Tom’s Tidbits – Why are Recoupment Charts Essential to Producers?

Our avid blog readers may recall one of our previous Vocabulary of Producing posts in which we defined the term “recoupment chart.”  For today’s Tidbits, Tom provides a refresher on the basic elements of a recoupment chart, and explains why these documents are vital to the financial success of a show.  Whether you’re the lead producer or an investor, knowing not only how to navigate and create a recoupment chart, but also understanding its importance will have you ten steps ahead of the curve.  Read on to learn the tricks and tips of the trade.

Recoupment charts are key tools for producers both as a way of evaluating the economics of a production and to inform potential investors.  The chart shows how quickly a production would recoup its initial investment at different percentages of financial capacity.  The chart starts with the gross income at levels of financial capacity of the producer’s choosing.  Although there are a variety of ways of presenting this information, recoupment charts typically consist of several columns, each indicating a different level of financial capacity.  A typical chart would start with 100% of financial capacity (a sellout at stated box office prices) and work downward through columns labeled 90%, 80%, 70% and so forth.  It might be more or less detailed than that and the last column might indicate the level of financial capacity needed to produce a break-even result – the amount of gross that would keep the show running without incurring a loss but providing no funds toward recoupment.

The expenses of running the show would appear below the gross in each column.  Deductions from gross, “fixed” running expenses and the theater percentage rent would all be deducted from gross to produce an amount available for royalties and recoupment.  Royalties to the author, director, underlying rights holder and others would then be deducted, calculated either as a percentage of gross or in a royalty pool, depending on the producer’s choice of compensation.  If features like amortization are used, those would be taken into account as well.  After all the aspects of royalty payments are calculated and deducted the amount left over is available for recoupment of the initial capitalization.  That amount would be divided into the capitalization and the result is the number of weeks it would take to recoup the capitalization at each level of financial capacity.

Several things to think about:

The theater chosen for this exercise might or might not be the one the production finally gets and since all of the calculations depend on financial capacity, the choice of theater can vary results dramatically.  A 1,500-seat theater will produce quicker recoupment (on the chart, at least) than a 1,000-seater.  Unless the theater has already been actually chosen, it’s worth being a bit cautious about taking the results too much to heart. 

These days, there are a lot of ways to affect financial capacity.  In the real world, premium tickets, discounts and dynamically changing ticket prices can all have significant impact.  Its certainly worth understanding whether the producer has assumed the sale of premium tickets in the calculation.

I put quotes around the word “fixed” in describing fixed operating costs.  These costs include everything the production spends except deductions from gross and royalties and they are not, of course, literally “fixed” from week to week.  Lots of costs vary weekly, from advertising to having understudies performing to the cost of repairing costumes.  The idea behind these “fixed” weekly costs is a reasonable estimate over time.

No one has a crystal ball about any show that’s ever been produced.  But in looking at a recoupment chart and seeing how many weeks it will take to recoup, it’s worth thinking about your opinion of the sustainability of grosses over many weeks at any particular level to achieve recoupment.

To have an informed opinion, read the chart that the Broadway League puts out every week for each show running on Broadway.  There’s a lot of information in the chart, including average ticket prices, the percentage of seating and financial capacity that each show has achieved for that week and whether the show’s grosses are up or down from the prior week.  You can put the recoupment chart in the context of what’s actually happening on Broadway and perhaps have a less cloudy crystal ball – which is the most any of us can hope for.

Posted in Uncategorized.