Developing a piece of theatre from the ground up, especially an original work, is an expensive exercise. A producer will rarely have the opportunity to review and assess the combined production elements of a work prior to significant capital outlay, thus leaving a big question mark as to a particular work’s commercial viability. One way in which a producer may test a piece of theatre in a (comparatively) inexpensive manner is the 29-Hour Reading. The 29-Hour Reading is a concept created by Actors Equity Association (“AEA”) which allows commercial producers to engage AEA talent for the sole purpose of presenting a reading of a work; i.e. allowing producers to put a work its feet – to test the rhythm of the piece with live actors in front of a live audience.

The AEA Staged Reading Guidelines provide for the limited use of AEA talent outside of an AEA contract. It’s important to note that the Guidelines are not a class of AEA contract in and of themselves, but rather serve as a narrow exception that operates alongside AEA’s standard commercial contracts.

The perks of the 29-Hour Reading are clear; the producer is not required to make pension, health and welfare contributions on behalf of talent, nor is there a prescribed equity minimum to pay talent. Nevertheless, the concessions made by AEA pursuant to the Guidelines do not come without significant restrictions, which I have itemized below.

  1. Duration: Talent can only be engage for a period of 29 hours (inclusive of the readings themselves) during a 14-day period. Producers must remain cognizant of the fact that this leaves little time to work through a substantive amount of material, particularly in the case of 2 act musicals. Securing a lead creative team who can work in a thorough and efficient manner in the rehearsal room is key to maximizing the value of the presentation.
  2. Presentation: A producer may present a maximum of three (3) readings pursuant to the Guidelines. The presentation cannot contain any production elements, including costume, sets, make-up, wigs, or props. Furthermore, the presentation cannot contain any choreography and may only incorporate minimal staging. Actors must not be required to memorize any material, and thus must present the work ‘book in hand’. In practice, 29-Hour Readings largely take place in rehearsal rooms with non-theatrical lighting, and in front of music stands – no bells – no whistles.
  3. Travel & Expenses: Producers must cover any and all travel and expenses incurred by AEA talent in connection with the 29-Hour Reading. In my experience, a stipend of no less than One Hundred Dollars ($100.00) is paid to each actor in connection therewith.
  4. Audience: the audience must be invite only and cannot be charged for admission. Most importantly, the purpose of the 29-Hour reading cannot be to solicit investors for the project. I’ll type it again in bold underline; the presentation of a 29-Hour reading cannot be to solicit investors for the project. Remember – the sole purpose of a 29-Hour Reading is to propel the creative development of a particular work, not to garner interest from third-party financiers.
  5. No Recording: the presentation of the piece cannot be recorded for any reason, including archival purposes.
  6. The Asterisk: AEA talent must be identified on a billing page that is made available to all audience members. An asterisk must appear alongside each actor’s name indicating that said AEA talent is are appearing courtesy of AEA.

Finally, a producer must register the project with AEA during the six (6) months prior to the reading and must notify AEA of the AEA talent engaged on the project. The registration process if largely simple, however it’s always advised to register as early as possible in the event AEA has additional questions and/or concerns.

Adhering to the aforementioned restrictions is essential to not only a successful reading, but the continued commercial success of a project. Used correctly, the 29-Hour Reading can be a fantastic vehicle for creative development, often allowing creatives to experience the work in a live setting for the first time. On the flipside, failure to adhere to the Guidelines can land you in hot water with AEA and may significantly impinge on your ability to engage AEA talent for future engagements.

For those of you contemplating investing in commercial theatre, you are bound to hear of the phrase “One for One”, “One for Two” or “One for Three” bandied about in co-producer negotiations. These are deal terms accorded to co-producers or early investors to induce them to come onboard in a more meaningful way than a standard investment. You might hear a lead producer rattling off these deal terms like footy scores (I’m Australian, I can say footy) or categorizing groups of investors as “the one for three pool.” For first timers these terms are confusing, but the truth is they describe a very simple concept.

 

Set your stopwatch to 190 seconds – let me explain.

  1. A traditional financing structure for commercial theatre (be it musical or legitimate stage play) divides a production’s net profits as follows: (i) 50% becomes the Producer Share; and (ii) 50% becomes the Investor Share.
  2. So, if the production makes $50 worth of net profits, $25.00 will be allocated to the producers, and $25.00 will be divided among the investors, pro rata in the proportion that each investor’s investment bears to the aggregate of all investments.
  3. But what about investors who are early adopters of the production and take the greatest amount of risk (i.e. front money investors) or those co-producers who bring a cohort of investors to the table? How are they compensated for their contributions to the production?
  4. Enter, the One for One/One for Two concept.
    1. THE ONE FOR ONE: An individual receiving 1:1 terms has the strongest deal. This means that for every 1% of the net profits they receive from the Investor Share, they will receive 1% from the Producer Share. ONE – FOR – ONE.
    2. THE ONE FOR TWO: second best to the One for One. For every 1% of the net profits an investor receives from the Investor Share, they will receive 1/2% from the Producer Share.
    3. THE ONE FOR THREE: third in line but a Metziah* nonetheless. For every 1% of the net profits the investor receives from the Investor Share, they will receive 1/3% from the Producer Share, and so on…
  5. Let’s play with an example:

Fox Rothschild: the Musical tells the inspirational story of a Philadelphia-based law firm set to 70’s disco hits. The production capitalizes on Broadway at $8 million. Ms. Fox is the lead producer on the project and brings in two investors, Devyn and Veronica. Mr. Rothschild is an associate producer, and brings in one investor, Yvette.

  • Like many productions, Fox Rothschild: the Musical distributes net profits in accordance with the following: 50% to the Producers and 50% to the Investors
  • Devyn invests $4 million in the project and negotiates a 1:1 deal for her investment.
  • Veronica invests $2 million in the project and receives a 1:4 deal.
  • Mr. Rothschild does not raise any money, but is accorded 1:2 terms on all the money he brings in.
  • Yvette invests $2 million in the project but does not receive any special deal terms.

 

The production is a runaway hit and starts distributing net profits. How are these divided?

  • At $4 Million, Devyn invested 50% of the total capital for the production and is therefore eligible to receive 25% of net profits in her capacity as an investor. However, owing to the fact that she was accorded 1:1 deal terms, she will receive her standard 25% from the Investor Share in addition to a full 25% from the Producer Share. Devyn’s aggregate net profit participation is 50%.
  • At $2 million Veronica has invested One-Quarter of the total capital for the production and is therefore eligible to receive 12.5% of net profits in her capacity as an investor. However, owing to the fact that she has received 1:4 terms, she will receive her standard 12.5% from the Investor Share, and 3.125% from the Producer Share. Veronica’s aggregate net profit participation is 15.625%.
  • At $2 million Yvette has invested One-Quarter of the total capital for the production and is therefore eligible to receive 12.5% of net profits in her capacity as an investor. Remember, Yvette did not receive any special deal terms. Yvette’s aggregate net profit participation is 12.5%.
  • Mr. Rothschild did not raise any money, but is accorded 1:2 terms on all the money he brings in, i.e. Yvette’s share. As such, Mr. Fox will receive 6.25% from the Investor Share. Mr. Fox’s aggregate net profit participation is 6.25%.
  • But what about Miss Fox? While Miss Fox did not invest any money herself, she will receive the remainder of the Producer Share, less those percentages allocated to investors/producers from the Producers share, i.e. 15.625%. Miss Fox’s aggregate net profit participation is 15.625%.
  • Double checking our math: 50% + 15.625% + 12.5% + 6.25% +15.625% = 100%

 

See? Not as hard as you thought.

*Metziah – Yiddish. “A good deal.”

Financing structures for plays and musicals are unique. While they are in some ways similar to motion picture financing, live theatre has its own set of customs and practices that can be confusing to first time investors. A client recently called to tell me that she had been offered ‘one-for-two terms on a front money agreement’ for a new musical that hadn’t been written.

“Yeah, but Dan” she asked, “What does that mean?”

Times Square, New York CityWhat is front money? Front money is essentially first round, series ‘A’ financing for a live-theatrical venture. It is the seed capital used by producers to get a project on its feet, and most importantly, to a stage in the development process where a producer can seek to capitalize a commercial production. As such, front money may only be expended for pre-production expenses directly related to the development of the show, including option payments, key-creative fees, legal and accounting expenses, readings and workshops. Let’s say that all together, shall we – “front money is only for pre-production expenses directly related to the development of the show.” Unless specifically authorized in the front money agreement, which is rare, front money may not be used to cover the travel and expenses of the producer, nor the costs of wining and dining potential collaborators.

Who is a front money investor? Whereas a Broadway musical might have in excess of fifty individual investors, front money investors are a select group of individuals (under New York law, no more than five for any single production) who elect to take on increased risk for the possibility of a greater upside.

What’s the risk? A front money investment carries greater risk than a typical investment in a live-theatrical venture, which is already pretty substantial. Often a front money investment involves a project that has not secured a theatre, an opening date, key creatives or even a completed script. Whether or not the project will progress to the point of raising capital for a full production remains speculative, and thus front money investors generally expect more favorable deal terms for their contribution.

What’s the upside? Though riskier, front money investors get more bang for their buck. Often producers will reward early adopters with a profit participation in the producer’s share of net profits, as opposed to merely the investors’ share of net profits. You might have heard discussions of “one-for-one” or “one-for-two” deals. These are the types of terms offered to front money investors (stay tuned for my next blog post where I will discuss how a “one-for-one” or “one-for-two” actually works).

What do investors sign? A front money investor will sign a front money agreement with the producer. Thereafter, the producer will be authorized to use the funds to develop the show. Once the show is ready for its first commercial production (if ever), the front money investor will become a member of the production entity used to capitalize the first commercial production of the show. Typically, the front money agreement will contemplate the investor automatically rolling-in to the production entity, and thus their front money investment will be deemed an equity investment in the production entity.

While often shorter in length, front money financing agreements govern a (hopefully) longstanding relationship between producer and investor. As such, they are fundamental documents that require careful review and consideration.