Theatre Handicapping 101: How Experienced Investors Pick Shows

Theatre Handicapping 101: How Experienced Investors Pick Their ShowsOver the past couple of weeks, I have been huddled in conversation with a number of producers, investors and other theatre industry professionals, talking about what we see as a disturbing trend in the commercial theatre industry. More and more, our industry produces big budget musicals which can only survive if they achieve blockbuster success. Since blockbuster success is rare, the majority of these productions lose money. A lot of money.In addition, because of the high cost of these big budget musicals, more and more producers are turning to a growing class of investor producers. These investor producers will either put their own money into a show, or raise money from their contacts, so that lead producers can raise the $15 million to $18 million these big budget shows customarily cost.What’s disturbing about this? Big budget musicals need investor producers to open, and then most big budget musicals lose most of the investor producers’ money. Which means our current method of conducting business is unsustainable. Sooner or later, investor producers will figure out that there are better ways to spend their money and the money of their contacts.So, what to do? One concept is to start to train investor members to evaluate theatrical properties and productions better. In other words, start teaching classes for investor producers. I’m calling the project Theatre Handicapping 101. A growing consensus would have those classes guide investor producers through the following decision points.1 Know why you are investing. If you are putting money into a show because you want to support the arts, you want to go to opening night, you want to meet Hugh Jackman or Tom Hanks, that’s perfectly fine. Chances are, you will get your money’s worth because you will get exactly the experience you want. However, if you are investing in a show because you want to make money for yourself and your own investors, and because you are looking to build a track record in the industry, then you have to pay very close attention to the fundamentals.2 Factor 2: Evaluate the property. A lot of investors elect to invest in a show because they like the marketing materials and it seems like a show they would buy a ticket to see. Frequently, they don’t even read the script or see the show before investing. Again, if you are investing in a show because you want to make money and build a track record, it is important to determine of the show is solidly crafted. If it’s a musical and it has seven ballads, alarms should go off. In addition, investors should stop to consider who the target audience for the show is, and how the show will be marketed. A lot of factors go into determining whether or not a show is a potentially profitable and marketable property.3 Factor 3: Evaluate the team. It is not necessary that every member of the production team and creative team have a lot of commercial theater experience under their belt. But, if you are considering investing with a first time producer, consider who they choose as general manager and director. Experience isn’t everything, but it’s definitely something. Also, with respect to the creative team, if you’re considering investing in the work of a first time composer, check out who the music director, orchestrator and arrangers are. A good music prep team can support a talented but inexperienced composer. Most importantly, look for both a production team and a creative team that is collaborative and open to new ideas.4 Factor 4: Is the initial commercial production financially viable? Simply put, if you’re considering investing in a show that costs $16 million and has weekly running costs of $800,000, you should know that the show has to be a blockbuster hit in order to make money. And there are very few blockbuster hits. Other factors to consider:i. Do you know what theater in which the show will be presented? If this is a family show, are the seats comfortable for children?ii. What competing shows are opening in the same season? Will another production be marketing to the same audience as your show?5 Factor 5: What is the possibility of life for the show after Broadway? Not every show has to make its money back in its initial production. If it’s a musical that will tour well in the US and elsewhere, that could be a significant source of income. Similarly, if the show has the possibility of moving to the West End, that’s something to consider. Finally, is there a chance for significant stock and amateur income, or the possibility of a film?It would be revolutionary indeed if investor producers came to some common understanding of how to evaluate shows as potential investments. Sure, each investor producer would interpret the data in their own way, but at least they would interpret the data. Perhaps it would bring our industry back from the big budget blockbuster or die brink and herald the return of the $8 million dollar musical.One thing is for certain, though. Change must happen in the commercial theatre industry, because our current model is unsustainable. Educating investor producers could well be an important step towards realizing that change.If you are interested in helping to change the commercial theater industry for the better by education investor producers, or by any other means, please contact me at egoldman@esg-esq.com.