Angels rush in where fools fear to tread

People who invest in showbusiness take a huge gamble, but sometimes it pays off, says Paul Slade

THE show Cats, conceived by Andrew Lloyd Webber, racked up its 6,318th performance last week to become the world's longest-running musical.

That is good news for Eddie Jones, a retired London bookmaker who put pounds 750 into the show when it opened in 1981. So far that investment has netted him profits of nearly pounds 20,000. Mr Lloyd Webber's Really Useful Group raised all the initial pounds 450,000 capital for the musical from small investors, most of whom bought units worth pounds 750.

Mr Jones, 75, has been a theatrical "angel" for 35 years, putting small sums into shows such as Les Miserables, Miss Saigon and Phantom of the Opera. He says: "After about 20 years my accountant said to me, 'You're showing an pounds 11,000 loss.' But it is my hobby. Some people spend that on smoking or chasing women."

Mr Jones's first big coup was backing the 1982 production of Michael Frayn's Noises Off, which ran for four-and-a-half years at London's Savoy Theatre. That play wiped out his loss and, as he puts it: "I've been paying taxes ever since."

Mr Jones has had his failures. In the early 1980s he put pounds 500 into a show called Top People, written by Richard O'Brien, the author of the Rocky Horror Show, which ran three nights.

But if you are lucky enough to pick a winner, the returns can be high. Pola Jones, a production company, raised all of the pounds 260,000 it needed to mount its 1989 show, Return to the Forbidden Planet, from small investors. Those who stuck with it through the London run and on into the touring production now show a profit of 350 per cent.

Pola Jones has just finished raising the cash for another big-budget musical, the stage adaptation of Tommy, The Who's rock opera, which had a two-year run on Broadway. The London version opens at the Shaftesbury Theatre on 5 March. Investment units for Tommy were pounds 5,000, with half and quarter units available. The 200 small investors who contributed to Pola Jones's share of the bill put in an average of pounds 2,650 each.

The show must run for a year or more before they see that money again. Angels will typically receive their original investment back as soon as the show goes into profit, assuming it ever does, and then get "dividend"cheques for as long as the production and its spin-offs last.

Financially, though, the deals vary and any "dividends" may amount to no more than the loss of interest on the money you invested. A show may not go into profit until the end of the year of a good run, if at all. You should, therefore, only "invest" money you can afford to throw away, because that may well be what you are doing.

If Tommy is a success, however, its backers will also benefit from any spin-off productions. Louise Jeremy, of Pola Jones, said: "The licence we have is for the West End and for touring throughout Britain and Europe, except Germany. Those productions will pay a certain percentage of our West End one. Every time it comes to a sum worth paying, we will pay it out to the original investors."

Investing in a small independent film can be even trickier than backing a stage show. Many producers raised cash through the Business Expansion Scheme, withdrawn in 1993, which offered investors tax relief at 40 per cent. Its successor, the Enterprise Investment Scheme, which offers tax relief at 20 per cent, has proved less attractive.

Paul Brooks is one of Britain's leading independent producers and his company, Metrodome, was responsible for films such as Leon the Pig Farmer and Beyond Bedlam. Metrodome's latest production, Killing Time, has just been sold to Columbia Tristar, a big US studio. The budgets for the six films made by Metrodome have ranged from pounds 200,000 to pounds 2.5m.

Metrodome is listed on the Alternative Investment Market, so you can buy its shares and spread the risk across all the films it makes. If Metrodome's films are successful, investors benefit from a rising share price and, hopefully, dividends. Mr Brooks said: "If you look at the six films we have been involved with, the profits have ranged from 1 or 2 per cent to hundreds of per cent. You need to look at a portfolio of five to 10 films."

If you are brave enough to invest in a single film, make sure you know where in the pecking order small investors come in taking a share of any profits.

Chris Parkinson is a partner at Hammond Suddards, a London solicitor, where he has helped to arrange finance for British films such as Staggered and Henry V. He said: "What you can often find is that the money which the private investor is putting up comes out last, or indeed, comes out after the producer's own money. It's not so much a question of whether the film makes any money as what sort of deal you have regarding your participation." The more reputable producers will ensure that small investors get theirmoney back as soon as the film starts to show a profit, then pay any cast or crew owed money. Any further profits go once again to the investors.

Many will conclude that investors prepared to put money into an area as risky as this need locking up - and in one of Mr Brooks' productions, that is exactly what happened.

Backers of Beyond Bedlam, set in an asylum, appeared as extras. Mr Brooks said: "If you look at those scenes in the corridor, loads of those inmates were investors."