Does Commercial Broadway Need a Tax Break?


This is a short post but an important one. On Thurs., Feb. 5, a press release was issued by the Broadway League, which is the national trade organization for Broadway, touting proposed legislation by Sen. Chuck Schumer to incentivize investments in live performance, including Broadway shows. Schumer’s office also published the press release, which offers the following headline (the caps are theirs):


Here is the first subhead:

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U.S. Tax Code Currently Permits Tax Benefits for Film & Television Productions, but Broadway & Live Theater are Not Offered Any Federal Tax Incentives – Current Status Drives Productions Abroad to Places Like Great Britain

Here is the second subhead:

Schumer’s STAGE Act Will Provide Live Theatrical Productions With Tax Treatment Equal to Other Sectors of Entertainment Industry & Help Spur Job Creation

Surely we can agree that any tax-policy tweak aimed at boosting the arts, commercial or otherwise, is by definition a good thing. More jobs = more jobs.

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Surely we can agree that there is an unstated implication here as well: Broadway productions are struggling to find people with sufficient cash to invest in shows. (The idea that the “current status drives productions abroad to places like Great Britain” is too specious to address with a straight face.)

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sign-broadwaySo the Clyde Fitch Report did a little casual armchair analyzing, courtesy of the Internet Broadway Database. We selected 10 shows currently running on Broadway, carefully omitting long-running hits like Phantom and Les Mis and Wicked, and omitting Disney shows. We counted up the number of producers that appear over the title. It’s worth explaining that achieving an over-the-title credit is a very big deal: these are the people who win an actual Tony Award should their show, say, be named Best Play or Best Musical. Investor prospectuses for Broadway shows always establish minimum thresholds to acquire such status, which is why so many old-timers miss the era of “angels” putting in a few thousands dollars here and there. Wasn’t it playwright Robert Anderson who said “You can make a killing in the theatre, but not a living”? Well, now more than ever, those are true, true words. What it means is that when you look at the names over the title of the show, you see the names of individuals, of course, but you also see names paired up in two- and three-person partnerships, and you see corporate entities of every stripe, from company names that are known to company names formed for the express purpose of pooling together money from smaller investors.

Here’s what we found:

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Just from these 10 Broadway shows, we counted 233 names, sets of names and/or entities, and 15 names, sets of names and/or entities billed with “in association with” credit or as associate producers. That’s a lot of folks, even accounting for the fact that certain names, sets of names and/or entities might “produce” three or five or seven shows in a single season. It also represents millions and millions of dollars of investments.

How many millions? One can never be absolutely sure. Broadway production costs are closely held secrets; you’re often more likely to learn the chemical formula for Coca-Cola than the precise capitalization for Aladdin. Suffice it to say, however, your average Broadway play costs several million dollars to capitalize. And your average Broadway musical costs more — $10 million, $15 million, whatever you can stand, whatever you can stomach. And in case you didn’t know, most of those 233 names, set of names and entities aren’t risking all of their own money. Unless you’re independently wealthy and fanatically inclined to part with great hunks of it, the trick is always to invest using other people’s cash. It’s an idea as old as — well, money. Lose too much of it, though, and you may struggle to bankroll your next surefire hit. What if a person could deduct their whole investment?

That is why, the League says, investors in live theater — the people setting aside tens of millions of dollars in disposable cash to put up plays and musicals on the Great White Way — need a tax incentive:

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…The legislation, “Support Theaters in America Growth and Expansion (STAGE) Act,” which is also sponsored by Senator Roy Blunt (R-MO), would change the federal tax code and give Broadway and live theater productions a tax break to encourage investment and spur job creation on the Great White Way. Schumer today noted that individual investors are the backbone of this industry, but it is often a prohibitively risky enterprise to invest and finance commercial stage production. Schumer said that the STAGE Act will finally end the disparate treatment in the entertainment industry and help the New York theater industry.

Helpfully, the press release also tells us this:

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The U.S. tax code now permits expensing of qualified film and television production costs up to $15 million when 75% of compensation paid is for services performed in the United States.  Accordingly, studios producing movies and television shows may immediately recoup their investments before taxes are assessed on any profits earned.  Under current law, Broadway shows and live theatrical productions are not offered the same federal tax incentives. Schumer’s amendment would allow live theater investors to receive the same benefit.

But is that what’s really going on here? You decide:

…a majority of commercial productions close before producers recoup their original investment.  Due to the tremendous risk involved, it is very unlikely that any managed fund or banking institution in the United States will lend resources for live theatrical productions, so the majority of capitalization comes from small or independent investors.  Costs for professional theatrical productions continue to rise dramatically and, as a result, attracting enough backers to fund new productions is becoming increasingly difficult.

That’s right, Mr. and Mrs. America: we want to create the conditions by which “any managed fund or banking institution in the United States will lend resources for live theatrical productions.” Here’s a little more:

…IRC 181 currently permits such expensing of film and television production costs, provided that expenses do not exceed $15,000,000 and 75% of compensation paid is for services performed in the United States. Schumer’s legislation, which allows 100% of an investment to be deducted by the investor from their income in the year of the investment, would eliminate the double standard involved with taxing the entertainment industry, and would help deepen the pool of interested investors in Broadway.

And now, here are our questions for you:

Do you believe banking and investment institutions should gamble their clients’ money to produce Broadway shows?

Do you believe 233 names, sets of names and/or entities listed over the title of a random list of 10 Broadway shows represents a problem generating a “pool of interested investors in Broadway”?

Do you believe investors in commercial Broadway deserve a tax break?

Are there any other individuals in the American theater for whom tax-code tweaks might be desirable?

Let us know.