, so there was no need to slow down. With incentives from the government and a stigma attached to renting, potential homeowners would do anything to qualify for mortgages so they could buy a home quickly rather than saving money first, and potential lenders would do anything to find more borrowers, bundle the mortgages into securities somewhat masking the risk, and sell them to investors.

Now society is paying the price. The economy crashed after the housing bubble became uncontrollable. Homeowners lost their homes. Investors in the mortgage-backed securities and the banks that sold them are jockeying for who will be held responsible. Should the banks be required to buy back the mortgage-backed securities?

Photo: taberandrew
New York Times

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S&P 500 Return Beats Super-Rich Investors in 2010

by Flexo

The year 2010 was an anomaly. Usually, the members of the Institute for Private Investors, a country-club type of investment group that only welcomes you if you have $30 million in investable assets, beats the S&P 500 benchmark in terms of average annual returns. Looking at the latest ten-year average return, that’s what we see. ... Continue reading this article…

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How to Buy Precious Metals Including Gold and Silver

by Flexo
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There are two main reasons to head towards precious metals as a major investment. One reason one might significantly invest in metals is the belief that the value of gold and silver will increase more than other types of investments like stocks and bonds, or that the investment in metals will provide a certain type ... Continue reading this article…

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To Diversify Or Not To Diversify

by Flexo
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That is the question. For most small-time investors, diversification is necessary. Index funds offer diversification across a type of investment, and with a strategy like this, you can be sure you’re avoiding investment management who, on a whole, perform worse than the indexes. Diversification through index funds allows investors to spread small amounts of money ... Continue reading this article…

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Are Stocks Too Risky?

by Flexo
Cliff climbing

When it comes to investing for the future, there appears to be an interesting dichotomy. The typical financial advice marketed to the middle class — upper and lower — calls for long-term growth through investing in the stock market. The typical sales pitch — and I use “sales pitch” as a general term, not necessarily ... Continue reading this article…

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