Nothing to smile about

A sell-out show at the Edinburgh Fringe may make stars of its creators, but it can also leave them out of pocket to the tune of thousands. So who's making the big bucks? Claire Allfree finds out

"This year in Edinburgh I'm giving up smoking and drinking and taking up running instead," says Gus Brown, one half of the comedy duo Laurence and Gus. "It's better for the budget." The two have a four-week slot at the Pleasance and are already steeling themselves to lose the sort of money most people would equate with the cost of a small car. Last year, they secured crucial early rave reviews on their show, and the entire run sold out. Yet despite having a £10,000 budget, they still made a substantial deficit. Brown says the loss was expected. "Basically, unless you are very famous, it's almost impossible not to lose money at the Fringe."

"This year in Edinburgh I'm giving up smoking and drinking and taking up running instead," says Gus Brown, one half of the comedy duo Laurence and Gus. "It's better for the budget." The two have a four-week slot at the Pleasance and are already steeling themselves to lose the sort of money most people would equate with the cost of a small car. Last year, they secured crucial early rave reviews on their show, and the entire run sold out. Yet despite having a £10,000 budget, they still made a substantial deficit. Brown says the loss was expected. "Basically, unless you are very famous, it's almost impossible not to lose money at the Fringe."

Last year, the Edinburgh Fringe sold more than a million tickets for the first time, generating about £9m in revenue. The problem is, no one seems to know who gets their hands on it. It's not the artists, virtually all of whom return with heart-stopping stories of financial loss. The comedian Stewart Lee, for example, has been doing stand-up on the Fringe for 17 years. At the festivals from 1992 to 1998 he did up to three shows a day, and each year lost between £1,000 and £8,000. In 2002 he did a seven-night run of his solo show Pea Green Boat and cleared £200. This year he has a stand-up show at the Underbelly, and needs to sell 75 per cent of seats to break even. "If the whole run sells out, I will make £4,000," he says. "But that's before I pay for a month's accommodation. If I sell 50 per cent of the seats, I will lose £5,500. This actually represents quite a good deal.'

If you are an actor or comedian, such "good deals" are integral factors of the Fringe: you accept that you will almost certainly lose money at Edinburgh, but stick at it, and your much-improved profile will hopefully buy it back via a lucrative TV or radio contract. So does it follow that if the artists aren't raking it in, the venues are instead? Well, to an extent, but Karen Koren, artistic director of the Gilded Balloon (and the woman behind Fringe staples such as Late'n'Live) hasn't made a profit since 1990. A fire in 2002 that gutted the venue's old premises in Cowgate didn't help, although last year she relocated to Teviot Square and has recovered, thanks partly to a sponsorship deal. "But because we rent the new premises, rather than own them as we did before, we've lost the bar earnings," she says. Koren survives by digging into her own pockets.

Christopher Richardson runs the Pleasance, which makes an annual profit of about £200,000. "But I pour that into Pleasance London, which always loses money."

Traditionally, the Pleasance, the Gilded Balloon and the Assembly Rooms have been the three dominating Fringe venues, their influence and profile described variously within the industry as a "stranglehold" and a "cartel". Each offers the artists on their programme the same box-office split: 60/40 in the artist's favour. In recent years, their position of strength has come under fire, thanks to the rise of younger and more commercially creative venues. Attention is focused on Pod Deco, a venue in its second year which has audaciously reduced its share to less than 40 per cent. As a result, it has secured big names such as Craig Hill and Danny Bhoy: names other venues depend on to counteract losses incurred by programming less well-known ones.

Koren dismisses their strategy as not viable in the long term. Richardson says he welcomes the competition. How does Heidi Waddington, co-director of the Pod, respond? "It's not necessary to spend £10,000 on a show," she says. "As well as reducing our profit margin, we're offering artists technical support, and consolidating their promotional costs by printing leaflets in bulk. It's a calculated risk, but already ticket sales are outselling our targets."

Some people, of course, do make a lot of money from the Fringe - notably Ross Noble and Ricky Gervais, both of whom are capable of selling out a large-capacity venue at a premium price for a week or more. If you are not one of these people, however, another way to do it is to have a really big hit. The producer, director and actor Guy Masterson's production of 12 Angry Men last year was the highest-grossing drama in Fringe history. It actually made Masterson money, too, which was just as well, as the year before he was on the verge of bankruptcy. He had ploughed thousands of his own money into two acclaimed shows, Horse Country and The Complete Lost Works of Samuel Beckett, and taken them from the Fringe to London's Riverside Studios.

Unfortunately for Masterson, no one in London came. "I lost almost everything," he says. My bank manager said I could either declare myself bankrupt or come up with a solution. I came up with a solution." 12 Angry Men, starring Bill Bailey, went on to tour Australia, and put Masterson back in the black.

Yet trying to engineer this sort of success is impossible. Until two weeks ago, Masterson was set to repeat the trick with One Flew Over the Cuckoo's Nest. The production secured a West End run this September as well as the Hollywood star Christian Slater. "As a director, I strive for clarity and simple use of props," says Masterson. "Yet suddenly Cuckoo became this big West End show, which brings its own kind of pressure. With London ticket prices starting at £30, West End audiences expect some bang for their buck. That's not my style. Now even with a sell-out at the Fringe, the show will lose £75,000, and needs the West End to remove that debt." Masterson eventually resigned, citing exhaustion.

Most people are convinced that the people who do make money are the big comedy promoters. But James Taylor, head of the Edinburgh division of powerful publicists Avalon, says they don't. "The festival is a long-term investment. If an act suffers a loss, we suffer that loss. But the venues make money. Why else would they do it?"

Why else indeed. For the love of it, mostly. Edinburgh is a big beast, in many ways out of control, and as such is all the more healthy, creatively and commercially. The only thing everyone can agree on is that Edinburgh's inhabitants make money. Rent out a four-bed house for £1,000 a week or more during the festival and you really are laughing all the way to the bank.