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[0:00] Ken Davenport: Today on the Producers Perspective Podcast episode 249, I'm going to answer the 10 most frequently asked questions that I get about Broadway investing.

[0:12] Ken Davenport: So whether you are looking to raise money from investors or whether you are interested in investing yourself, stay tuned.

[0:20] Ken Davenport: I've got 10 answers for you.

[0:43] Ken Davenport: You're listening to the Producers Perspective Podcast with your host, Tony Award winner, Ken Davenport.

[1:00] Ken Davenport: So I get a lot of emails and social media messages with a lot of questions. And one of the most common subjects that I get asked about is Broadway investing.

[1:11] Ken Davenport: And this has to do, I believe, with how I crowdfunded Godspell years and years ago. See, I had this thesis then. I had this thesis that there were thousands of people out there who were interested in investing in Broadway shows, but because of the very closed door industry that we were at the time and are still so, although those gates are starting to come down now, uh, the gates are being pried open finally.

[1:38] Ken Davenport: I had a feeling there were all these people out there that were interested in investing in shows. They just didn't know how to do it or who to talk to about it.

[1:46] Ken Davenport: And sure enough, when we announced our plans for Godspell, thousands and thousands of people expressed interest to me directly about investing in that show. And I actually made it a personal mission statement of mine to return every single one of those phone calls, and we did.

[2:08] Ken Davenport: It took, I think it took like 10 days to two weeks to actually dial all those numbers. But we did, we did. And most importantly, what that proved to me was that that thesis was correct.

[2:21] Ken Davenport: There were tons of people out there that were interested in getting involved with Broadway shows. They just didn't have the information they needed in order to do it.

[2:32] Ken Davenport: We ended up with almost 750 investors on that show. But there were so many more out there, again, that I knew that were interested. And still to this day, I still get tons of questions about investing in Broadway shows.

[2:47] Ken Davenport: So I thought I'd take this opportunity to answer the 10 most frequently asked questions I've received over the years about investing in Broadway shows. So, like I said in the introduction, if you are interested in investing, these answers are going to help you.

[3:02] Ken Davenport: Or if you are a theater maker that is raising money, it's very important to understand the questions that your investors will have as they contemplate that decision with you.

[3:13] Ken Davenport: So here are the questions, not in any order. So this first one, which is how much do I need to invest, is not necessarily the question that gets asked the most often, but it is a very common question.

[3:28] Ken Davenport: So again, question number one of the frequently asked questions about Broadway investing, how much do I need to invest? So, whenever this question is asked to me, I always turn around and ask the person a question, and I say, What do you think you will need to invest in a Broadway show?

[3:34] Ken Davenport: What do you think the average investment in a Broadway show is? I have heard every answer you could ever imagine. But the overwhelming majority of the answers tend to be much, much higher than the average investment in a Broadway show.

[4:03] Ken Davenport: I've gotten everything from, oh, I probably need to invest $250,000, $150,000, $100,000. That's generally where it tends to be that people believe the average investment is somewhere $75,000, $100,000.

[4:18] Ken Davenport: The truth is that the average investment, according to a survey that we did, the average investment is only around $25,000. And it's actually not uncommon for Broadway producers to accept as little as $10,000. And for off-Broadway shows, as little as $5,000.

[4:36] Ken Davenport: So the first thing for people to understand is the entry fee, if you will, the amount of money you need to get in the game is not as high as you may think. So for those of you interested, make sure you ask. And what is the lowest amount you can get in for if that's a concern of yours? And for those of you raising, remember you can ask for less than you may think the average investment is.

[5:03] Ken Davenport: Question number two of the most frequently asked questions about Broadway investing can I lose more than I put in? The answer to this is no. Of course, you're gonna want to read your offering documents, but I have never seen an investment, a set of investment documents that have not included a clause that limits your liability to only your initial investment.

[5:27] Ken Davenport: So when you read your documents, and of course you should read your documents from start to finish, or have someone else read them and advise you, an attorney, a mentor, a peer, someone from the industry, you are looking for this clause. If you can't find it, make sure you ask the producer to point it out.

[5:43] Ken Davenport: Again, that clause should limit your liability to only your initial investment. Now, let me just give you a little bit of a disclaimer on here. If a show gets in trouble early, and some shows do, and needs some more money to keep it going, the producer may come back and ask you if you want to put in some more in what is called a priority loan.

[6:04] Ken Davenport: But the keyword here is an ask. You can always say no. So again, you are protected against losing more than you put in in the first place.

[6:16] Ken Davenport: Number three, uh, can anyone invest? Can any single person invest, or do you need to qualify? So the truth is most Broadway and off-Broadway offerings, just like most investments for private companies, startups, etc., most are limited offerings and are for accredited investors only.

[6:36] Ken Davenport: You should Google accredited investor if you want to know the exact definition, but very roughly speaking, it means you have a net worth of a million dollars or more, or that you've made $200,000 a year or $300,000 a year with your spouse for the previous two years.

[6:51] Ken Davenport: And a change that occurred in this definition several years ago was that you cannot include your house in your net worth definition. Okay, it must be a million dollars, excluding your residence. This would qualify you as an accredited investor, which would allow you to invest in most Broadway shows.

[7:11] Ken Davenport: There are some offerings that allow for some unaccredited investors. And there are very, very few that are open to all unaccredited investors. That was what Godspell was, actually. We used a very specific regulation that allowed anyone to invest regardless of their accreditation status.

[7:31] Ken Davenport: When in doubt, again, ask the producer what type of investor do you need to be. And if you are raising money, when you are raising money, do talk to your attorney who is most likely generating these documents for you or generating the offering for you about what type of investors you want to be able to accept.

[7:50] Ken Davenport: Question number four What about tours and high school productions? This is a common question. Oh, my daughter just did Legally Blonde at my high school. If I was an investor in Legally Blonde on Broadway, would I participate? And the answer is yes.

[8:05] Ken Davenport: This is one of the major benefits of investing in the mother's ship, as I call as I call it, the original Broadway production, or to use a business analogy, the first restaurant and a franchise, right? This is the very, very first one. We're hoping the Broadway production, we're hoping that it's a big time success, and then it will spawn all these other productions.

[8:30] Ken Davenport: National Tours, London, Australia, and yes, we'll all the way trickle down to summer stock, regional, and even high school. And for a certain period of time, usually tied to a number of years after the close of the Broadway production, investors do receive a percentage of income of all produced shows.

[8:52] Ken Davenport: So, yes, in most cases, if you were the investor in an original production of a Broadway musical, and that show was done a couple years after the Broadway show closed at a local high school, you'd be getting a small percentage of that. And this is actually where shows can turn into real juggernauts.

[9:14] Ken Davenport: And the income can go on for years and years because there are like over 20,000 public high schools in this country, and uh overwhelming majority of them do high school musicals. So there actually can be a lot of money to be made in what we call the subsidiary market.

[9:31] Ken Davenport: Question number five in the frequently asked questions about Broadway investing do I get to go to opening night? So, as I often say to potential investors in my shows, if you invest in Coca-Cola, they're not gonna send you a free six-pack. But on Broadway, we like to give lots of perks.

[9:46] Ken Davenport: And yes, for investors, usually of a certain level, opening night is one of them. They again they do require usually a minimum investment simply because Broadway theaters are limited to the amount of people that can be uh put in.

[10:02] Ken Davenport: And we of course have to take care of opening night tickets for our authors and our actors and everyone working on the show as well. So there's usually a qualification, a threshold that you have to invest more than in order to get opening night tickets. But you should definitely ask what that is. It's a major perk. Opening night parties are a who's who of the theatrical industry.

[10:21] Ken Davenport: A lot of investors will invest primarily to go to the opening night because of the networking opportunities available, the social capital that you receive, and frankly, it's just a very, very exciting night.

[10:34] Ken Davenport: And if you've never been to an opening night, then you gotta go to one somehow because it's a very, very magical night if you're a fan of the theater.

[10:43] Ken Davenport: Number six, frequently asked question: how does this work with my taxes?

[10:47] Ken Davenport: So I'm not an accountant, I don't even pretend to play one on television.

[10:51] Ken Davenport: So the most important thing you can do is talk to your accountant about the specific ways that an investment could influence your taxes in both ways.

[11:02] Ken Davenport: In how a profitable show, how that will impact your tax situation, and how a show that doesn't pay back, how that will affect your tax situation.

[11:12] Ken Davenport: But just to give you a general rule here, yes, a loss in a Broadway show can be used as an advantageous tax situation for you.

[11:23] Ken Davenport: Again, applicable to your specific tax situation, which I can't comment on, but your accountants certainly can.

[11:29] Ken Davenport: But there are tax advantages for you when you're investing in a Broadway show if it does not work out.

[11:36] Ken Davenport: If it does work out, you are gonna pay taxes on those.

[11:39] Ken Davenport: And these laws were changed recently, and something that we've been struggling with over the years, a phrase called phantom income.

[11:47] Ken Davenport: We've gotten rid of that.

[11:48] Ken Davenport: And so it's much easier and simplified process.

[11:52] Ken Davenport: You will receive a K1 at the end of every year that your Broadway show or subsequent company is active.

[12:01] Ken Davenport: But again, I advise everyone out there to speak to their accountants about their specific situation because it will impact your taxes.

[12:09] Ken Davenport: Seven, can I afford to invest?

[12:11] Ken Davenport: Okay, usually when people ask this question, I urge them to talk to their financial advisors again.

[12:18] Ken Davenport: Investing in a Broadway show is a very, very risky endeavor.

[12:21] Ken Davenport: Okay.

[12:22] Ken Davenport: I always say to my first-time investors, I want you to write this check like you're never gonna see it again.

[12:27] Ken Davenport: Because again, and this is very important for you, those of you raising money out there, it's very important that your investors have proper expectations, that you manage those expectations, especially on your first time out.

[12:37] Ken Davenport: If you're raising money, you want people to invest with you, not just on one show, but every show you do for years and years and years.

[12:43] Ken Davenport: They will do that if you're open and honest and authentic up front, which means telling people the truth.

[12:49] Ken Davenport: And the truth is it's a very, very risky endeavor.

[12:52] Ken Davenport: The average rate of success is one out of five shows return their investment.

[12:57] Ken Davenport: Okay?

[12:58] Ken Davenport: So can you afford to invest?

[13:01] Ken Davenport: You have to be willing to lose it all and have that not impact your financial situation, is a general rule to look at.

[13:08] Ken Davenport: But definitely talk again to your accountant or financial advisor or other people who have invested and your producer about your specific situation.

[13:17] Ken Davenport: Number eight, how do I pick my first show to invest in?

[13:21] Ken Davenport: So I always tell people make sure you pick something you love desperately.

[13:25] Ken Davenport: Broadway shows, I sometimes joke, are like your kids, they're very expensive and they can disappoint you every now and then.

[13:33] Ken Davenport: So you want something just like your kids that you love desperately.

[13:37] Ken Davenport: So if it doesn't recoup, if it financially disappoints you, you're still very proud to have helped make it happen.

[13:43] Ken Davenport: It's like hanging a piece of art on your wall.

[13:46] Ken Davenport: You want to look at that every day and be like, I don't care if that's gone up or down in value.

[13:50] Ken Davenport: I love that piece of art on my wall.

[13:52] Ken Davenport: Well, your version of art when investing in a Broadway show, it's like a poster.

[13:56] Ken Davenport: You want to hang a poster on your wall and say, look at that.

[13:59] Ken Davenport: I helped make that happen.

[14:02] Ken Davenport: And do make sure you're investing with a producer you know and you trust and has a good track record for not only returning investments, but producing shows that you believe in, that you enjoy, and also that communicates with you throughout the process.

[14:18] Ken Davenport: The most frequently asked question number nine, okay, I want to invest, but how do I find someone to invest with?

[14:25] Ken Davenport: So, although producers don't usually advertise that they are looking for investments because there are a lot of regulations surrounding that, most would be happy to take your information if you raised your hand and said you were interested in getting involved with a show.

[14:39] Ken Davenport: So, my suggestion to anyone out there considering investing in a show is always to go see shows, right?

[14:45] Ken Davenport: See lots of shows.

[14:46] Ken Davenport: And when you go to one you like, look at the name at the tippity tippity top of the list of producers on the playbill.

[14:52] Ken Davenport: That's usually the lead producer.

[14:55] Ken Davenport: And if you liked his or her show, then you have similar taste.

[14:58] Ken Davenport: So reach out to that office.

[15:00] Ken Davenport: Quick Google search, you'll probably find a website or something, and reach out, call, write a letter, mention something on their social media page.

[15:10] Ken Davenport: I liked your show.

[15:11] Ken Davenport: Can you put me on your list?

[15:13] Ken Davenport: Most producers will.

[15:14] Ken Davenport: That doesn't mean you're going to get in to their next big guaranteed hit, right?

[15:19] Ken Davenport: But most producers will say, sure, I'm happy to notify you when we have opportunities.

[15:23] Ken Davenport: Now again, don't expect to get a call to invest in the next quote unquote sure thing.

[15:28] Ken Davenport: First of all, there are no sure things.

[15:30] Ken Davenport: Second of all, first-time investors usually have to take a little more risk on a show before they are offered the shows that are safer bets, right?

[15:39] Ken Davenport: Remember, producers have a lot of investors that they have worked with for many, many years.

[15:44] Ken Davenport: So they're usually going to get the first crack at any new shows that come up on their producer's docket.

[15:50] Ken Davenport: I know that's certainly how I treat my investors.

[15:54] Ken Davenport: If you've invested with me before, then you're going to get a look at what I'm doing in the future before other people.

[16:00] Ken Davenport: So you may need to do something that may be a little more risky before you get in the family for good.

[16:09] Ken Davenport: So don't be surprised if you can't get into your first thing right away.

[16:13] Ken Davenport: And you know what?

[16:14] Ken Davenport: Those things that are on paper that look like sure things, it's usually the ones that people don't expect to be a big fat hit that are.

[16:23] Ken Davenport: So remember that when you are looking for your first investment opportunity.

[16:28] Ken Davenport: Number 10, what if I wanted to invest more and be a co-producer?

[16:32] Ken Davenport: So for larger investors, it is possible to earn additional perks, including above the title producer credit, which may get you Tony Award eligibility.

[16:41] Ken Davenport: You can get additional financial return, participation in business decision making, part being part of the process of developing the show, tons of educational opportunities.

[16:51] Ken Davenport: I often say being a co-producer on a show can be more educational than grad school.

[16:57] Ken Davenport: So if you are interested in those opportunities, do contact your producer and say that.

[17:02] Ken Davenport: Raise your hand and say, I am interested in larger opportunities.

[17:06] Ken Davenport: And by the way, this can mean investing more personally or finding other investors.

[17:14] Ken Davenport: The clause right out of the contract for co-producers usually goes something like this: you agree to invest or cause to be invested.

[17:22] Ken Davenport: So, yes, it's actually possible for you to be a co-producer on a Broadway show and not invest a dollar of your own money.

[17:30] Ken Davenport: You just have to go raise it yourself.

[17:33] Ken Davenport: Usually co-producer investment thresholds can average about $350,000, but can be lower or higher depending on the level of risk involved with the production, whether it's a play or a musical, etc.

[17:47] Ken Davenport: So those are the top 10 frequently asked questions.

[17:50] Ken Davenport: I'm gonna give you a bonus, which is actually the most important.

[17:55] Ken Davenport: Why should I invest?

[17:56] Ken Davenport: If this is something you're thinking about, you should not invest because you're looking to make lots of money.

[18:01] Ken Davenport: Okay.

[18:02] Ken Davenport: Is it possible to do that?

[18:04] Ken Davenport: Absolutely.

[18:05] Ken Davenport: You should not invest purely to make great networking connections.

[18:09] Ken Davenport: Can you do that?

[18:11] Ken Davenport: Absolutely.

[18:13] Ken Davenport: You should invest in the theater if you love the theater.

[18:13] Ken Davenport: If you love the theater, you want to support it, you know the world can't live without it, you know it can change people's lives, you know that the success of the theater depends on people like you supporting it, then yeah, you should invest.

[18:30] Ken Davenport: And the other things that come along with it are unbelievable perks and bonuses.

[18:35] Ken Davenport: Yes, it's possible to make money, although it's very, very risky.

[18:39] Ken Davenport: I will tell you that again.

[18:40] Ken Davenport: Yes, networking connections, yes, you can learn how to produce a show if you're looking to develop and produce your own shows.

[18:48] Ken Davenport: But the bottom line is only invest if you couldn't live without the theater and think the world shouldn't be without it either.

[18:56] Ken Davenport: Thank you so much for listening to this week's podcast on the 10 most frequently asked questions about Broadway investing.

[19:03] Ken Davenport: I hope it's been helpful if you are considering a Broadway investment or if you are looking to raise money on your own.

[19:08] Ken Davenport: If you want to know more about this subject, I've actually written a book called Broadway Investing 101.

[19:15] Ken Davenport: Look for it on Amazon.

[19:16] Ken Davenport: It's got a bunch of great reviews, and you can pick it up there.

[19:20] Ken Davenport: But I'll tell you what, if you are interested in reading this book and learning more about the subject, send me an email at Ken at the ProducersPerspective.com.

[19:20] Ken Davenport: Ken at the ProducersPerspective.com, and I will send you that book for free.

[19:29] Ken Davenport: Ken at the ProducersPerspective.com.

[19:38] Ken Davenport: Thank you for your interest in supporting the theater and thanks for listening to this podcast.

[19:55] Ken Davenport: Thanks again for listening to the Producers Perspective Podcast.

[19:58] Ken Davenport: If you found this episode informative, educational, inspirational, or just entertaining, do me a favor and share this episode with another theater maker or two in your life.

[20:10] Ken Davenport: My mission is to amplify the conversation about theater because if we get more people talking about it, we'll get more people making it, we'll get more people seeing it.

[20:19] Ken Davenport: It will be great for the industry as a whole.

[20:22] Ken Davenport: If you want more of my daily perspectives on theater and Broadway, check out my blog at theproducersperspective.com or check out my social media accounts at Ken Davenport B Way on Instagram and at Ken Davenport on Facebook, Twitter, and LinkedIn.

[20:37] Ken Davenport: We'll see you for the next episode.