Investing in theatre is very high risk, with an average one third of productions flopping and investors losing most or all their money.
A typical play also needs between £500,000 and £600,000 to launch, but a major musical will cost at least £2m to get off the ground and can require as much as £10m over its lifetime.
However, for every third theatre event that flops, another third will at least recoup their costs and the top third will pay a return to their investors averaging 20-30 per cent a year.
If investors strike gold with a Cats or a Mamma Mia! that runs for decades, profits can be astounding. The original backers of Cats made an estimated 17,000 per cent profit.
Even the recession hasn’t derailed the interest in theatre productions. Current hits include Billy Elliot, Jerusalem, The Lion King and War Horse, and recommended in the must-see lists are newcomers Matilda the Musical and One Man, Two Guvnors.
Figures
Although box-office and attendance figures aren’t yet in for 2011, all the signs show that, after a shaky start, it’s going to prove no less a bumper year than 2010, when attendances exceeded 14m and a record £512.3m was taken at the box office.
In fact, this was the seventh year running that total box-office revenues posted new record levels, up 1.46 per cent on a like-for-like basis on 2009 and topping £500m for the second time ever.
Nica Burns, president of the Society of London Theatre, says: “[2010] was a great year for London theatre. A huge range of superb productions ensured that a visit to the theatre was a must-do for large numbers of the public. London theatre is something for everyone to be proud of and is a great ambassador for UK plc.”
Of course, unless you are substantially wealthy and are prepared to run the risk of losing big, there are few options available to access this sector.
Most theatre plays are funded using around 50 to 60 angels investing their own money. In many cases they are investing relatively small amounts of between £500 to £10,000.
When a production is in planning, the producer gathers the budget for the total cost of a production. Costs include the capitalisation which covers up to the first paid public performance, together with weekly running costs. Box-office income will be included in the budget forecasts which are set out in detailed brochures for the investors.
Producers are responsible for the balance of any further capital which is required, and as such will work hard to find enough investors. Finally, investment contracts between the producer and individual investors are exchanged.
At the point where the whole capitalisation has been repaid, profits are then divided by way of a 60/40 split in favour of the investors. If the initial capitalisation is not recouped and the play is not successful, then the investors will lose their money, or in some cases, may get back a small portion.
It can be years before a successful production hits profit. As a regular investor seeking investment into theatre productions, it is wise to spread your investment over a wide portfolio of between five and 190 productions with a smaller investment of £500 to £1,000 for each one.
The Theatre Fund, which launched in November 2011, is currently one of the only ways for private investors to access London’s theatreland directly.
The fund, structured in the UK to qualify for the tax-saving enterprise investment scheme (EIS) structure, is advised by theatre producer Act Productions.
Since 1994, Act Productions has produced shows for both the West End and Broadway, including Being Shakespeare, Death and the Maiden, Enron, Flare Path and Legally Blonde the Musical.
Act’s managing director Alan Davis has worked at Warner Bros, chaired the Britannia Awards and served on the first British Film Office executive committee in Hollywood.
Eligible
As an approved EIS fund, investors may be eligible to receive the 30 per cent tax relief this year on investments of up to £500,000 and will benefit from an exemption from capital gains tax on disposals of investments made by the fund.
Investors can also combine their interest in theatre with a fuller range of media investment options. In December, for instance, investment manager Ingenious launched a Media Opportunities fund, which focuses on the UK’s creative and media industries, giving investors access to promising companies in the next stage of their growth across the sector, including businesses in marketing services, fashion and design, e-commerce, publishing, gaming, live entertainment and audio-visual content production including TV, internet and mobile.
The Media Opportunities fund’s investments are comprised of two separate asset classes: high growth companies with the potential for significant equity returns, and secondly companies that can demonstrate a more predictable level of profitability through significant contracted revenues.
Ingenious believes that this investment strategy will help to preserve investors’ capital while at the same time giving access to unlimited, tax-free returns on their equity.
Patrick Bradley, chief executive of Ingenious Ventures, says: “The sector remains an important, vibrant asset within the UK economy and we are seeing a raft of exciting companies come through across the spectrum of design, fashion, live events, TV and in the digital space.
“With a number of the traditional forms of funding for the media sector, such as bank finance, evaporating over recent years, we are pleased to be able to support the important growth of the industry through our fund to ensure that the UK remains a hub for innovation and creativity.”
Jenny Lowe is features editor at Investment Adviser
