EXCLUSIVE: Ticketmaster and Telecharge say they refund theatergoers for cancelled performances.
It’s a different story for investors in shows that get cancelled before opening night. Exhibit A: Nerds, the musical.
In early 2016, Nerds Broadway LLC collected $606,000 from 13 angels who wanted in on the comedy about Bill Gates and Steve Jobs.
Four days after receiving the last of the checks and less than two months before the scheduled Broadway opening, lead producer Carl Levin announced Nerds’ indefinite postponement. He cited the loss of a major backer.
Until recent years, a production company that abandoned a show was obligated to make investors whole, except the investors who waived their right to a refund.
The Nerds investors didn’t waive their right to a refund or get any money back. In October 2018, they sued Nerds Broadway, plus Levin and his producing partner, Vicki Halmos, for fraud and breach of contract.
In their complaint filed in New York Supreme Court, the investors allege that the major Nerds backer who stepped away never existed. And that Levin — who’s also business and operations manager of the Tony Awards — lied by repeatedly saying that the money was all in place.
Zachary Kuperman, a lawyer for Levin and Nerds Broadway, responded in a Jan. 11 filing that the money promises the producer were said to have made were “wishy-washy,” “meaningless” and ultimately irrelevant. The lawyer noted that in the operating and subscription agreements filed in court, the investors agreed to rely on written rather than oral representations of the production’s finances.
And the investors authorized immediate use of their funds. So Nerds Broadway was permitted to spend investor money before completing the $6.2 million to $8 million capitalization. Should Nerds fail to open, it was obligated only to return cash subject to “the ability of the Company to return such Capital Contributions,” the operating agreement said. Producers “have no individual obligation to refund any portion of the undersigned contribution,” according to the subscription agreement.
Kuperman wrote that the backers “knew and understood they were investing prior to full capitalization, knew the risks of investing, and had full access to the financial records of the company.”
Richard A. Roth of the Roth Law Firm, a litigator and Broadway investor and co-producer, said in an interview that the producers will likely get the suit dismissed. “It’s very hard to escape that language,” he said, referring to the provisions investors signed.
Lawyers for the Nerds investors and producers declined interview requests. Levin didn’t return emails.
In the past, producers generally agreed to put funds in escrow until all investor money was in place. But in the last decade or so, as upfront expenses ballooned, it’s become common to require investors to authorize immediate use of their capital. And for investors to waive their right of refund, either explicitly or in practice, as in the case of Nerds.
With sought-after shows that can easily raise money, such as branded properties like Harry Potter, the weaker protections are of little consequence. Even investors in Rebecca, who were contractually entitled to get their money back after that musical collapsed pre-opening, didn’t pursue recovery in court.
“I was convinced that all the money was gone,” said Gordy Hansen of St. Charles, Missouri, who put $25,000 in Rebecca. “It was time to move on.”
Similarly, Nerds seems to be out of money. Last year, the advertising agency Serino Coyne obtained a $194,000 judgement against Nerds Broadway for unpaid bills. Catherine Reid, Serino’s chief financial officer, said the firm had no comment about whether it’s since been paid.
According to court papers, Nerds waited until the eleventh hour to fundraise. Halmos’ lawyer, Scott Sholder, said in a filing that she and Levin began raising money in late 2015. Previews were originally to start the following March.
The investors argue that Nerds Broadway shouldn’t have paid $600,000 to the Shubert Organization to secure the Longacre Theater because it couldn’t afford the expense. Levin’s lawyer responded that the suit doesn’t say what producers should have done instead.
Roth, the outside lawyer, said that to establish liability for securities fraud, investors usually have to prove that any misstatement was made with an intent to deceive or defraud. And that the investors actually relied on the misstatement when deciding whether to invest.
Nerds backers have every right to seek relief in court. But their chance of success may be remote, given the fine print in Broadway investor agreements.