Deal Breakdown: How to get rich in the theater business

There’s big money in weird New York experiences…
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Today I’m doing another unusual breakdown: 

This week’s business: Sleep No More, the long-running “promenade play” in New York that will close at the end of April.

It’s an old warehouse in Manhattan that’s been turned into five floors of immersive theater. You walk around, and actors perform scenes from MacBeth. You all wear masks, and there’s really loud music playing. 

Why it’s remarkable

I went to this about 7  years ago. It was expensive, weird, and fun. After we left, I didn’t think much about it. For the record, I loved it.

Until I recently learned they pay $438,000 a month in rent! 

And they’ve been running since 2010… what kind of play makes money like that?

I did a little research, then a little napkin math, and here’s my guesstimates for how this all works.

By the numbers

I found out they do 8 shows a week, and they probably run 50 weeks a year.

An average ticket costs $200. The average guest will probably spend $25 on a single expensive New York drink and $10 on merchandise.

So multiply those numbers together.

Not bad! 

So what are they spending?

They have 25 staff per show, let’s say they’re paying them each $500 a night. 

Then there’s rent, and some more expenses on top. 

First, you don’t run a public event without spending plenty on advertising, ticketing staff, discounts, promos, all that kind of stuff. 

A rough rule of thumb is 20% of revenue, but let’s be generous and say 25% of revenue, which comes to about $7M.

Let’s add a million in insurance. (Browsing their Wikipedia page, some stuff has gone down in the past.)

Then there’s probably 4 or 5 people in managerial roles, getting paid New York salaries — let’s call that another $1.5M all-in.

Low variable cost: benefit and risk

What makes this interesting, from a business nerd perspective, is what happens when you change the number of guests.

A theater business has a high fixed cost and low variable cost. It’s the same as amusement parks, movie theaters, or plane tickets. 

Your expenses are pretty much the same, no matter how many people come. That plane takes off whether it’s got 1 person or 300 inside.

So once you sell enough tickets to cover your costs, every guest beyond that is basically all profit.

But if you’re not hitting that minimum, you’ll have a bad time fast.

Look at how much the revenue swings if you change the number of guests per night. Here’s 150, 300, and 500.

Doubling their attendance from 150 to 300 improves their picture by $10 million bucks!  

By these numbers, as long as they get 181 people through the door, they break even. Person 182 is cash in the bank.

What’s next for them?

I only heard of this company again because they were in the news — apparently, their landlord is trying to get rid of them via a lawsuit. 

He’s accusing them of violating safety laws, though I’d bet the real reason is he figures he can rent this property for a lot more. 

At one point, the company tried to move the production to another building, but basically the neighbors didn’t want 500 drunks showing up every night. 

NIMBYism happens everywhere, folks!

This is a great business if they can keep it alive and keep selling those tickets. 

But I get a little spooked at the idea of fixed costs like that. (I bet COVID was not fun for this team.)

What do you think? Is this crazy? Hit reply and let me know!