To the Editor:
There are important reasons to have a specific gross potential when a show begins performances.
Investors are solicited based on a theoretical model created by the producers and general managers. A key component of the offering (or operating agreement) is a budget and a recoupment schedule. This schedule is the best guide for a potential investor as to the economic viability of the project, both in the pre-production phase and while the show is running.
If the numbers as reported by the Broadway League achieve a certain gross potential over the number of weeks specified in the offering, the production should recoup according to the schedule in included in the operating agreement, which is the legal contract between the investor and the producers. This is the simplest, most accurate manner for an investor to chart the success or failure of the ongoing show.
In the event that the show does not recoup for a significant period beyond what was contained in the schedule used for the procurement of the investment, there could be grounds for misrepresentation or fraud. Likewise, in the event that there is a significantly large discrepancy between the actual recoupment and the recoupment schedule, there has to be a reasonable explanation for this discrepancy.
Absent a reasonable explanation, the investor would have grounds for a further investigation from the general partners of the company. In addition, if the gross potential exceeds 100%, then the weekly operating profits should be increased and the return on the investment should be greater to the investor.
It is also important to understand the difference between the percentage of sold tickets of the seating capacity and the percentage of gross potential. For example, if you sold a thousand tickets for a performance at the full price with an average ticket price of $100, which was the assumption in the budget and recoupment schedule, you would have 100 percent of seating capacity as well as 100 percent of gross potential.
In this example, the performance income would be $100,000. However, if the tickets were discounted to an average ticket price of $50 per ticket and all seats were sold to the performance, the percentage of seating capacity would be 100 percent but the percentage of gross potential would be 50 percent and the performance gross for the performance would be $50,000. Clearly, this could be a problem for the producers if it did not cover expenses even though it sold out the performance.
In other words, the cliché that the show is selling out has to be scrutinized in more detail than just the number of tickets sold.
Finally, dynamic pricing does not just apply to premium seats. All sections of the theater can be changed in either direction, up or down. Also, the size of the premium seat section can expand or shrink. These permutations affect the gross potential while the seating capacity remains the same.
In the old days, producers couldn’t manipulate prices in this manner because the systems didn’t have the software and computers necessary to make these complicated alterations on a daily basis. With the era of computerization, this has become a full-time occupation for people who specialize in this type of analysis on a daily, even moment-to-moment basis. With the advent of dynamic pricing, demand will determine the actual ticket prices.
A Broadway League member and three-time Tony Award winner, Jonathan Reinis has been a lead producer of three Broadway shows and a co-producer of ten, including David Byrne’s American Utopia. He built the 750-seat Theatre on the Square in San Francisco and operated it from 1981 through 2002.