Accounting for Broadway

‘Hamilton’ is one of Robert Fried’s clients

I hold good accountants (and bookkeepers, for that matter) in high regard. My business career taught me that the true health of a company or business line is found in its financial numbers, not its marketing materials. Some accountants possess an uncanny knack for finding insights in financial statements and spreadsheets. I offer that praise prior to noting how essential CPAs are for navigating that perilous labyrinth known as the U.S. tax code.

I also of course have a life in theatre and while I’ve done my best to steer clear of its business side, I have not achieved total abstinence. I lay claim to a decent head for numbers and voyeuristic intrigue about producing in the big leagues – Broadway.

So when I came across a recent podcast of an interview with Robert Fried my antenna went up. Fried is co-founder of Fried & Kowgios Partners, which specializes in the theatre industry, both the for-profit and nonprofit sides. He has been doing theatre accounting for 30 years. Hamilton is one of his clients. As an example of how busy his firm is – and how dependent theatre is on outside investors – last year Fried & Kowgios issued 11,000 K-1 tax statements to investors in Broadway shows.

The interview was conducted by New York producer Ken Davenport, who posted it on his blog “The Producer’s Perspective.” Below are some highlights of their conversation.

● Fried was drawn to theatre because he enjoys working with creative people. In college he was a chemistry major before switching to accounting, but he really wanted to be a musician. He surmises that his passion for music led him to working in theatre.

● Accounting for theatre is not that complicated nor is it markedly different from accounting in other industries. The things to focus on most are reading contracts, understanding what they say and how to interpret themn

● The financial model for theatre’s investment structure is similar to that for film and different from, say, real estate or hedge funds. In theatre and film the producer gets a relatively large share of profits (50%) whereas in other investment sectors the promoter gets more like 20% and the investors 80%.

● He is as much business counselor (he uses the term producer-therapist) to his clients as he is a numbers guy.

● There’s no place to go to learn how to be a producer. You only learn by doing it; by experiencing both success and failure. (The same observation is often been made about scriptwriting and directing.)

● The biggest changes he’s seen in producers’ budgets over three decades:
1. Upfront creative fees (mainly dramatists and directors) have risen disproportionately.
2. Advertising budgets have risen disproportionately, particularly in recent years.
3. The biggest increase has been in what he categorizes as “theatre expenses” – the rent, load-in and everything else it takes to just get the show up and running.
4. Overall costs have skyrocketed. In the early 1990s Neil Simon’s play Lost in Yonkers was mounted on Broadway for $350,000. Now plays (not musicals, mind you) are being capitalized at $3.5 million.

● 18-22% of gross operating income (or 30-40% of net) is going to royalty participants, which include writers, lyricists, composers and other members of the creative team. Nowadays he sees a wide spread of royalty arrangements, depending on the talent involved.

● In theatre your operating expenses are well known (within a reasonable range). The big unknown is your gross. Which is to say how many tickets will be sold and at what price. Fried has been around long enough that he can pretty much tell just from the gross income whether a show is making money or not.

● The financial models for producing in New York and London have differed quite a bit but they are now moving closer together, with London becoming more like New York. As one example, investors in London are starting to get a share of ancillary revenue streams (such as merchandise), which has long been the case in New York.

● The touring market for musicals in the U.S., and increasingly in the U.K., is robust. On the other hand, the touring market for straight plays is weak. There used to be a market for plays on the road but now they are rare. (One of those rare touring plays will appear at Seattle Repertory Theatre Nov. 17–Dec. 17 – The Humans, written by Stephen Karam and directed by Joe Mantello, which was a recent hit on Broadway.)

● Conservative advice he always gives to producers: Make sure there is sufficient capital in reserve to close the show, if that difficult decision has to be made.

● Abilities that characterize successful producers? What Fried has noticed is that they can do math in their heads. They can look at numbers in a deal and quickly grasp the likely outcome; they have a deep understanding of the consequences of deals.

● Changes he’d most like to see in New York theatre:
1. More real estate. As more long-running hit musicals tie up theatres, fewer venues are available for new plays and musicals.
2. For straight plays to come back as a moral and artistic force on Broadway. He regrets that plays have become so subordinate to musicals.

Fried’s forthright discussion with Davenport only served to reinforce my opinion that good accountants are worth their weight in gold.

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