Using a Self-Directed IRA to Invest in a Broadway Show
Published on August 12, 2021
Ah, the Great White Way – dazzling marquees, bright lights, the glamor of Broadway. With plans for theatrical productions to open again in New York City this fall, there will be new opportunities to become an investor in a Broadway play.
You need not use discretionary income to make this investment; if you have a self-directed IRA, you can include this and other entertainment assets within your retirement plan, and build a more diverse retirement portfolio while feeding your passion for plays.
Broadway musicals—with their elaborate sets, high rent, union employees and large casts—cost a lot of money to get off the ground. Playbill states that the average cost of a Broadway show was between $10 and $18 million in pre-COVID seasons. Think: development costs, running costs, and closing costs to finance. However, there is money to be made; according to an article on RIA Intel, the 2018-2019 Broadway season grossed $1.8 billion and attendance reached 14.8 million, both all-time highs. The 2019-2020 season was cut short by the COVID-19 pandemic, completing 41 weeks, and even that curtailed box office grossed $1.4 billion.
Straight plays (non-musicals) are generally less expensive to produce. Off (and off-off) Broadway shows, which play in small theaters with smaller budgets in every way, are also much less expensive to mount and run. Either way, a long-running show plus solid ticket sales can equal strong ROI for investors over time.
How to invest in a Broadway show
Most shows are set up as an LLC or partnership, and the investors and producers are shareholders. You can invest in a private equity fund that invests in certain types of shows, or an investing group that finances multiple productions, which can mitigate risk for its investors/members.
You can also make a direct investment into the production, which usually means having a personal connection to the lead producer or one of the co-producers, as this is not typically an “open to the public” investment opportunity. Producers may only want accredited investors to come in, but the criteria and minimum investment vary from production to production.
Pulling back the curtain
With most Broadway shows, the investors are paid back before any funds are distributed to the producers—this is called recouping the investment, which occurs when weekly gross revenues generate income that exceeds weekly running costs. Once the initial capitalization is met, the show is recouped. There may be certain circumstances where the show keeps some funds in reserves for cash flow purposes.
Successful shows often yield licensing rights for touring companies, cast recordings, merchandise, and other possible ancillary revenue or investment opportunities. Think of all the shows that continue their Broadway runs while also having national and international tours, and you get the picture.
Like any investment, there is risk in theatrical productions and many shows do not recoup their original investment, but when the shows are hits, everyone wins. Therefore, as with any alternative asset within a self-directed retirement plan, the account holder should conduct full due diligence on the investment. It would be wise to research who is behind the show (producers, director, stars), as their past performance can be a strong indicator of future success; understand the source material or know the script enough to feel comfortable with it (and the investment); be a raving fan of the show; and be mindful of your risk tolerance.
At Next Generation, we’re here to help clients understand the many options and benefits of self-direction as a retirement and wealth building strategy— such as including theatrical productions as an alternative asset in their self-directed IRAs. If you’re thinking of giving your financial regards to Broadway by investing in a show, but have some questions about this transaction, we invite you to schedule a complimentary educational session with one of our team members. You can also call us at 888.857.8058 or email us at NewAccounts@NextGeneration.com.Back to Blog