New York State’s Tax Credit For Broadway Shows Is Taking Too Damn Long To Work

It is their money, and they need it now.

Although New York’s tax credit program offering up $3 million to each new musical and play has been lauded as a lifeline for the struggling theatre industry, many Broadway producers and their investors are still waiting to receive money. The funds often do not arrive until at least 18 to 24 months after the application has been submitted, which can be long after the shows shut on the Great White Way.

According to theatre accountant Christopher Cacace, some Broadway shows that applied through the program directly received tax credit certificates after submitting tax returns. “Filing amended tax returns then becomes necessary to take advantage of the tax credit,” he explained, adding that additional cost is “dwarfed by the aggregate cost of members who are also forced to amend their tax returns, or give up the benefit entirely.”

“The situation can be worse for shows which formed a corporate subsidiary [to operate the show and apply for the tax credits], because they sometimes have to pay federal corporation tax before the tax credit can be monetized,” Cacace warned.

In addition, the delay in disbursement has resulted in some Broadway shows entering a new kind of financial purgatory in which they have only recouped their initial capitalization costs on paper. The state government has awarded tax credits to the shows, pushing them into profitability, but the tax credits have not been paid yet.

When Broadway producers issue press releases proclaiming their shows have recouped but do not issue new checks to their investors, there can be some confusion. Some investors ask, “where is the cash?” recalled Thomas Laub, the executive producer of Runyonland Productions.

Also, “we have a lot of investors who are looking at each other now and saying that ‘waiting 18 to 24 months does not work for us’,” Laub said. The producer has even seen some investors assert that, “‘if we have the capital back in our pockets, then we know that we can get it back into the market faster and make a return with it.’”

“The sentiment from investors is that they are still waiting on funds that are a little bit outside of the power of producers to procure,” observed Laub. All that even the most powerful Broadway producers can do after submitting the application is wait.

Teaming up with Blue Fox Financing, the largest network of lenders for independent film projects, Laub and his colleagues at Runyonland Productions have created a program that he insists will “give producers a tool in their arsenal to procure those funds faster.”

Similar to how loans are issued against film and television tax credits, the two companies will soon issue loans against theatre tax credits. “Through these loans, theatre investors can expect to recoup a substantial portion of their investments more rapidly, benefitting the entire theatrical ecosystem,” commented Patrick Rizzotti, the founder of Blue Fox Financing.

As with most other loans, there will be a finance fee charged based upon the level of risk involved in the transaction. For example, the finance fee charged for Broadway shows that use loans to bridge gaps in their initial capitalization costs during preview performances will be greater than the finance fee charged for Broadway shows that have been audited, received tax credit certificates, and are simply waiting to receive the funds. “The costs decrease the later you are in the process,” Laub commented.

Securing a loan could be the right move at the right price.

If a show has returned 90 percent of its initial capitalization costs, and the producers know that it will receive an additional amount equal to 30 percent of its initial capitalization costs through the tax credit program, then it might be worth giving up a few percentage points on a loan to get money now. “In two years, especially with how interest rates have risen, it is much more valuable to have cash in hand with the time-value of money in mind,” Laub said.

“Producers and general managers are excited to turn what is a new model into a template that everybody can use and replicate,” Laub commented. “Now that the Tony nominations are behind us, and, as we get into awards season, I think we are very close to making the concept a reality, and seeing several deals turn tax credits into money in investors’ pockets,” he said.

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