Lender Beware, or, Regular vs. “Premium”(?) Investors
This week’s headlines announcing Spider-Man’s closing didn’t exactly come as a shock: the exorbitantly expensive play was suffering from bloated costs and declining ticket sales.
The surprise was who’s bearing the losses.
Or perhaps more to the point, who isn’t:
The show’s lead producers, Michael Cohl and Jeremiah J. Harris, acknowledged that [they] have been paid back portions of their loans, while many investors will lose all their money unless “Spider-Man” proves profitable in future productions.
—“Spider-Man’ Investors Shaken by Projected $60 Million Loss”; The New York Times (11/19/2013)
Wall Street Déjá Vu: Raw Deal for “Regular” Investors
What accounts for that two-tier treatment?
A nifty kind of debt called “priority loans.”
The NYT article expounds:
“Priority loans made by lead producers and others, and repayment schedules that favor them over regular investors, are standard on Broadway shows that need quick capital to deal with cost overruns.”
You’ve got to presume that: a) all this was disclosed to prospective investors upfront; and b) if you’ve got enough dough to invest in Broadway plays, 
you’re probably sufficiently well-heeled to absorb any write-off’s.
Still, simply because giving “regular” investors the shaft is apparently “standard” doesn’t mean it is — or should be — kosher.
P.S.: A couple of miles to the south, the capital structures that Wall Street has cooked up devised for publicly traded companies the last 25 years or so make Broadway financiers look like pikers.
So, it’s now standard operating procedure for publicly traded companies to have multiple classes of common stock, with very different voting rights, ownership stakes, and other preferences.
