Investing in a Broadway play

Dear Mr. Berko:

A good friend and I have an opportunity to invest in a Broadway play through a common friend we've known for ages. So this is a legitimate deal and not one of the many scams that are part of this business. Each of us would invest $50,000, and we are told that the payoff could easily be as high as 10 times our investment in 12 months. How is this possible? We were expecting perhaps 20 to 30 percent, but our friend insists that his optimism is justified. This enormous return concerns us, and now we are reluctant to invest because 10 times our investment appears to be so unreasonable. We would appreciate your comments, thoughts and recommendations.

-- KL, Minneapolis

Dear KL:

I know a wannabe real estate mogul who gets a painful GERD attack every time he laments the fact that he didn't have the guts to invest a large pile of money in a Broadway play called "Wicked" six years ago. Now, I don't care a fig or a ficus about Broadway plays, but "Wicked" was named "best musical" in 2007 by Time magazine and broke box-office records around the world. This was certainly a tenner -- or maybe even a twelver! However, I think hit musicals and reputed tenfold and twelvefold returns are as rare as albino alligators and two-headed unicorns.

There are quite a few private, low-profile syndicates of like-minded investors who get their jollies investing in Broadway plays and revel in being an intimate participant in this great American tradition. Every producer wants his play to be a hit. So do the actors, the directors, the stagehands and the musicians. However, with the best of everything and everybody working together, the chances of success are guaranteed to be none to very slim. Because the failure rates are so high, investors' returns have to be darn exciting to attract their money.

I'm unable to give this investment a green light. And I don't know enough to give you a yellow light. Nor would I give you a red light. Investing money in a Broadway play is very much like wildcatting in the oil business. Wildcatting is the process of drilling for oil in an unproven, unexplored geographical area. The success of the play in which you might invest is not determined by the taste of the public, most of whom wouldn't know an OK play from a good play or a good play from an exceptional play. The public has no taste! Rather, the success of a play is usually determined by reviews of the Broadway critics, who tell the public what's OK, what's good and what is exceptional.

Broadway shows are most often organized as noncomplex limited partnerships, with the managing partner, who is most often the producer, getting 50 percent of the take and the remaining 50 percent accruing to the investors. Big investors, those who might invest $600,000 or $800,000 or more, usually negotiate for additional incentives, such as a piece of the producer's action and a portion of the revenues (not profits, and this is a big difference) from the sale of cast recordings or future revivals.

Profits have a very nebulous definition in this business. And my wannabe real estate mogul will tell you that using an attorney to structure an investment agreement (including incentives) can make a monstrous difference in the amount of return you get on your investment. There are a lot of sharks out there, and your best protection against them is to employ one to represent you. So hire a lawyer familiar with the theater industry, even though he may charge you between $1,000 and $2,500 to review or write a contract. The New York State Bar Association (http://www.nysba.org or 800-342-3661) can help you find a lawyer who has experience in working Broadway investors. Or see who is listed as "production counsel" on the playbills of shows you have attended. I hope each of you guys breaks a leg.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2013 Creators Syndicate Inc.

Published: Wed, Oct 23, 2013

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