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City investors swap shares for show business
Jonathan Prynn and Emma Rowley7 Sep 2009
Record low interest rates and the turmoil in the City have sparked an unexpected "thespian finance" boom in London's Theatreland.
Producers have been astonished by the strength of backing from wealthy individuals for West End plays and musicals at a time when they feared they would struggle to find funding.
A typical play needs between £500,000 and £600,000 to launch but a major musical will cost at least £2million to get off the ground and can require as much as £10million. Investments can start from £2,500.
Industry insiders have revealed how the number of wealthy "angels" willing to risk their money on shows has risen sharply since the start of the recession.
The "silent" backers have turned their attentions to West End shows after profits from more traditional investments collapsed.
Although about one third of productions flop and backers will lose most or all their money, another third will at least recoup their costs and the top third will pay a return to their backers averaging 20 to 30 per cent a year.
The influx of money has come at a critical point for West End shows as fears rose that the credit crisis threatened to reduce new investment.
Independent producer Colin Ingram said: "The return on a theatrical production now doesn't look bad compared with what people have lost in the stock market. You have to work hard to raise money but it has become easier compared with the last few years."
Tobias Round, co-founder of production company CMP, said: "We were very nervous after Lehmans went down.
"But last autumn we got backing for two productions, Piaf, and Three Days of Rain with James McAvoy, and all the money came in after the financial world fell apart. They both went into profit."
Three Days of Rain in particular delivered a high rate of return to investors, thought to be about 50 per cent.
The company is now looking to raise some £500,000 for a new comedy, The Little Dog Laughed, opening in January.
If investors strike gold with a Cats or a Mamma Mia! that runs for decades, profits can be astounding. The original backers of Cats are said to have made a 17,000 per cent profit.
Mr Ingram, who has raised millions of pounds for two of this autumn's biggest productions, Breakfast at Tiffany's starring Anna Friel and a remake of the Hollywood weepie Ghost, added: "If a show is successful in London and you have the right to take a share if it transfers abroad, it really can make you a lot of money in a short period of time."
Investors have also been encouraged by robust West End audiences, which have bucked all predictions and made theatrical investment appear less high risk. Latest figures from the Society of London Theatre show that total attendances have risen by 2.5 per cent this year.
Box office receipts are up by 3.5percent. Attendances had been expected to fall by as much as 10 per cent, SOLT president and leading producer Nica Burns said.
Neil Adleman, a partner at law firm Harbottle & Lewis, which advises several West End production companies, said: "There are more shows waiting for theatres than there are theatres available.
"It is not as if there are lots of dark theatres with nothing going on. I have a long list of clients with shows ready to go waiting for a theatre."
Producers have been trying to "sprinkle stardust" on backers by getting them more involved in a show.
Mr Ingram said: "I make sure they see the run through and of course come to the first night."
Financing a play or musical: how it works
A producer with a play or musical to finance will approach a limited number of potential investors, typically a few dozen but sometimes fewer, with a prospectus.
The show is then set up as a limited company with the backers "owning" a percentage of rights to the profits.
The backers are entitled to all the box office takings, after set-up and running costs have been paid, until their investments have been recouped.
Once the show has broken into profits the takings are split, with 60 per cent going to investors and 40 per cent to the production company.
