From Option to Opening: A Guide to Producing Plays Off-Broadway

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CHAPTER 1

Starting the Company—What Has to Be Done?

THE DECISION TO PRODUCE a play Off-Broadway requires a number of subsequent decisions. Some of the decisions can only be made later, after the money is raised for the production, but it is nice to know going in just what has to be done to get the play produced properly.

The following are some of the questions that a producer should anticipate and will need answers to. Many of the questions will be answered by the attorney for the production and many by the general manager, but the producer ought to know what is going on.

Must Front Money Be Raised? Unless the producer is able to furnish the front money, a front-money letter will be needed. Front money is used to initially engage the services of the attorney and the general manager, and for such matters as script duplication and financing a staged reading.

How Many Producers Will There Be? If there is more than one person who will act as producer of the play, a co-production agreement between the parties is necessary.

What Will Be the Duties of the Associate Producers? Although they do not make binding decisions, associate producers may assist with the production—for example, furnishing some of the front money, assisting with additional fundraising, or perhaps bringing in the star or a famous director.

What Will Be the Duties of the General Manager? The general manager carries out the chores necessary to produce the play that the producer can not or does not want to perform—for example, negotiating contracts, preparing the production and operating budgets, and supervising the sale of the tickets and box-office procedures.

Are the Rights to the Play Controlled by More Than One Person? It is essential to acquire the rights from every party contributing to the play, or from one or more who may have been specifically authorized to act for all parties comprising the author. To this end, it is important to see any collaboration agreements between the parties.

Who Owns the Rights to the Play if It’s Not in the Public Domain? If the play is based on another basic work, such as a novel, record, or film, the rights to the basic work must first be acquired. While it is usually the author’s obligation to obtain such rights, if the producer is commissioning the author to do the adaptation, it will be the producer’s duty to get the rights in the basic work.

Who Owns the Rights to an Original Work? If the play is an original creation, not based on another work, the rights must be acquired from the person or persons controlling them—usually, the copyright owners. The acquisition of these rights is usually referred to as an option.

Where Will the Play First Be Produced and When Will It Officially Open? The kind of option agreement and the term of the option or license that will be prepared will depend upon where the play will be produced and when it is anticipated that it will officially open.

Is the Author of the Play Represented by an Attorney, an Agent, or a Manager? It will be necessary to deal with the representative of the author, if there is one. If the author is deceased or unavailable, one can call the Dramatists Guild, Inc., and they may know who represents the author.

What Kind of Producing Entity Should Be Organized? A proper producing entity can help the producer avoid personal liability. The preferable entity is a Limited Liability Company (LLC). The document that must be prepared and filed to organize an LLC in New York State is called the Articles of Organization.

What Will Be Needed to Open a Bank Account? After the LLC is organized, the client, the attorney, or an accountant should obtain the Employer Identification Number (EIN) so the client can set up a segregated account or accounts for the money. Note: it is much easier for the producer to obtain the EIN than it is for the attorney or the accountant.

What Kind of Agreement Will Be Needed Between the Producer and the Investors? If an LLC is used as the producing entity, the agreement will be an operating agreement. In addition to the pre-production budget and the weekly budget, the attorney will need a digest of the play, biographies of the parties who will be involved in the production, and other important information, such as the location of the bank account where the funds will be held and the amount the producer has expended that will be recouped.

What Must Be Done to Satisfy the Securities Laws? Unless all the money will be raised in the state in which the play will be produced, it will be necessary to satisfy the U.S. Securities and Exchange Act and the Blue Sky Laws (the state laws governing security issues) of every state in which money will be raised.

What Kind of Fee Arrangement Will Be Made with the Attorney and the General Manager? The attorney should explain the fee arrangement to the client and send the client a retainer letter. The general manager will also provide an agreement engaging his or her services.

CHAPTER 2

Optioning a Property

THE FIRST THING THAT you must do as the producer of a play is to obtain a property. Property is the word used for the play or other work that you want to perform or have performed. The author or owner of the play will either represent herself or be represented by an agent or an attorney. When we refer to an owner, we may be referring to someone other than the author who owns the right to deal in the play, having inherited or purchased it. Unless otherwise specifically noted, all the observations that refer to the author would be equally applicable to an owner of the play who is not the author.

On many occasions, I have been confronted by a client who has consulted me after already having signed a piece of paper that he labeled an option to produce an Off-Broadway play. The client means well: he knows that legal advice is necessary and is now seeking it. Upon reading the option, it becomes apparent that the client should have consulted an attorney before entering into the agreement. The option agreement contains no provision for subsidiary rights (these will be explained in detail later), nor does it provide for a right to tour the show or do an English production of the show, if it is later deemed advisable. An option agreement that does not get for the producer everything that he ought to have is not just bad for the producer personally but is also bad for the investors, and this could make it very difficult for the producer to raise the money to produce the play.

Therefore, before signing any agreements, the knowledgeable producer consults an attorney, who then communicates with the author or the author’s representative to discuss the various terms of the option. An option agreement is simply a grant of the right to produce a play, in exchange for a money payment to the author. The amount of money paid, the length of the option, and what the money payment buys are all variables—negotiable items—which will be defined precisely in the option agreement.

WARRANTIES AND REPRESENTATIONS

As the producer, you will want to make certain that the option to produce a play contains certain warranties and representations by the author or owner. In plain, nonlegal language, this means simply that the author guarantees, assures, and even insures that what is being sold to you is owned by the author/owner. In the agreement, it is stated that the person selling the rights of the play is someone who has acquired the rights to sell the play; that there have been no lawsuits that would endanger his or her ownership of the play; and that if it turns out that this person does not own the play and you are damaged as a result, this person will reimburse you to the extent that you have suffered from his or her misrepresentations. The warranties clause of an option agreement usually makes reference to the copyright ownership by the author or owner and states the date and number of the copyright registration.

LENGTH OF THE OPTION

Off-Broadway options can run for various terms; however, it is not unusual to have an option for a one-year period that can be extended for an additional year upon payment of an additional sum of money. It then may be extended for an additional six months after that for still another sum of money. A one-year option means that the play must open before a paying audience on or before one year from the date of the option agreement. Sometimes an option will be for a one-year period with the right to extend the option for an additional six months. It used to be widely believed that an Off-Broadway show would have a difficult time opening during the summer months. This is no longer the case, and most knowledgeable people believe that a show can open anytime during the year, although right around Christmas may be iffy. What’s more important is putting on a good show.

OPTION COST

In exchange for the right to produce the play, to open on or before a specific date, a producer pays a sum of money that is usually considered to be an advance against royalties. The term advance against royalties means exactly what it sounds like: the amount of the payment is deducted from the first royalties earned by the author.

Determined as it is by a number of factors, the amount of the option payment will vary. A well-known playwright who has many Broadway productions to her credit will of course demand—and receive—a larger option payment than an unknown author who has never had a play produced. In all events, the author’s motivation, how badly she wants to see the play produced, the rapport between the producer and the author, the existence of other producers who may be anxious to produce the play, and other such factors can affect the amount of money that will be demanded and paid for the option. A one-year option would probably cost on either side of $1,000, and it is often provided that the payments will be made with $500 due on signing of the option and $500 six months after the signing. The second year could cost $1,500, and the additional six months, an additional $1,000.

I almost always negotiate on behalf of my producer clients with the thought in mind that it is far preferable to pay more money for the second year of the option period than one pays for the first year of the option period. The theory is that after owning the option for a period of one year, the producer should be in a pretty good position to know whether or not it will be possible to raise enough money to obtain a director, cast the play, and get it into production. If things look good at the end of the year, then the additional larger payment is money well spent, as it is being spent for something that will be used—namely, the right to produce the play. Furthermore, the additional payment is, like the first payment, an advance against royalties, and it will be deducted from the first royalty-payments in all events. If, after owning the option for a year, it seems unlikely that the producer will be able to get this play produced, the money saved by paying less in the first year can be used for the purchase of another property, one with greater potential.

PLAY COST (ROYALTIES BASED ON A PERCENTAGE OF GROSS BOX-OFFICE RECEIPTS)

The fee previously referred to as an option payment buys the right to produce the play. As soon as the play is presented before paying audiences, the producer makes a weekly payment to the author for the actual presentation of the play.

Authors used to be—and sometimes still are—paid a percentage of the gross weekly box-office receipts for the presentation of the play Off-Broadway. This was also the way that authors were and sometimes still are compensated for the presentation of Broadway plays. Stock and amateur licenses to produce a play, which in most instances were for a license to produce a play in a specific theatre for a limited number of performances, sometimes paid a flat per performance fee to the author for such production rights. A payment of a percentage of the gross weekly box-office receipts is one way of compensating the author, and there is now another way, with a royalty-pool formula.

If the play is a nonmusical and the author is neither well known nor a famous personality, then the author is almost always paid 5 percent of the gross weekly box-office receipts. If the play is a musical and the bookwriter, composer, and lyricist are not well known or famous, then the royalty payment is almost always 6 percent of the gross weekly box-office receipts. The bookwriter, composer, and lyricist will either share the 6 percent of the gross weekly box-office receipts by receiving 2 percent apiece, or they will share the 6 percent by the composer and lyricist together receiving 3 percent and the bookwriter receiving 3 percent. The method of sharing is not really the producer’s worry or responsibility, except to the extent that the producer must make the payment to specific parties in accordance with the agreement.

If the play is a musical and the bookwriter, composer, or lyricist is well known, then the royalty payment may be, but need not always be, as much as 10 percent of the gross weekly box-office receipts. I have noticed on numerous occasions that some name playwrights have insisted on restricting their royalty payments to an amount that would be paid to a new author, knowing that there are limitations to what an Off-Broadway production can pay and that it is healthy for a play if the royalty payments are not excessive.

When we speak of the gross weekly box-office receipts, it must be understood that these receipts are almost always defined as the gross receipts at the box office from the sale of tickets, less theatre-party commission, discount, and cut-rate sales; all admissions taxes present or to be levied; any union pension and welfare deductions; and any subscription fees and Actors’ Fund benefits.

It is wise to be aware of a useful method of resolving royalty disagreements that will be helpful in some instances. It may be suggested that the royalty payments should be increased after the play has recouped its original pre-production and production budget—that is, after the total amount of the investment has been recovered. If there is, for an example, a deadlock, with the author insisting upon receiving 6 percent of the gross weekly box-office receipts and the producer being inclined to pay no more than 5 percent of the gross weekly box-office receipts, it might be helpful to compromise with an arrangement providing that the author is to be paid 5 percent of the gross weekly box-office receipts until the investors have recouped their original investment, at which time the author’s royalty payments will be increased to either 6 or 7 percent of the gross weekly box-office receipts. This is typical of one of the many compromises that may be made to help resolve disputes and bring about an agreement that might otherwise be difficult or impossible. The concept of a royalty-pool formula was developed for Broadway productions to assure the investors’ return of their investment out of first net profits.

PLAY COST (ROYALTIES BASED ON A ROYALTY-POOL FORMULA)

Woman Of The Year played on Broadway for two years, and every week it seemed that everyone got paid: the author, the star, the general manager, the producer, the cast, the crew, and the theatre. But the investors in the play were an unhappy lot. This was because, in fact, not everyone got paid. It was reported that the investors got nothing for their investment: no return of capital, no profits, nothing. The play ran for a long time, doing business and making money for everyone—that is, everyone except the people who made the play possible.

The prospect of people investing in theatre was looking dismal, and it became important, even necessary, that something be done to make investing in theatre possible for those willing to risk their money in something that is a huge risk at best under any circumstances. As a result, the Grind Formula was developed. A forward-looking group working on the play Grind figured they had to come up with a plan that gave the investors some part of the income from the onset of the play, if there was money coming in to pay anybody.

The Grind royalty-pool formula was a complicated muddle, but it did set the stage for an idea that, when simplified, could be the basis for an intelligent arrangement with the royalty participants and the investors. In spite of the feeling of many misinformed people in the business, the royalty-pool formula is really a simple concept and not that difficult to understand.

As now used, with minor adjustments here and there, a royalty-pool formula works like this: You take all the gross weekly box-office receipts and subtract the fixed expenses, those expenses that are not royalties. The result is called the net box-office receipts. Some part of the net box-office receipts, 35 or 40 percent, becomes the royalty pool, which is shared by the royalty participants and by the producer for his producer’s fee. They share the pool in roughly the same proportion that they would have shared the gross weekly box-office receipts.

The other 60 or 65 percent of the pool goes to the investors. This sits well with investors, who will get something from the first weekly receipts if there is anything left after paying the weekly expenses. Expenses other than royalties are referred to as fixed expenses, but they aren’t fixed in the sense that they don’t vary from week to week. Advertising expenses can vary from week to week, as can some of the other non-royalty expenses. So the gross weekly box-office receipts and the weekly fixed expenses are sometimes averaged over four weeks and sometimes over twelve weeks in the royalty-pool formula.

Other choices were written into some of the royalty-pool formulas. In some cases, the producer of the play could pay the royalties based on gross weekly box-office receipts for some period, and then based on the royalty-pool formula for another period, and so forth. This seemed very unfair to me, and I thought that the producer should decide which method of royalty payment would be used and stick with it during the run of the play. It was also provided in most formulas that even during losing weeks when the royalty pool would pay nothing, the royalty participants would get some minimal payment in the same proportion that they would share the pool.

What is the result of using a royalty pool? If the play is doing good business, then all the royalty participants fare much better than they would with a percentage of the gross weekly box-office receipts. And during this period, the investors are getting some of their money back. If the play is doing marginal business, they do not do as well with the pool. The pool is designed to compensate all parties during good weeks and have all parties share the burden during bad weeks. Actually, if the royalty participants are being paid based on the gross weekly box-office receipts and business is bad, they will be asked to waive their payments during these bad weeks to help keep the show alive. So the effect is similar to a royalty-pool formula, except that with the formula, during good weeks all royalty participants do much better than they would ever do with a payment based on gross weekly box-office receipts.

WHAT AN OPTION BUYS

An option agreement must somewhere within it state that in consideration of the producer’s payment of a certain