INVESTING IN THEATRE. Part 2. Capitalization? Running Costs? Recoupment? Profits? What the heck
THE PRODUCTION'S FINANCES
Each Production will be ‘capitalized’ by the Producer at a fixed amount of money. This sum is usually referred to as the Capitalization and, in addition to the Production Costs (all the costs which the Producer will incur prior to the first performance), it will include any deposits the Producer has to pay and a contingency reserve to cover such items as extra advertising, running losses, closing costs, etc.
Once the Production is open, the Producer receives the weekly box office receipts from the box office. From this amount is paid all the weekly fixed running expenses such as actor salaries, theatre rent and costs, advertising and marketing, equipment rentals and expenses, marketing and advertising expenses, etc., plus the variable weekly royalties (which are usually a percentage of the weekly box office receipts paid to the author, director and others). Any surplus of the weekly box office receipts above the sum of the fixed weekly running expenses plus the weekly royalties is the weekly profit.
Over a period of time, if profitable, the Production will accumulate sufficient weekly profits to have ‘recouped’ the Capitalization. Before recoupment, usually 100% of profits are repaid to investors who provided the Capitalization. In practice, most Producers usually repay the Capitalization to investors in tranches when it accumulates to a sufficient amount. The Producer may retain a reasonable reserve before making repayments. To the extent it is not spent, this reserve will be written back into the accounts at the end of the run and paid out to the investors as either return of the Capitalization or profit depending on whether the Production has recouped.
If a Production recoups, after paying any financial claims, which third parties may have to a share of the profits, in the United States, the remaining profits are divided 50% to the investors pro rata to their investment and 50% to the Producer.
Some productions receive other income such as royalties from other territories outside the original production, or from merchandise or other income, as well as from proceeds from all exploitations of the show, including all subsequent productions, publication or other exploitations, such as the sale of movie or television rights, cast album rights, etc. Participation in these so-called subsidiary rights often continue for up to 40 years after a show closes.
###
Interested in learning more about Investing in Theatre? Part 3 of Investing in Theatre - To Invest or Not to Invest? That is the Question. is next.
Annette Niemtzow is an experienced and long-time theatre producer with multiple credits on Broadway and in the West End. Her latest Broadway credits were Leap of Faith, the Alan Menken-Glenn Slater musical, directed by Chris Ashley and choreographed by Sergio Trujillo, starring Raul Esparza (Tony nomination, Best Musical); and Frost/Nixon, by Peter Morgan and directed by Michael Grandage (3 Tony nominations, including Best Play. Best Performance by a Leading Actor in a Play--Frank Langella). For more information about Annette and her shows, or to contact her, visit http://www.whitedogproductionsonline.com.
This document is the confidential property of White Dog Productions, LLC. The information contained in it is for informational purposes only and is not legal advice or a substitute for legal counsel. Parties seeking investment in theatrical productions should not act upon this information without seeking professional counsel.
