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TeleCourse Raw Notes


Art of Raising Money
Rodger Hess
Feb. 24, 1998

Notes Taken by Tara Greenway Leibowitz

Thanks Tara!

Special Guest: Rodger Hess, producer of such shows as the revivals of ANNIE, 1776, and the upcoming WAIT UNTIL DARK starring Marisa Tomei, Quentin Tarantino, and Stephen Lang

Subject: The Art of Raising Money

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1. As a rule the Producer should know every detail of the offering documents, but....

A. Rodger can't remember the last time an investor asked what was in the offering document

B. 99% OF WHAT PEOPLE ARE INVESTING IN IS YOU

C. People in the industry who invest large sums may ask about royalties, Designer's deals, etc., but people outside industry usually only want to know if they share in the profits of Broadway production only or in subsequent productions as well (as usually they'd receive profits from tours, etc.)

2. When you do a revival, or classic, you have to block out all other productions of the show in the country hopefully for 18 months, including stock and amateur, because if a family has just seen ANNIE at their local dinner theater, they're not going to go to the touring New York company's show the next year.

A. ANNIE generates about $700,000 to $900,000 in royalties each year in stock and amateur productions, but they don't mind blocking it out because after a (successful) first class production, it will raise in value.

B. When you're starting out in the business, don't try to go after valuable popular classic (revival) shows, because unless the licensing house (Tams Witmark, Music Theatre International, etc) are sure your production will be successful, they probably won't let you have the rights to it as it means blocking our the country and potentially loosing the royalties and therefore their commission

C. If Rodger is successful in increasing the value of ANNIE (i.e., if the average income from stock and amateur royalties exceeds $800,000 -the previous 5 year average), he gets 25% of the excess (25% subsidiary rights) -- that's how his ANNIE investors are sharing in subsidiary rights in this project. Even though they didn't originate the show, they deserve some profits from the renewed interest and attention it's received that translates into added subsidiary rights income to the authors.

3. Plays that become motion pictures are not actually as profitable to investors as many think: A. If a play sells to a movie for $1 million: - Agent takes 10%( leaves $900,000) - Production shares in 40% = $360,000 - if it's recouped and it's a 50/50 split between general and limited partners, investors share $180,000, which is only 18% of the million dollar sale. Not that much in the scheme of things.

Stock and amateur rights are actually more valuable.

4. Question: When you talk to potential investors, do you try to sell them on how profitable you think the show will be or on stock, amateur, and movie rights?

Answer: Never.

A. If they've never invested before, Rodger tells them he's asking them to consider an investment, but they may never see their money again, no one knows if it will be successful -- he goes overboard in warning them. (The documents they have also are clear that it's a risk.) Rodger feels this makes a statement about your (the producer's) trustworthy character.

5. Question: Why do people invest in the theater if it's so risky?

Answer: Who knows? It must be because they love the theater. A. For example: when Rodger was raising money for an Elvis Presley musical that was a pretty safe bet, he got guarantees from people around the country, and wanted to stay on the road, not go to Broadway - investors weren't interested in it BECAUSE IT WASN'T COMING TO BROADWAY, even though it was a more secure deal i. Investors want to part of the exciting, sexy New York scene: you're selling the sizzle. ii. They don't even invest because they're attracted to the message or idea behind the show and want to convey that -- they may be why you're producing, but that's not why they're investing. Rodger has never sent a script to any investor. iii. They invest in YOU and for the cache of being part of a Broadway show. Even when investors put money into a project that fails, they'll often invest in Rodger's next project too.

6. Bruce's point of view that there are two ways to raise money: 1) Promotion- a hot new writer or star. 2) Attraction- people who want to be associated with the producer and what you're doing. **THE LESS STAR POWER YOU HAVE IN YOUR SHOW TO PROMOTE, THE MORE ATTRACTIVE WE HAVE TO BE AS A PRODUCERS.

7. Question: For off-Broadway, when recoupment chances are even slimmer than for Broadway, how do you get investors? Answer: People outside New York don't distinguish as much between Broadway and off-Broadway as you may think.

8. Question: Is it more difficult to raise smaller sums for an off-Broadway show than huge sums for a Broadway show?

Answer: Industry people are less interested in off-Broadway but the civilian investor doesn't care. The attraction is they can have the same percentage of ownership by investing $10,000 as they would investing $50,000 to $100,000 with a Broadway show.

9. When looking for something to produce, you can: - do a reading to see if you like the project - finance show yourself as a showcase (e.g., for $20,000) - enhance someone else's production (e.g., Rodger moved the Old Globe's "Cowgirls" production to New York by putting up only $60,000 for all pre-production and getting set, costumes, etc. from Old Globe) 10. Question: How do you develop new investors, if you don't have a pool of investors you've worked with for years?

Answer: You might try putting out a mailer -- not an offering, but describe shows you've produced thus far, explain that investors have had a good time and have profited; give them number to call if they're interested in investing in theater. (Steve Baruch and Tom Viertel did this a few years ago.)

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