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How To Guides

by Anthony Field

Anthony Field, CBE, FCA is vice chairman of Theatre Projects Consultants, chairman of the Liverpool Institute for Performing Arts and the Entertainment Team. He has produced several West End plays and musicals.

1) Private investors

Financing of the world-renowned West End theatre depends on no more than a couple of hundred private investors known as 'angels'. Productions of plays now cost, in 1999, in the region of £200,000 and musicals anything between £1 million and £3 million.

Most producers seek to raise the capital cost of a production from their private list of some 50 or 60 investors who are expected to stay committed to a producer, just as the producer usually is expected to offer units of investment in all his (or her) productions to his regular investors.

Once a production is planned the producer must prepare a budget both for the total cost of a production, up to the first paid public performance (the capitalisation), and the subsequent weekly running costs and likely weekly box-office income (at various levels of seating capacity at a chosen theatre). These budgets are included in investment brochures sent out to angels.

Investment units can vary from £250 each to some £10,000 and a producer can reserve the right to take offers on a first call basis or, sometimes, can scale applications down if a production is oversubscribed. However, if a production is under-subscribed the producer is responsible for the balance of capital required. Simple investment contracts are exchanged between a producer and each angel.

2) Profit and loss

If there is a weekly surplus of box office receipts over running expenses this is accumulated until it is reasonable and safe for the producer to begin repaying investors a proportion of their investment. If and when the whole capitalisation has been repaid (ie 'recoupment' has been achieved) any subsequent 'profit' is usually divided 40 per cent to the producer and 60 per cent to the investors pro rata to their respective investments. However, it is certainly not unusual for the capitalisation not to be recouped in full and any such loss is then borne by the investors who may receive back only a proportion, or even none, of their original investment.

It should be noted that although the producer receives no share of the income until after the costs of the production have been repaid, the producer is entitled to charge a weekly management fee for the office administration and accounting work necessary to support a production. It is also becoming common practice for the producer to receive a royalty for the creative input required to assemble a production.

Apart from the weekly costs of hiring a theatre, paying the technical staff and theatre employees, advertising and publicity charges and paying the performers there are royalties to be paid (usually a percentage of box office receipts) to authors, composers, directors, designers and others in the creative team. Very often such royalties are calculated in two-tier: a lower one to assist in keeping costs down until capitalisation is recouped, and a higher one once the production is in profit. This two-tier system may also apply to the rental charge by the theatre owner.

3) Investment contracts

Investment contracts now carry a paragraph warning about the high-risk of investing in theatrical production. This is because, unlike the stock market world where shares and dividends might fluctuate over the years, all or part of the entire investment can be lost in a short time. Furthermore, it can take weeks or months or even years before even a successful production goes into profit. Thus it is wise for any investor contemplating regular investment to spread it over a wide 'portfolio' of, say, five to ten productions and to limit investment in each one to a specific maximum sum (say £500 in a play or £1,000 in a musical).

A producer may sometimes feel able to offer investors a small share of other revenue, such as royalties from foreign productions, tours or cast albums.

When the production finally closes, the accountants will certify the final production accounts to investors.

Further information on theatrical investment may be obtained from the Society of London Theatre (The Society of London Theatre, 32 Rose Street, London WC2E 9ET)
Tel: 020 7557 6700