Shouldn't Harry Potter be recouping right about now?

[JBroadway]

Posted: 10/7/19 at 3:48pm

This Forbes article has already been discussed in other threads, but I think it's worth noting that the article confirms that the show is close to recouping, and also that the grosses have not yet dipped below the running cost. It's also worth noting that according this week's grosses, the "potential gross" has been lowered once again to $995,707 (which is very low!). I'm guessing that the producers would never allow a pricing model that puts their potential gross below their running cost, so I did the math using that number as an estimate. So based on that estimate, and their all-time gross of $148,676,504 over 81 weeks. That puts their net JUST over $68MM.

And we know that the capitalization (including the theatre renovation) was, in fact, $68 Million. So wouldn't that mean that they should be recouping right about now? If not this past week, then maybe in the next couple weeks?

But I recognize that there are a variables:

1. Maybe I'm wrong and the running cost is actually higher than this week's potential gross. Plus, their running cost was probably a bit higher back in year 1 due to the higher salaries and living expenses for the original cast. 

2. Maybe they are including the $23 Million they spent on getting Paramour to vacate the theatre. If that's case, they're pretty much doomed. At this rate, it could take them years to recoup that - and that's assuming they maintain their current grosses, which they're already struggling to do. But I was under the impression that the $23 Million came right out of ATGs pocket, and wasn't included in the show's official capitalization. Obviously they would hope to get that money back, but it might not be a factor in whether or not the show officially recoups. Can anyone shed light on this?

3. Another variable is advertising, because I just don't know how that works financially. Is the advertising budget included in the running cost? Is it retroactively tacked onto the capitalization? The NYTimes article linked above says that their initial $3.8MM advertising budget was included in the $35MM capitalization, but how do they account for things like the Times Square event, additional advertisements, etc.? Where does that money come out of? 

And I'm sure there are other variables that I'm not thinking of. What do we think? 

[CT2NYC]

Posted: 10/7/19 at 4:00pm

The $23 million was included in the original $68.5 million total: $35.5 million capitalization, $23 million for Paramour, $10 million for renovations.

[JBroadway]

Posted: 10/7/19 at 4:05pm

CT2NYC said: "The $23 millionwas included in the original $68.5 million total: $35.5 million capitalization, $23 million forParamour, $10 million for renovations."

 

Oh I see. I misread that. Thanks for clarifying! 

So then if that's the case, that removes one of the variables, and makes it all the more likely that their recoupment should be happening right about now. 

[bdn223]

Posted: 10/7/19 at 4:06pm

The show can/will/shall recoup by the end of the year. The production recently put a large recapitalization for the marketing redesign which will increase the capitalization slightly. As I have said in previous posts, if Harry Potter doesn't recoup it will be a scandal on par with Rebecca. 

[zainmax]

Posted: 10/7/19 at 4:16pm

JBroadway said: "This Forbes article has already been discussed in other threads, but I think it's worth noting that the article confirms that the show is close to recouping, and also thatthe grosses have not yet dipped below therunning cost. It's also worth noting that according this week's grosses, the "potential gross" has been lowered once again to$995,707 (which is very low!). I'm guessing that the producers would never allow a pricing model that puts their potential gross below their running cost, so I did the math using that number as an estimate. So based on that estimate, and their all-time gross of$148,676,504 over 81 weeks. That puts their net JUST over $68MM.

And we knowthat the capitalization (including the theatre renovation) was, in fact, $68 Million. So wouldn't thatmeanthat they shouldbe recouping right about now? If not this past week, then maybe in the next couple weeks?

But I recognize that there are a variables:

1. Maybe I'm wrong and the running cost is actually higher than this week's potential gross. Plus, their running cost was probably a bit higher back in year 1 due to the higher salaries and living expenses for the original cast.

2. Maybe they are including the $23 Million they spent on getting Paramour to vacate the theatre. If that'scase, they'repretty much doomed. At this rate, it could take them years to recoup that - and that's assuming they maintain their current grosses, which they'realready struggling to do. But I was under the impression that the $23 Million came right out of ATGs pocket, and wasn't included in the show's official capitalization. Obviously they would hope to get that money back, but it might not be a factor in whether or not the show officially recoups. Can anyone shed light on this?

3. Another variable is advertising, because I just don't know how that works financially. Is the advertising budget included in the running cost? Is it retroactively tacked onto the capitalization? The NYTimes article linked above says that their initial $3.8MM advertising budget was included in the $35MM capitalization, but how do theyaccount for things like the Times Square event, additional advertisements, etc.? Where does that money come out of?

And I'm sure there are other variables that I'm not thinking of. What do we think?"

2. ATG paid the costs, but it owns one of the lead producers (Sonia Friedman). The accounting must be fuzzy.

3. Advertising would bump up the running costs, not the capitalization.

[zainmax]

Posted: 10/7/19 at 4:17pm

bdn223 said: "The show can/will/shall recoup by the end of the year. The production recently put a large recapitalization for the marketing redesign which will increase the capitalization slightly. As I have said in previous posts, if Harry Potter doesn't recoup it will be a scandal on par with Rebecca."

Sure it affects capitalization?

[Fosse76]

Posted: 10/7/19 at 5:10pm

If one were to look at the Cursed Child financial spreadsheet, neither the Paramour buyout or Lyric renovation should appear. Every landlord on Broadway was willing to either move or buy out whatever show was in an occupied theater for Cursed Child, and the house size was a major factor in that decision. The Lyric was too big. If Sonia Friedman allowed Cursed Child to bear the brunt of the renovation costs, then in my opinion she violated her fiduciary duty to the investors.

That said, as has been mentioned, marketing is included in running costs, not capitalization (only the initial marketing prior to performances would be part of the capitalization). And let's not forget, they had a pretty big cast change, the costs of which get absorbed into the weekly operating costs, and which meant a significant increase in salaries for at least two months. 

[JSquared2]

Posted: 10/7/19 at 5:18pm

bdn223 said: "The show can/will/shall recoup by the end of the year. The production recently put a large recapitalization for the marketing redesign which will increase the capitalization slightly. As I have said in previous posts, if Harry Potter doesn't recoup it will be a scandal on par with Rebecca."

Not a chance.

 

 

[JBroadway]

Posted: 10/7/19 at 5:23pm

Fosse76 said: "If one were to look at the Cursed Child financial spreadsheet, neither the Paramour buyout or Lyric renovation should appear. Every landlord on Broadway was willing to either move or buy out whatever show was in an occupied theater for Cursed Child, and the house size was a major factor in that decision. The Lyric was too big. If Sonia Friedman allowed Cursed Child to bear the brunt of the renovation costs, then in my opinion she violated her fiduciary duty to the investors."

 

But if that's the case, then the show should have recouped some time ago, because they would only need to make back $35MM to recoup. And they have long-since passed that point. But according to the Forbes article, the show hasn't recouped yet. 

Also:

For those of you who know about these things: do you think I was right to assume that the operating cost is lower than their official "potential" gross of $995K? With premium pricing, I realize that they COULD cross that line if they felt like it was necessary. But it seems like such an inherently doomed idea. If you have to price the show below the operating cost, you might as well give up. The potential benefit of keeping up the appearance of 100% gross doesn't seem worth it. But maybe I'm missing something.

[SouthernCakes]

Posted: 10/7/19 at 5:40pm

I have a friend who works on the show and they have a pretty extensive rehearsal process for the cast change over and understudies because of the nature of the show. They have to have 2 separate stages built just for the rehearsal process, so I wonder how that effects their weekly running costs?

Also, how is the show doing internationally? Is it still doing well in London, etc?

[Fosse76]

Posted: 10/7/19 at 8:55pm

SouthernCakes said: "Also, how is the show doing internationally? Is it still doing well in London, etc? "

I assume London is doing fine, since salaries are nowhere near the level they are on Broadway 

[Wick3]

Posted: 10/7/19 at 9:05pm

I’m amazed at how Harry Potter still sells out 100% of its seats! Do they just sell any leftover seats through the online lottery?

[HogansHero]

Posted: 10/7/19 at 11:18pm

Bear in mind that there is no obligation to announce recoupment, so a show may well have recouped even though no one here knows that. It is also the case that recoupment in the context of a show financed as this one was is meaningless as a concept. 

And no, capitalization is not affected by subsequent expenditures though obviously recoupment could be. 

[magictodo123]

Posted: 10/8/19 at 9:51am

How often do productions announce this? When they want to announce it, I believe they will. But it's not something they're required to share with the public. 

[Dolly80]

Posted: 10/8/19 at 10:04am

This show is extraordinarily experience to run. It cost over 4X the London Production to do it In NYC. Upwards of £50million.

[Call_me_jorge]

Posted: 10/8/19 at 10:10am

magictodo123 said: "How often do productions announce this? When they want to announce it, I believe they will. But it's not something they're required to share with the public."

Shows mostly announce recoupment for the press and media coverage that comes with it. Also, there’s something about becoming an official “broadway hit” with announcing recoupment.

I’m sure when Harry Potter recoups(if it hasn’t...) they’d make it a festival or something. Like giving the audience that day free wands or something. 

[bdn223]

Posted: 10/8/19 at 12:32pm

magictodo123 said: "How often do productions announce this? When they want to announce it, I believe they will. But it's not something they're required to share with the public."

Basically all productions outside of Disney are known to make a big deal out of recoupment as it means the production is "officially a hit". Disney instead announces a national tour if a production has turned a profit. This is why most of the Disney Musicals don't tour/announce a tour until at least 2 years into the run of a production if at all. The only exception to this is Frozen. But based on Frozen's sales, it likely recouped over the summer.

For being the most expensive production ever mounted on Broadway, I would assume Harry Potter's producers would want to be able to say its the the biggest hit Broadway has ever seen, play or musical. And unlike Spiderman, it actually made money, thus proving that you can make money investing twice to three times the typical capitalization of a big budget musical. It would be a major selling point for Sonia Friedman in all future investor pitches to show we was able to do what Michael Cohl & Jeremiah J. Harris couldn't. Don't forget that Spiderman is/just as big an IP as Harry Potter, and it had some of the biggest creative names attached, before it became a disaster of historic proportions, that will likely become a musical/mini tv series in the next decade. 

[Call_me_jorge]

Posted: 10/8/19 at 2:16pm

^can I already cast Stephanie J Block as Julie Taymor?

[Fosse76]

Posted: 10/8/19 at 2:44pm

bdn223 said: "For being the most expensive production evermounted on Broadway, I would assume Harry Potter's producers would want to be able to say its the the biggest hit Broadway has ever seen, play or musical. "

That title belongs to Spider-Man: Turn Off the Dark. You cannot include the Paramour buyout, and no one is sure about the renovation costs.

[HogansHero]

Posted: 10/8/19 at 2:50pm

not all productions or producers announce recoupment, and even fewer make a big deal out of it. No one needs recoupment to call themselves the biggest hit of all time. And the announcement, from the standpoint of producers, is mostly done for the benefit of (future) investors. If you have a successful show, 99.99% of your audience has no idea what recoupment is.

Some of the nonsense here... really.