Tuesday May 8, 2007
Guardian Unlimited
"It's like putting your money on a horse. Probably worse," says Donna Bradshaw from IFG financial services when asked about investing in theatre.
"It's not something you come across. It's a pretty huge risk and is not going to appeal to most investors."
But it does appeal to some. Angels - as in business angels, who are individual investors in speculative and start-up companies both for fun and for profit, and so called because they may well be in heaven before they see a return on their investment - have always been involved in financing theatre productions.
Stories like that of the original 500 investors in Andrew Lloyd Webber's Cats make those who missed out salivate in frustration. The International Herald and Tribune reported back in 1993 that since 1981 angels had seen returns of 200% a year.
"One of our investors put his life savings of £10,000 into Cats," producer Nick Allot told the paper. "He has made £20,000 a year since then."
And a report in this week's Economist says: "Hard-nosed hedge funders and investment bankers have invested $13m to put Legally Blonde on Broadway".
Most are in it for the returns, but others, the paper says, "are in it for the perks, such as the chance to attend rehearsals, tickets to the opening night and invitations to the after party."
In the United States, specialist theatre-investment vehicles have sprung up that allow mini-angels to get a piece of the action for a relatively small amount, for example $10,000 (£5,000).
But these didn't work when they were tried in the UK. "We did try and set up an investment club two years ago but we didn't get enough interest," says Nick Salmon of Stage One, a charity that helps commercial theatre producers raise money for new shows.
Instead, he suggests two other ways of getting involved. "Write to the producers of a play you admire and ask about their forthcoming projects," or "the Society of London Producers circulate a list that matches investors with producers."
But don't expect a Cats-style returns. "People do it because they love it," he says. "It's really a gamble."
How much?
A minimum investment is typically £2,500 in a play or £10,000-£20,000 in a West End musical. Plays cost between £200,000 and £500,000 to get off the ground, a big musical anything up to £5m.
Picking your investment is key. "A 12-week West End smash hit with stars could double your money," says Salmon.
Equus, starring Harry Potter star Daniel Radcliffe, is one such show. The producer, David Pugh, has 82 long-term investors. "I've been going 20-odd years," he says. "I have investors from a group of five teachers to much larger investors."
Equus cost £700,000 to stage. Pugh sold "units" in his show for £3,500. The group of teachers put in £750 each, the biggest investment was £70,000.
"Equus has been phenomenal," he says, "it paid back in eight weeks."
"My investors have been with me for 20 years," he says, although he adds "we always welcome new people." He finds investors in unlikely places: "I did two talks on the QE2 and got 16 investors!"
Like Salmon, he advises "investing in producers" and says the easiest way of getting onboard is to "write to them and ask".
When it comes to dividing up any spoils, says Salmon, "Most producers give their investor 60% of the profit of the production."
If a production is a great success it might tour, even head to the States, perhaps get made into a movie. Then the big money will start to roll.
"Check the rights before you sign up," warns Salmon, otherwise you might find you're only entitled to profits made in the UK as your new play heads off to money-spinning Broadway and then Hollywood.
"It's never been an easy business," adds Salmon. "When they work they work. When they don't, it's painful." Out of 10 productions four will make some profit, he says, three will see the investor get some but not all of their money back, and three will "lose the lot".
Occasionally, a sure thing comes along. Anything with Andrew Lloyd Webber is a good bet. But, warns Bradshaw, "with the bigger shows they won't make it open to the small investor because they don't need to."
It's a sell-out
Lloyd Webber's most recent smash is The Sound of Music starring Connie Fisher. She was chosen from a long line of hopefuls over a 12-week TV series last year. The Pop-Idol style contest to find and make the star virtually guaranteed the show would sell out, and it did.
"I invested £500," says a financial analyst who requested anonymity while speaking about his finances.
"Actually, I just tagged on to someone else who was making a much bigger contribution. I think the show started in November and I got half my money back in February and the other half in March.
"I got all my money back in 20 weeks, which is unusual. I also had some free tickets and am looking forward to some profits hopefully in the coming months," he says.
"In terms of mechanics the show will have a capitalisation of £3m, say, funded by angels like me. Any operating profits will go around 80% back to the angels and the other 20% to Andrew Lloyd Webber until the initial investment is returned.
"If it breaks even and starts to make a profit the balance switches, and any profits go around 60% to Andrew Lloyd Webber and 40% to the angels forever, or until the end of the show."
However, he warns: "My experience is atypical. A colleague has invested in four shows. He has lost on two, broken even on one and done well on the Sound of Music."
So how did our anonymous analyst get into it? "I heard about it at work as colleagues have been investing in shows for some time. It's just their own money on a personal level and nothing to do with our professional investments."
Investing in theatre productions then is not for the fainthearted. Salmon agrees: "You need to love the gamble and the fun. And you must be prepared to lose."
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