Class Handouts
Class Notes March 16, 1998
Broadway University™
PRODUCING COMMERCIAL THEATER
Class Notes Volume No. 1 March 16, 1998 Class No. 5
Notes taken by Amy Baldwin
Call Julie to register for Tuesday's telecourse: 304-733-2949. She will give you the bridge number. For the next few weeks we will discuss marketing techniques.
Tonight we are discussing Production Financing. To begin with, we must understand the relationships between Limited Partnerships, Joint Venture and Front Money.
In a Joint Venture you become partners for one particular project. You can have any number of partners to produce a show, and you figure out amongst yourselves how to work together- who has which rights and responsibilities. The work, fundraising and rewards can be divided 50/50, but depending on the circumstances, can be divided in an infinite number of ways.
How the partnership will be set up: Several things are involved. In a regular partnership, profits and liabilities are all shared. In a Limited Partnership all you can lose is your investment. The General Partners (joint venturers) do the work, get the rights, share in the royalties, receive a cash office charge. The Limited Partners (investors) put up 100% of the money. They share the net profits after recoupment 50-50 with the General Partners. Return of Capital: (WOP less royalties)General Partners - 0% Limited Partners - 100% After Recoupment: GP - 50% (less front money points, associate producer's points, GM, etc.) LP - 50% EXAMPLE: Maximum Capitalization: $1,000,000¸50 shares for the limited partners = $20,000/share
The limited partners share 50% of the profits = 50 shares General partners share 50% of the profits = 50 shares. $1,000,000 ¸ 50 shares =$20,000 per point
Minimum Capitalization: $750,000 If the investor contributes one unit at $20,000, and the capitalization only reaches the minimum of $750,000, each share or point equals $20,000/share x 50shares ¸ $750,000 = 1.333% of the net profit. or: $20,000/share x 50 shares ¸ $850,000 = 1.1764% of net profit. For the amount you put in, the corresponding amount comes back as profit.
The Adjusted Net Profit is the profit after some overall expenses are taken off of the top of the Net Profit. Developmental theater: 2% General Manager: 2% 96% of net profit left to divide among investors. This become 100% of the adjusted net profit to be divided 50-50 between the GP's and LP's.
Associate producers make a deal for each 1% they raise, you give them a piece of yours; whatever percentage that you are happy with.
Limited Partnership Agreements This document sets forth what the contract is. Discloses author's agreements, GM's agreement, director, actors, amount to be raised, min-max, production budget, WOpBudget, plan for break-even, producer's fee/royalties/etc., rights for refund, waiver of refund. You cannot go forward without raising 75% of the total ,
Incudes: -The structure of the company we will create to produce the show -The contract, filing, rules and regulations needed. You need a private placement memorandum (disclosure document) in addition to a limited partnership for certain circumstances. <36 offerees, you can use just a limited partnership agreement and you don't have to pre-file with the Attorney General's office. The offerees sign a waiver of their right to see a private placement memorandum (PPM). If you don't file a PPM, disclosrue information will go into the LP Agreement itself More than 35 offerees or <$500,000 budget, you still need a PL Agreement w/out a PPM, but you must pre-file with the Attorney General. >$500,000 or >35 offerees, you need a PPM, and to preofile with the AG, and meet other federal requirements. Regulation D, Rule 505: -As many acredited investors as you want (making over $200,000/year, or having net assets of >$1,000,000) and no more than 35 noncredited investors. -Budget up to $7,500,000: Unlimited acredited investors, <35 nonacredited. Rule 506: -As many acredited and "sophisticated" (represents sufficient knowledge of the industry or their investor representatives will do so.) investors, only 35 nonacredited, unsophisticated investors
Each state has "blue sky" laws. You must file documents, agree to report information, etc. Some states say you must file in advance, other, within 30 days of raising the money., some have a filing fee. If you get investors from any outside state, you must be aware of the laws of the state in which THEY live. The NY State law is the "Arts and Cultural Affairs Law". Partnership interest is the same as a share of stock from the SEC point of view. Ask you attorney if there are any SEC regulations that you must conform to.
If you want to advertise and raise money from unsophisticated investors, you must make a full filing with the SEC under "S18", which takes about 8 months, and $50,000 in legal fees. If someone offers money to you, they are not an "offeree". Only those who you ask, or approach are in this category. You need to be careful to follow these laws carefully.
If you can get all of the money from less than 5 people, you don't even need to file a Limited Partnership Agreement.
We will continue next week with more about this and then we'll get into Front Money in more detail.
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