BROADWAY BEAT

Only 25 percent of Broadway shows make money. So why am I in the business of making Broadway shows? Because if you do it right, you can make a killing.

In fact, Broadway shows can be an extremely smart and strategic addition to your investment portfolio for a dozen reasons. Here are the top five.

1. A Whole New World (Diversification) 

If the financial crisis of 2007 taught us anything about investing, it is the importance of having a diversified portfolio with alternative investments. Alternative investing means strategically putting your money in securities that do not follow the stock or bond market – the success of these investments is independent on stock market direction. Many seasoned investment professionals and financial planners strongly recommend that 15 to 20 percent of any portfolio be in alternative investments to reduce the overall risk of the portfolio.

2. See Me, Feel Me (Transparency)

Many investment opportunities come in the form of novel-sized memoranda about the newest computer chip, or a list of New York Stock Exchange abbreviations of, for example, unknown foreign biotech manufacturers. On Broadway, you get the chance to see and understand your investment before writing a check. There are often pre-Broadway productions out of town, readings of the script in a rehearsal room, or demo disks of the score. You may also recognize a familiar title (“Mary Poppins”), star (“Hugh Jackman”), or member of the creative team (“Aaron Sorkin”). In any of these cases, you know where your money is going, and you can choose to put your money into a script you enjoy or a big name, rather than in a computer chip you cannot see or test drive before investing.

3. If I Were a Rich Man ($$$)

How much money do you stand to gain investing on Broadway? Broadway is often compared to the oil industry – you have to drill around but once you hit, the well just gushes and gushes and gushes. While Broadway is a high-risk investment, with that risk comes the potential for unparalleled rewards. And I really mean "unparalleled." "Wicked" on Broadway returned over 1000 percent in its first 10 years. In the same 10 years, Warren Buffett’s Berkshire Hathaway returned merely 140 percent. "The Lion King" stage musical recently became the top grossing entertainment venture of all time, grossing over $6.2 billion worldwide.  Yes, that’s billion, with a “B!”

How do shows offer such favorable returns? The answer is simple: eight times a week, theatres of between 600 and 1,900 seats are filled with consumers who pay up to $475 per ticket – and if a show hits, this goes on year after year after year. Compare that to even the biggest of Hollywood’s blockbusters, which generally run for only 10 weeks at no more than $20 a ticket.  This explains how Universal Studios, the largest movie studio in the nation with hits such as "Jurassic Park" and "E.T." has profited more from "Wicked" on Broadway than from any other venture in its 100-plus year history. In short, the potential for profits are not only staggering, but can last a lifetime. 

4. Tours, and Licensing, and Merch, Oh My! (Subsidiaries)

As profitable as shows on Broadway can be, Broadway tickets only account for a fraction of what a production grosses in total. On top of the Broadway production, shows often go on tour, open in other major cities, sell movie rights, sign licensing deals, and release merchandise. Over the past 10 years, touring shows have earned more in annual gross ticket sales than their counterparts on Broadway. And the market for these shows isn’t just in the U.S. – the world loves Broadway.  "Kinky Boots," which opened on Broadway only three years ago, is preparing to mount its sixth production worldwide, with locations including London, Australia and South Korea. Each of those productions will funnel money into investors who are already seeing very healthy profits from the Broadway run. Subsidiary productions can even save a show that was unable to profit on Broadway. "Seven Brides for Seven Brothers," for example, closed after only three performances on Broadway in 1982, seemingly losing everything for its investors. By 2000, however, the show had recouped from licensing stock and amateur rights, and is now turning a profit.

5.  Let Me Entertain You (Fun)

Though we all want our investments to deliver returns, a significant majority of Broadway investors are satisfied whether or not they make money, and continue to invest on Broadway. On top of fiscal incentives, investing in Broadway is just plain fun. Investors get exclusive perks like tickets to opening night, parties with stars of stage and screen, invites to industry events, and, for larger investors, even eligibility to win a Tony Award!

Now you know why I’m in this business, but the problem still stands that only 25 percent of shows are able to reap the rewards outlined above – or so conventional wisdom states. The truth is that if you know your way around the industry, you can significantly increase your chance of success. That is where I come in. Before I bring investors into a show, I do an in-depth analysis of the product, the environment, the market, and the financials. Based on this information, I determine if the show has a decent shot at being one of the few winners. With the requisite knowledge and understanding, you can turn investing in Broadway into a powerful tool to make significant returns for many years – precisely what OHenry Productions attempts to do with its investors.

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