Cash cows like Rent, Les Misérables, Cats and The Phantom of the Opera can provide fat returns to their first investors for many years, thanks to licensing deals for subsequent productions. Investors in the original 1956 Broadway production of My Fair Lady have reportedly received total returns close to 8,000%. “Even though the minority of shows are hits, they can be hits out of the park,” says New York entertainment attorney Ben Feldman of Beigelman, Feiner & Feldman.

Returns from successful shows can handily beat the stock market. “Investors are not making 10% per year. They’re making seven times their original investment,” says Feldman.

There’s no shortage of shows for investors to choose from. Broadway theater is one of the biggest businesses in New York City. Sales of tickets and merchandise topped $1 billion and attendance exceeded 12 million for the 2011 to 2012 season, according to The Broadway League, the industry’s trade organization.

There are currently 40 “Broadway” theaters, defined as those professional venues with 500 or more seats located in the Theater District, an area covering about a dozen blocks on Manhattan’s West Side. “Off-Broadway,” New York’s less dazzling second tier, is made up of 30 smaller professional theaters that seat between 100 and 499.

Besides the potential for profit, clients can indulge in the glamour and bragging rights of being part of a Broadway show. The perks of being an investor often include tickets to opening night performances, invitations to the parties that follow, networking opportunities and souvenirs like show posters and cast recordings.

In exchange for financing as little as 5% to 10% of a show’s total budget, a theater-loving client might even get an “above-the-title” credit and a chance to be one of the dozen people on stage collecting a producer award at the annual Antoinette Perry Awards for Excellence in Theatre, commonly known as the Tonys.

But perhaps the most fulfilling aspect of investing in a Broadway production is the opportunity for patronage—the chance to support shows that are artistically important because they address vital social or political issues.

“As producers and investors, we’re adding something to the cultural landscape that will stay forever. We can offer ideas that enlighten people, change their minds and of course entertain,” says multiple Tony-winning producer Daryl Roth of Daryl Roth Productions.

Roth is one of the most prolific producers in New York, with over 75 Broadway and Off-Broadway plays and musicals in her 26-year career. Roth says she’s drawn to works with strong intellectual and emotional appeal, like Wit, a Pulitzer Prize-winning play about a poetry professor dying from ovarian cancer.

“No one wanted to produce it because it was considered a depressing and difficult subject. But not only was it a huge hit and financially repaid the investors with profit, it became the basis of an ethics class in medical schools and helped change how doctors and nurses interact with their patients,” says Roth.

The ‘Business’ In Show Business
Notwithstanding the potential to make a serious social impact and achieve extraordinary returns, advisors should note that investing in Broadway has a risk profile akin to venture capital.

Producer Ken Davenport of Davenport Theatrical Enterprises says only 20% of all Broadway shows ultimately recoup their investment, let alone become profitable. In other words, there’s an 80% chance an investor could lose most or all of his or her capital in a dud like Moose Murders. That’s one reason most producers seek backing from wealthy patrons of the arts who believe in and want to promote the particular project and aren’t expecting a quick return.

One reason for the relatively high failure rate is the cost of bringing a show to the stage. The average Broadway musical is capitalized at about $10 million to $15 million. Plays cost less to produce, usually in the $2 million to $3 million range. Musicals are more expensive because they often have elaborate sets, large casts, fancy costumes and live orchestras.

Broadway musicals also have significant operational costs—as much as $500,000 to $750,000 per week. Mega hits grossing $1 million or more weekly could still take two or more years to recoup their initial investments. To become profitable, musicals rely (more so than plays) on other revenue streams such as road tours of the original show and licensing the work for summer stock, amateur and foreign productions. One of the biggest sources of revenue can be the sale of film rights and royalties from films.  

If Broadway shows are risky, Off-Broadway productions are even dicier.

“Take Broadway’s risk and multiply it by 10 to 20,” says Davenport. “Off-Broadway shows compete for the same audience as Broadway shows, but have one-tenth the marketing budget.”

Despite the odds, some Off-Broadway shows are highly successful and enjoy long runs. In fact, Davenport’s first production was an Off-Broadway show based on his original idea for a musical. That idea became The Awesome 80s Prom. The show’s still running after nine years.

While there’s no precise way to predict what will make a Broadway or Off-Broadway show artistically or financially successful (hopefully both), Feldman, who has served as counsel for numerous productions, says it’s a matter of both artistic and business judgment. “You have to engage your own predictive powers about public taste and ask, ‘Is this a quality piece that will capture the Zeitgeist of the masses and attract people to the theater?’”

Improving The Odds
As with most investments, diversification is key. Investing in several different types of plays and musicals with different producers is one way to hedge risk.

Due diligence is also a must. Advisors should do some sleuthing about the track record, reputation and longevity of the show’s producers. Information about producers and their previous, current and upcoming shows can be found on the Internet Broadway Database at and the Theatrical Index at

Davenport, who’s currently developing a Broadway revival of the play A Few Good Men, blogs about producing at and teaches investing seminars. He tells investors they can improve the chance of finding a winner through careful due diligence. “If you do your research, you should be able to get that one-out-of-five chance to two-out-of-five, maybe even two-and-a-half-out-of-five,” he says.

It might also help to avoid investing in shows that open in the fall. Davenport has done research indicating that the Tonys have a clear spring bias. He found that 64% of the nominees for best musical and 72% of the nominees for best play opened in the spring. Shows that open in the spring are more likely to still be running when the nominations are announced. Those who select the nominees are probably exposed to more buzz about still-running shows than equally deserving shows that have already closed.

The increased opportunity to win a Tony is not insignificant. Academic studies show that Tony winners enjoy higher box-office receipts, thanks to critical recognition and awards-related advertising.

Once clients understand the basics of investing in Broadway, advisors can help further reduce the risk by scrutinizing written documents and having the terms reviewed by attorneys who specialize in entertainment law. Note that early investors in a show often get better terms, because they assume more risk.  

Feldman says it’s important to have a limited liability clause in the offering paperwork. “That indemnifies the investors from having to put up any more money regardless of what happens, especially if there’s a lawsuit. For example, if someone claims they’ve been slandered or their work was copied,” he says.

Feldman also suggests making sure the contract requires the producers to obtain various types of insurance, including comprehensive general liability insurance, which covers most losses, and business interruption insurance, which covers losses caused by an inability to operate, due to, say, another hurricane swamping New York or other hazards. He further recommends errors and omissions insurance in case, for example, the producers failed to properly secure the rights to perform the play or musical.

Coming To A Portfolio Near You
For advisors whose clients want to try theater investing, Roth recommends finding a producer who’s aligned with the sort of work the client likes—musicals, plays, pieces with a serious dramatic message or lighter fare. “The key is to match the investors with the material,” she says. For an upcoming production of A Time to Kill, she plans to tap fans of the novel by John Grisham.

Most producers are happy to take calls from advisors and their wealthy clients. Because even the most expensive Broadway musicals typically cost less than $15 million to produce, they’re not likely to attract much attention from institutional investors. Banks generally won’t lend against shows because the risk is too high. Thus most of the financing comes from high-net-worth individuals with a passion for the theater and a belief in the particular project’s artistic merits.

The minimum investment in a Broadway show can range from as little as $5,000 to as much as $500,000, but Davenport says an average investment probably ranges from $25,000 to $100,000. The minimum depends on several factors, such as the type of production (musical or play) and whether there is competition from other investors. Minimums in the $5,000 to $10,000 range are common for Off-Broadway shows.

The traditional method of financing Broadway shows is through a limited partnership, capitalized by the amount the production is expected to cost, including a reserve for any unforeseen circumstances. The general partner is the producer (or producers), who typically makes day-to-day decisions about the project, while also assuming the legal risk. The limited partners are the show’s investors. They provide the financing to get the show to opening night, but their losses are usually limited to the amounts they put up.

Once the show’s expenses are paid, any net profits are returned to the investors until they are fully reimbursed for their initial investment. Any profits earned thereafter are typically split equally between the investors and producers.

Because Broadway shows are commercial productions intended to maximize profits, they usually have open-ended “runs” and continue as long as they attract an audience. 
There aren’t many investments that have the potential to return clients’ original capital and provide cash flow for decades. And even if clients lose all their money, they’ll probably still enjoy the show if it’s aligned with their interests.

“Unlike an investment in the stock market, investing in theater brings personal pleasure that investors can share with their friends and family,” says Roth. “They’re happy and proud to be part of the production.”