If you're an actor, you may not think you need to know much about theatrical budgets, except for what percentage of that budget is going to your paycheck every week. But there are other reasons to learn what it takes financially to put on a Broadway or Off-Broadway production, because a well-designed budget can make or break a show -- and either keep you employed or send you back to the audition room. And it can't hurt to know what all the elements that go into a show realistically cost in the event you decide to produce your own show or invest in the next big Great White Way project.
There's a long list of budget items that are necessary for a show to develop and run smoothly. First there are preliminary production costs, ranging from the physical elements (such as scenery and costumes) to fees and salaries, rehearsal and advertising expenses, administrative and development costs, plus advances, bonds, deposits, and reserves. Once opening night arrives, there are the basic operating costs that keep the show running, including more salaries, rental fees (equipment and facilities), departmental expenses, royalties, ongoing publicity, office expenses, and theatre fees.
Helping the producer keep a handle on where the money is allotted is the general manager, a knowledgeable veteran who has usually worked his or her way up the ranks from company manager and who knows how to spend the least to get the most. Back Stage interviewed a group of producers, general managers, and other playmakers and came up with some valuable insights and advice on today's theatrical finances (see the sidebar for their credits).
Why do Broadway musicals and plays cost so much? A lavish Broadway musical can clock in at $14 million; Off-Broadway shows inhabit the six-to-seven-figure range. Our panel came to a consensus on many of the reasons, including design elements, labor fees, theatre rentals, and advertising.
Producer and general manager Seth Goldstein pinpoints the specific parts of a major show's budget: "Production costs are essentially all of the monies expended to get the production to opening night -- rehearsal costs, pre-opening marketing, set, costume, lighting, and sound design, etc. Bonds and deposits are paid to the venue, unions, etc. as security for the fulfillment of their contracts and agreements. Advances are paid to royalty participants, against which their initial royalty payments are deducted. For example, in a Broadway musical, the Society of Stage Directors and Choreographers requires its directors to receive a minimum fee around $22,000 and an additional advance against royalties of $32,000. The minimum royalty payment is 0.75% of the weekly gross box office receipts. So if the show is grossing $400,000 a week, then for the first 11 weeks, the director does not receive a royalty. Instead, the royalty the director would have earned is paid back to the production to recover the advance."
Producer Pamela Koslow explains that a reserve (a pool of funds available to cover unexpected expenses) is usually a necessary budget item: "You need to have a reserve unless you have a huge hit with a huge advance, like 'The Producers' or 'Spamalot.' If you're just kind of an ordinary, run-of-the-mill Broadway show, usually you don't build up enough [income] to cover your running costs for a few weeks, so in your preproduction budget you raise what's called a reserve. That helps you supplement your incoming box office."
Goldstein adds, "The reserve monies are used to keep the show operating during weeks when its expenses outweigh its income. The money can also be used for special marketing and promotional initiatives. The health of a show's reserve is an indicator of how well it will play during difficult months when sales are low."
Everything is more expensive these days, says David Fishelson, artistic director of Manhattan Ensemble Theater. "It's not just labor. Articles that are not well researched will say, 'It's the unions!' It's partially the unions. [Union rules say] you have to hire a company manager. You don't necessarily need that in nonprofit. Seating size is a big factor. You have to hire an ATPAM press agent. The New York Times has different [advertising] rates for Broadway and Off-Broadway. And it's also real-estate taxes."
Producer and general manager Roger Gindi, whose credits include "Enchanted April," puts the most costly budget items in perspective: "The top budget items for a musical are as follows: The biggest is the physical production. And the biggest budget item of the physical production is the scenery. The next item would be advertising, the next is labor -- salaries to people, which includes stagehand salaries for loading in the set, which can cost $1 million all by themselves. That's the production costs."
Then there are the weekly costs once the show is up and running. "The theatre generally doesn't even charge rent until the performances start," says Gindi. "They sometimes get a little something ahead. Their rent comes in two ways: They usually have a fixed rate, and then they get an additional percentage of the box office. I would say theatre costs, including rent and the house staff and box office and things like that, make up probably 20% of your basic operating cost. That's probably the biggest single item in the running budget other than salaries, which include what you pay to a star, which can put you way over the top. And the advertising makes up another big portion of the [running] budget."
And then there are variable costs -- mostly rent and royalties. Gindi explains, "The royalty is a percentage of the box office gross or a percentage of the weekly profit. This is not like getting a musical from Samuel French and doing it in your school, where you might pay X dollars per performance. Most of the royalties go to the authors, the director, the choreographers. Sometimes the designers -- more often than not, in fact. And of course the stars and the theatre presenters. A show that has $450,000 in fixed expenses would be a kind of midsize Broadway musical like 'Fiddler on the Roof.' We're not talking 'Chitty Chitty Bang Bang,' with a real chorus, or 'Brooklyn' or 'Avenue Q,' which are small musicals. [A show like 'Fiddler'] is going to cost $400,000 to $450,000 a week in fixed expenses, and then there are royalties and percentages. Royalties are going to be a minimum of around $20,000 a week -- that's the minimum guarantees. Even if the show's losing money, you're going to be paying at least $20,000 a week in royalties. And in any week at what one would call 'break even,' there's probably $50,000 worth of royalties, and those increase if the show does well. So it wouldn't actually hit a break-even point unless it was making $475,000 to $500,000."
As for why costs can climb so high, producer Frederic B. Vogel, who is also director of the Commercial Theatre Institute, which trains new producers, points to the fact that most shows start from scratch: "Whether it's a straight play or a musical, every single aspect is created specifically for that show. Every piece of scenery, lighting, costuming -- everything is created from scratch. In the case of a musical, because there are more components -- like choreography and large ensembles and more costumes -- the creators and producers never get to see the show until it's up on its feet with everything together, and then changes can still quite often be made. Often a show is totally changed by the time it ultimately opens compared to what it was when it went into rehearsal. In other words, it's the creative process that costs that money."
But that's not the only thing driving up costs, says Vogel. "Another thing to keep in mind is that in a Broadway theatre, there are as many as 17 unions that negotiate with producers, all of which have pension, welfare, and benefit packages."
Former stage manager Steven Adler, author of the book "On Broadway: Art and Commerce on the Great White Way," which examines the various forces at play on Broadway today, agrees that "costs have increased over the last several decades, many of them far outstripping the rate of inflation. Some costs are more inflexible than others: Real estate is expensive and theatre owners charge rent off the top of the gross box office receipts. The cost of raw materials for sets, props, and costumes has increased over the years, and as shows have grown more lavish and technologically complex, those budget lines have risen accordingly. More musicals are being adapted from movies, and the underlying rights to film studios are not inexpensive. It's interesting to note that as expensive as ticket prices are today, the ratio of production costs to ticket prices is actually higher than it was 50 years ago." In other words, a show now takes longer to recoup its investment because ticket prices have not risen commensurately with production costs.
Koslow says, "What makes shows cost-prohibitive? It's the unions, it's the rent, it's the designers' fees, it's everything. If you look at a Broadway budget, every single item is extremely high. Salaries go up every three years. Advertising -- forget about it, it's very expensive. Then there are extra expenses. If you've got a big star in the cast, sometimes they want a limousine to pick them up and take them home, so you got a car service to pay for. Or an actor might want a masseuse that you have to keep on the payroll. That all goes into the contract at the beginning, and the producer and general manager have to figure out how to best manage those costs."
Goldstein is not convinced that Broadway shows really need to cost quite so much: "It is clear that advertising costs are astronomically high and that certainly contributes to the high capitalization of a production, but I do wonder if we as a community need to increase our efforts in finding new audiences and more-efficient ways to reach the audience that we already have. Also, it seems that the physical productions get bigger and bigger each season. There is a sense that the audience responds more strongly to spectacle. Perhaps that's true, but I can't imagine that most theatregoers feel they've gotten their $100 worth just because a five-ton set piece flies in and out. Ultimately, it's about telling the story. Big-budget bombs in the film world have more spectacle than we could ever pack on stage, but they fail because the story is not being told. That is a trap we must avoid. Some of this season's biggest hits -- 'Pillowman' and 'Spelling Bee' -- are not hits because of super-big production budgets. They're hits because of their intense storytelling and successful casting." Goldstein has a point. This year's Tony Award and Pulitzer Prize winner for best play, "Doubt," which has a cast of four and minimal scenery, just announced that it recouped its investment after playing a mere 15 weeks on Broadway.
Having worked on the Off-Broadway smash "Nunsense" for almost a decade, Gindi confirms that the numbers have escalated there, too: " 'Nunsense' cost $150,000 about 22 years ago. And today that same show would probably cost $650,000 to $750,000. So why is an Off-Broadway budget so high today compared to the days of 'Nunsense'? Well, to start with, there's 20 years of inflation. I think Off-Broadway has kept in pace with inflation plus a little, while Broadway has kept in pace with inflation plus a lot. The difference between Broadway and Off-Broadway in those terms is that the physical demands on a show have become so much greater."
Find the Funds
And how do producers find their funds? According to Adler, "Raising money has become a greater hurdle than it was in the past. Independent producers must seek out funds for each new venture. This is why more producers are working in consortiums now."
Koslow suggests an innovative technique she calls "mini-maxi capitalization": "When you initially try to determine the budget, you have a budget that has a range. You calculate what is the minimum amount of money you would need to raise, and then you go for the maximum amount, and you're able to start spending at a certain cutoff point over your minimum. And keep raising so that should you have additional costs that you haven't foreseen, you can still keep raising money."
Adler warns, "About 85% of all commercial Broadway ventures lose money -- that is, they never recoup their entire initial capitalization. So investing is not for the faint of heart. Some producers still seek funds from a large number of small investors, as was fairly common a few decades ago, but more producers today rely on a smaller number of very wealthy investors who contribute large chunks of the capitalization. Because production costs have grown, producers have worked hard to ensure that investors are paid back in as timely a fashion as possible. The lion's share of the funds raised is spent by opening night. Although prudent producers keep some of the original capitalization costs in reserve to bolster the show against the inevitable dips at the box office, most of it is gone by opening. After that, the show must live or die by its weekly box office revenue."
On and Off, Music or Not
How Broadway and Off-Broadway budgets differ depends on a number of factors. Adler says, "There are two types of productions in each venue, each with a different type of budget: commercial and not-for-profit. Most Broadway and many Off-Broadway productions are commercial ventures, where union salaries, for example, are higher than in not-for-profit houses. Broadway houses are larger and most big musicals that work well there would be impossible to stage in Off-Broadway's more-intimate theatres. A small-cast straight play can work well in both venues, and it's up to the producer to determine where the piece works best. The gap in costs between Broadway and Off-Broadway for the same production used to be significant. But now, for example, for a small-cast straight play, there might be only a $300,000 or $400,000 differential between a Broadway and Off-Broadway production of the same play."
Gindi concurs that salaries and fees are higher on Broadway: "Advertising rates are higher and you have to spend more to sell four to six times as many tickets. Stagehands are a huge piece of the difference, caused by higher union rates and stricter rules, but also because scenery for a Broadway musical, which can cost well over a million dollars, is very complex to install and tech."
There are a few other factors that contribute to the lower expenses of producing Off-Broadway, according to Goldstein. "One factor is that the venues themselves tend to be smaller and therefore the scenic and lighting requirements are not as expensive as on Broadway. In addition, the venues themselves are less expensive proportionally; however, they are not necessarily equipped or staffed as well. Also, Off-Broadway budgets are not, on the whole, encumbered by the multitude of union restrictions and therefore can be produced on a different scale."
Vogel describes the distinction between Broadway and Off-Broadway very simply: "A lot of zeros. Because you cannot do a musical with 25 or 30 bodies Off-Broadway. More often than not, not only is the actual theatrical space not big enough, but you could not gross enough to cover the basic nut -- the basic costs of operating the production. 'Spelling Bee' was part of Second Stage, and Second Stage does whatever number of shows they do every year, and some are just for that limited run and others move on to something else. 'Doubt' was on a [nonprofit] contract under Manhattan Theatre Club; it is now on a Broadway production contract because it's in a Broadway theatre and it has a group of producers.
"Not everyone wants to go to Broadway. To my knowledge, there's no desire to move 'Altar Boyz' to Broadway. It can probably run a couple of years on an Off-Broadway contract right where it is. The show belongs in that smaller space, and that space is perfect for that piece, and it's certainly a commercially successful and viable production in that space. Same thing with 'Stomp' -- they are where they are because that's where the people who are running the business want them to be. They're able to make their nut; otherwise, they would have closed long ago."
Goldstein explains that budgets for musicals must consider a more complex series of union agreements as well as a larger company, thanks in part to the inclusion of musicians: "Also, musicals tend to be more spectacle-based and therefore have more-demanding production elements. However, musicals like 'Rent,' 'Avenue Q,' and 'Spelling Bee' have shown that you can create a successful musical and capitalize under $5 million. Straight plays tend to have a smaller cast and usually a smaller production -- no flying witches, elevating staircases, revolving French Revolution sets -- though large-cast shows like 'Democracy' can capitalize around $3 million."
Our panel of experts leaves you with some insightful comments on venturing into the unpredictable world of producing on Broadway and off.
Adler says, "To many, producing on Broadway seems a foolhardy venture, fraught with an overwhelming number of obstacles. Producers need a strong sense of what will play to a mass audience comprising an increasing number of tourists every year. It's hard to determine what might work a few years in the future, since it can take quite some time to get from conception to opening night. When a show is produced by a team of producers, which is much more frequent nowadays, one or two lead producers must take up the artistic reins with a strong grip. This is an increasing challenge; many people receive producer billing because they've brought in a sizable chunk of the investment and then want some voice in the proceedings. This multitude of artistic opinions can create confusion among the creative team, and art arrived at by consensus is often anemic. Ideally, producers should seek to mount work that has the potential to speak to audiences for years to come. The choice of material is essential, but success is very difficult to predict. Many sure things have resulted in ignominious flops."
Goldstein has some advice for companies working at the Off-Broadway level: "Work with a general manager. Often, emerging producers try to do it all -- raise money, oversee all the production logistics, create an effective marketing campaign, etc. In that scenario, so much can fall through the cracks. It can be a significant added expense to bring in a general manager who has production and logistical expertise, but the experience and connections a good GM can bring to the show, not to mention an extreme time savings for the producer, can more than outweigh the monetary expenditure on the position. Why raise $200,000 if you're spread so thin you can't put all your efforts into creating a successful show? I think it's more effective to raise a little more money and assemble the strongest production team one can to create the best possible environment for a show to grow."
Finally, Fishelson tackles the question of whether Broadway and Off-Broadway productions are still viable investments in today's economy: "Those who invest in Broadway are investors who want more excitement than the typical stock portfolio investment. There's more excitement involved, so that comes with a higher risk. I suppose the same thing would accompany an investment in motion pictures, and this is more fun for the investor. I think they like the excitement of making exciting product available in the world. We raised the money for 'Golda's Balcony' in 24 hours. We just made a couple of phone calls to people who were very mindful of the show's importance and eager to see it live long and big."
And so far, "Golda's Balcony" has at least managed to live. Notes Fishelson, "The Broadway production plus a couple of regional sit-downs brought us to 60% [of recoupment]. I totally expect the remaining 40%, at least, to come in by next Memorial Day from the national tour and other miscellaneous ancillary sources. Profits after that would be wonderful."