Sunday, July 19, 1987
Business Section 3:4:3
By BROOKE KROEGER
AS theatergoers were raving about the hit Broadway musical ”Les Miserables” earlier this year, the New York theater community was buzzing about another complex tale. This one told of Karen Goodwin, an industrial psychologist, and Elizabeth Williams, an art history professor, and how they got the Mutual Benefit Life Insurance Company to raise more than $1 million for the London and Broadway productions of ‘Les Mis,’ as it came to be known. The entrepreneurial spirit of Mutual Benefit’s new president, Henry E. Kates, plays an important role in this story. So do some happy coincidences.
Like the musical, Ms. Goodwin, Ms. Williams and Mr. Kates ”became instantly known and very popular,” said Rocco Landesman, incoming president of Jujamcyn Theaters.
More than that, Mutual Benefit’s profitable participation in ”Les Miserables” and a number of other London and Broadway productions could encourage other corporations to kick in, too – at least that is the hope of several independent producers. For most, Mr. Landesman said, raising money has become ”almost impossible.” A Broadway production has a 7-in-10 chance of failing, and costs about $4 million to $6 million to mount. ”There may be angels out there,” he said, ”but not masochists.”
The Newark-based Mutual Benefit is not the only major American corporation to show commitment to the arts, but it is the only one with no vested interest in the theater to have demonstrated a passion for Broadway. Mutual Benefit has played the part of angel – either investing directly or serving as a general partner for theater projects. Mr. Kates stressed, though, that ”we’re not talking about very much money for a $10 billion company.”
The company views its theatrical ventures as a type of public relations for an insurance firm that, though the 15th-largest in the country, is not as well known as others. ”We picked Broadway theater because we could make an impact, because no one else was doing it,” he said. ”But we’re not betting the ranch.”
Major theater owners such as the Shubert or Nederlander organizations often invest in potential hits to insure placement in their Broadway houses. And film and television companies sometimes will put money into a show if they want to secure rights to it for future screen adaptation.
A.T.&T. is sponsoring, over its logo, an ad campaign for the Aug. 27 opening of ”Roza.” It has also has provided $30,000 to fund that show’s premiere in Baltimore and has run ad campaigns for the Baltimore and Los Angeles runs. But ”we are not angels,” said R.Z. Manna, A.T.&T.’s corporate advertising manager. ”We are sponsors of the arts.”
THE tale of the 142-year-old insurance company’s involvement in show business really begins 27 years ago, when, fresh out of the University of Colorado, Hank Kates joined Mutual Benefit as a life insurance salesman in Denver, his hometown. He sold more than a $1 million in policies his first year and advanced steadily through company ranks. But he always had other plates spinning.
”During those years in Colorado, I was always interested in investment,” said Mr. Kates, 48, a widower with two children. ”I borrowed $5,000 the day I graduated and put it into a piece of real estate. I never stopped doing those kinds of things.”
In 1967, when the company sent Mr. Kates to take over a Mutual Benefit agency in Providence, R.I., Mr. Kates started a real-estate development firm in his spare time. Over the next decade, as he transformed the agency into one of Mutual Benefit’s top producers, he founded other firms, combining his holdings under the New England Financial Group. The group included a variety of management and investment firms. The common denominator, Mr. Kates said, was ”smart people. I’ve always found that instead of finding a business that worked, I find people.”
Karen Goodwin was one of his finds. In 1979, Ms. Goodwin, then Karen Crane, was living in Boston, seeking clients for her industrial psychology consultancy. She was led to Mr. Kates, whom she wanted to press for contacts. ”My appointment was at 9 A.M.,” she recalled. ”By noon, he had offered me the opportunity to become president of my own company.”
Ms. Goodwin wound up heading a successful new Kates enterprise, the Westminster Group, which tested and trained employees. Then in 1980, Mr. Kates persuaded Mutual Benefit to reactivate its moribund broker-dealer operation, the Mutual Benefit Financial Service Company, or Fisco.
Entering into a joint venture deal with the parent company, he sold all his other interests – except the real estate – to put his energy into developing Fisco, which he brought to Providence. He appointed Ms. Goodwin senior vice president in charge of corporate strategy at Fisco, where she developed investment expertise.
In six months, sales at Fisco doubled, to $10 million. A year later, the firm had placed more than $100 million in equity into mutual funds and limited partnerships in real estate, oil and gas, hotels and an art investment fund. It also formed a syndicate to buy Art and Antiques magazine. Ms. Goodwin brought in Elizabeth Williams, a friend from her college days at Southern Methodist University, to serve on the art fund board. Ms. Williams was completing her doctorate in art history at Columbia University and preparing to teach at the University of California at Berkeley.
By 1983, Ms. Goodwin began a push – ”very much born out of personal interest” – to find entertainment projects to invest in. Her idea: to approach theater producers and offer, in effect, to serve as their investment banker. She would present limited partnership deals to accredited investors – individuals with $1 million in assets and an annual income of $200,000 – in the same way that Fisco structured its other deals. Eventually, Ms. Williams joined the effort, giving up her Berkeley teaching job.
Mr. Kates liked Ms. Goodwin’s idea. ”In the early days, I just invested my own money,” he said, ”to understand what the partnerships did, how the money was distributed and how they accounted for the funds.” Over the past four years, he says, he has personally invested more than $200,000 in theater and, on balance, has made money.
The first time Mr. Kates put Fisco money directly into the theater was for the Royal Shakespeare Company’s New York run of ”All’s Well That Ends Well” in 1983. Fisco lost two-thirds of the $150,000 it invested. But that amount, he said, ”was really in the size of promotional dollars, not investment dollars.”
The opportunity to underwrite part of the London ”Les Miserables” came a year or so later, when Mr. Kates moved to Mutual Benefit’s Newark headquarters as a corporate vice president.
CHANCE played a part. Paul Woerner, Ms. Goodwin’s lawyer, was also the attorney for Cameron Mackintosh, the British producer. Through Mr. Woerner, Ms. Goodwin met Mr. Mackintosh and he invited Mutual Benefit to participate in the London production.
The music sold the two women, and they agreed to raise $300,000, then roughly a third of the total cost of 900,000 British pounds. They put together a prospectus offering investors $10,000 units. The government-funded Royal Shakespeare Company raised another third and other Mackintosh backers raised the remainder.
The London ”Les Miserables,” now in its 18th month, has been remarkably profitable, returning 167 percent by July 1. Mutual Benefit investors thus have made a profit of $6,710 on each $10,000 unit so far – and the show is expected to run for years.
So far, the profit picture looks impressive for New York’s ”Les Miserables,” too. By July 1, the show, which opened March 11, had recouped 33 percent of capital, returning $18,333 for each $55,000 unit offered to investors by Mutual Benefit. For its efforts in raising $1.2 million – a quarter of the total production cost – Mutual Benefit gets to recoup expenses and take 25 cents of every dollar of the partnership’s profits.
The company did not put any of its own money into ”Les Miserables,” but Mutual Benefit and Mr. Kates have invested directly in one $31,250 unit of the London production of ”Phantom of the Opera.” That investment should pay off as well. The show opened last October and had returned 48 percent of capital by July 1.
At first, selling theatrical investment units to investors wasn’t all that easy for Mutual Benefit. The plan was to use the company’s agent-client network, but many of the insurance agents felt awkward hawking a theater project. The Goodwin-Williams team stepped in and clinched most of the London ”Les Miserables” deals, traveling to Providence or Dallas or wherever accredited investors could be found. The two, and Mr. Kates, also brought in their own contacts. One, a Providence client, is Dr. Joseph Chazen, a kidney specialist who is a business associate of Mr. Kates. ”My wife told me I was nuts,” he said. ”I kept picturing Zero Mostel in ‘The Producers,’ even though I knew we were dealing with reputable people.” He since has invested in the Broadway ”Les Miserables” and in the London productions of ”Phantom of the Opera” and ”Follies.” ”I’m on a roll,” he said, ”until the first time it doesn’t work.” The London success of ”Les Miserables” made selling the Broadway production simple. But in the case of one investor, fate figured in, too.
Margo Lion, herself an independent theater producer, snapped up three of the coveted units because of a purse-snatching in Florence. She had seen the London production of ”Les Miserables,” but had been told by her lawyer – as it happened, Mr. Woerner – that it was too late to get in on the Broadway deal.
Then, on leaving an art history lecture given by Sarah Lawrence Prof. Joseph Forte in Florence, robbers grabbed her bag. The gallant professor gave chase but failed to catch the thieves. By way of apology, he invited her for lunch. As the conversation turned to theater, he mentioned that his wife, Elizabeth Williams, was raising money for the Broadway ”Les Miserables.”
An hour later, Ms. Lion had bought the first of her three units. She also formed a relationship with the Goodwin-Williams team, and subsequently coaxed $50,000 out of Mutual Benefit to sponsor an ad campaign for the off-Broadway ”Garden of Earthly Delights,” which she co-produced.
MUTUAL Benefit is still working with the Goodwin-Williams team, but now the team works out of a separate company, Fifth Avenue Productions. The two, independent producers, are on retainer with Mutual Benefit as the company’s exclusive adviser on entertainment investment.
The new company ”was a way to give them an opportunity to be entrepreneurial,” said Mr. Kates, who was made president of Mutual Benefit in March. ”And that way I didn’t have to abide by our salary structure.”
Fifth Avenue Productions has been busy. Ms. Williams, 37, gave birth to her first child, Alexander, on April 10. Ms. Goodwin, 39, followed with Nicholas, on May 20. ”This is a true division of labor,” she told her partner in a congratulatory note.
The company is general partner for 44 percent of the London ”Follies,” in previews with $1.3 million in advance sales. Mutual Benefit has bought one of the $114,430 units.
Other projects loom. There’s the road show of ”Les Miserables” and the anticipated Broadway opening of ”Phantom,” as soon as financial documents are complete.
All this activity – together with the success of ”Les Miserables” – is starting to have an impact, says Mr. Mackintosh, who has been ”delighted to have a large-scale investor who loved the theater.” Mutual Benefit’s backing has helped give him leverage in negotiating with theater owners, he says. And a number of other corporations are starting to show more interest in theater projects.
Will Broadway be willing to cater to corporate giants? Yes, said Mr. Landesman of Jujamcyn. There is no way to create live art on the cheap, he said. Securing money is the issue, and, he added, ”better to deal with a monolith than 800 mini-liths.”
Brooke Kroeger is a freelance writer based in New York.
© 1987 The New York Times Company
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