Question

6. On March 3, 2008, a revival of Gypsy, the Stephen Sondheim musical, opened at the St. James Theater in New York. Ticket prices ranged from $117 to $42 per seat. The show's weekly gross revenues, operating costs, and profit were esti- mated as follows, depending on whether the average ticket price was $75 or $65 Gross revenues Operating costs Profit Average Price of $75 $765,000 600,000 165,000 Average Price of $65 $680,000 600,000 80,000 a. With a cast of 71 people, a 30-piece orchestra, and more than 500 costumes, Gypsy cost more than $10 million to stage. This investment was in addition to the operating costs (such as salaries and theater rent). How many weeks would it take before the investors got their money back, according to these estimates, if the average price was $65? If it was $75? b. George Wachtel, director of research for the League of American Theaters and Producers, has said that about one in three shows opening on Broadway in recent years has at least broken even. Were the investors in Gypsy taking a substantial risk? C. According to one Broadway producer, “Broadway isn't where you make the money any more. It's where you establish the project so you can make the money. When you mount a show now, you really have to think about where it's going to play later.” If so, should the profit figures here be interpreted with caution? d. If the investors in this revival of Gypsy make a profit, will this profit be, at least in part, a reward for bearing risk?

Answer 1

a.

IF PRICE = $75

Number of weeks = $10,000,000 ÷ $ 165,000 = 60.606 or 61 weeks

IF PRICE = $65

Number of weeks = $10,000,000÷$80,000 = 125 weeks

b.

Since only one in three shows are making profits (that is 66.66% of shows are running in loss) the investors of gypsy are taking substantial risk

c.

Yes, the profit figures are supposed to be interpreted with caution as they do not consider the possibility of profit when the show happens.

d.

Yes, the profit will be considered as reward for risk bearing.