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INVESTING IN BROADWAY SHOWS // FRESH CASH, FRESH FORMULAS

At a recent party, Joshua Kagan was chatting about one of his investments. The 40-year-old consultant to the legal industry got so enthusiastic that another guest, an investment banker, asked how he could get a piece of the action. A private buyout fund or hot new stock? Nope, it's The Wedding Singer, a musical set to open on Broadway in April. "My enthusiasm is infectious," said Kagan, who put $12,000 into the show.

Coming off a record-breaking year in box-office revenue - New York shows grossed $825-million in 2005, up 10 percent from 2004 - Broadway is attracting a new crop of investors with Wall Street or other financial backgrounds. While no one quantifies the number of these newcomers, many producers say they have noticed an influx of fresh cash from untraditional sources.

"There seem to be enough people who have made significant money through hedge funds and other vehicles that they think investing (in Broadway) will be fun," said Margo Lion, lead producer of The Wedding Singer, which is based on the 1998 Adam Sandler-Drew Barrymore movie.

Unlike vanity investors, who mostly seek the cachet that can come from backing a show, these new investors often bring a greater degree of financial sophistication - and greater expectations of a return. In the process, they are trying to prod Broadway into changing its hidebound ways. New systems of organizing shows are giving some investors a quicker payback.

The theater-industry boom, bolstered by New York's surging tourist trade, is helping to lure these backers. Over the next few months 16 major shows will open, including Julia Roberts making her Broadway debut and a vampire-themed show, Lestat, that marks the first Broadway musical by Elton John and Bernie Taupin.

Cynthia Stroum, a Seattle venture capitalist, is among the new breed of investors. She's put money into four shows, including $10,000 in this spring's Barefoot in the Park. And though her expertise runs to biotech, not Broadway, she's been lucky: Her first bet, $150,000 on 2004's A Raisin in the Sun, turned a profit, though she declines to say how much.

"I bet on shows almost the way I bet on startups, a gut feeling based on the project or the person putting it together," Stroum said.

Backers of The Wedding Singer, meantime, include Gary Winnick, the wealthy former chairman of telecommunications company Global Crossing, and Jay Furman of RD Management Corp., a real estate development and management company. Each man has the credit of "Produced in Association With," which means they invested or raised less than $750,000, according to Lion, the show's producer. Neither could be reached for comment. Several producers say the two are fairly new to Broadway investing: Winnick helped back the current The Color Purple and Furman invested in 2002's Elaine Stritch at Liberty.

Other Wall Street names can be found elsewhere in Playbills. Producers of the current revival of The Odd Couple, starring Nathan Lane and Matthew Broderick, include Jeffrey Sine, an executive with UBS, and Roy Furman, vice chairman of Jefferies Group.

"There is a lot more liquidity around, and people are looking to diversify their assets," said Walter Grossman, who has worked for years as a professional investor and is a producer of Barefoot in the Park, which opens this month.

Still, since four out of five shows flop financially on average, these investors, like those of years past, need to be willing to risk losing their shirts in the hope of a Phantom profit - of the Broadway kind.

"I'm not afraid of risk," said Barry Funt, a real estate finance executive. But after he and some partners, including Kagan, lost most of the $400,000 they had put into the recently closed revival of Fiddler on the Roof, their first Broadway fling, he says he's examining the financial structure of shows even more carefully to assess their economic viability. (Though Fiddler generated buzz for its performances by Alfred Molina, Harvey Fierstein and Rosie O'Donnell, it didn't generate strong profits despite its long run.)

Backers such as Funt hope to prod Broadway into becoming more investor-friendly. Some show organizers are responding: A chief reason Funt and his partners decided to become associate producers of Barefoot in the Park is because they like the way that show's producer, Robyn Goodman, has treated investors in past shows, including the hit Avenue Q.

"I want to pay them back as fast as I can," said Goodman, adding, "I'm an investor as well." Funt and partners are contributing about $150,000 of the $2-million budget of Barefoot.

Lion, producer of The Wedding Singer, says she has structured that show so it can make a profit payout to investors sooner than typical with some other big-budget musicals. She has added a weekly amount to the show's operating budget to cover this payment under a system known as amortization. Investors in The Wedding Singer will get about 2 percent of the show's capitalization per week until they have received 110 percent of their investment back.

Under an older setup, people such as the cast, creative team and theater owner are paid first, based on the weekly gross box office. After theater expenses, payrolls and other costs, whatever is left goes to investors. In another system, known as a profit, or royalty, pool, a show has to be profitable week to week for most investors to see a payout. The rather complicated world of Broadway financing means several systems may be used on one show.

"It's not that older methods go away - new choices get added," said David Stone, a producer of Wicked and Spelling Bee.

Now, more producers are likely to deploy the newer formula or a variant, as shows, especially musicals, need to draw ever more investment. The Wedding Singer, for example, is capitalized at $11.75-million, Lion said. That compares with the $5-million to $7-million it cost to put on a musical 10 years ago.

For his part, Kagan, the legal consultant, said he wouldn't invest in a show that doesn't use an investor-friendly payout system. After his money-losing experience with Fiddler on the Roof, he and his partners were determined to find projects where investors are better treated. Sure, the great seats he and his co-investors got for the premiere were a blast, he says, but "the opening night wore off real quick."

UPCOMING BROADWAY DEBUTS

BAREFOOT IN THE PARK

TODAY, CORT THEATRE

Starring St. Petersburg native Patrick Wilson, the revival has an advance of almost $1.6-million. "It already looks like we'll be in profit the first week," lead producer Robyn Goodman said.

RING OF FIRE

MARCH 12, ETHEL BARRYMORE THEATRE

The musical based on Johnny Cash's songs is capitalized at $6-million, about half the usual for Broadway musicals, producer Jim Freydberg said.

LESTAT

APRIL 13, PALACE THEATRE

Warner Bros. executive Gregg Maday declined to disclose the budget for the vampire-themed musical by Elton John and Bernie Taupin, but recent musicals of a similar scope cost $12-million to $14-million.

THE WEDDING SINGER

APRIL 27, AL HIRSCHFELD THEATRE

Producer Margo Lion said she didn't even have to do a traditional "backer's audition" to draw investors for the adaptation of the 1998 hit movie about a crooner looking for love.

- WALL STREET JOURNAL

Producer Margo Lion had a hit with Hairspray, above, in 2002, and is expecting big things with this year's Wedding Singer. "There seem to be enough people who have made significant money through hedge funds and other vehicles that they think investing (in Broadway) will be fun," Lion said.

Fiddler on the Roof earned rave reviews for actors including Harvey Fierstein, but wasn't able to generate profits.

Gary Winnick, former chairman of Global Crossing, backed The Color Purple and now has invested in The Wedding Singer.

Robyn Goodman of the hit Avenue Q has developed a strong reputation for treating investors well.

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