Tuesday, May 3, 2016

Equity Incentive for the Equity Actors in “Hamilton”!

Almost every week I receive at least one call from a client wanting to discuss and structure equity arrangements for employees, advisors, directors, and other key contributors to their businesses. Stock options and restricted stock can be important tools to reward people, especially in early-stage ventures when cash compensation is often scarce.

While equity compensation is typically thought of as incentive to help in future value creation, sometimes it is also acknowledging past contributions to the enterprise.

I noticed an interesting example of the latter a couple of weeks ago. The producers of the hit musical “Hamilton” announced that they had agreed to share profits with the original cast. This is a pretty unusual occurrence—one that Actors' Equity hopes will pave the way for actor participation in the equity of other productions. 

It could also mean a LOT of money to the participants. As I’ve written before, this show is a HUGE sensation. It reportedly is making a profit of over $500,000 per week in NYC, has repaid its entire $12.5 million capitalization, and has advance ticket sales of well over $60 million! It has also spawned the "Ham4Ham" preshow performance and countless spoofs, tributes, and a performance at the White House . Just this morning, it also broke the record for the most Tony Award nominations ever, with sixteen.

If you just finished your celebration of Passover without knowledge of it, there’s even a Hamilton Haggadah for use next year.

Not to be outdone, the cast of “Hamilton” has also performed its own tributes to things like the 40th Anniversary of "A Chorus Line" (which, like “Hamilton,” got its start at the Public Theatre), Sweeney Todd, and an impromptu dance party tribute to the recent passing of Prince.

If you read the detail of the articles about the equity arrangement for the actors, you’ll see that the parties (and their lawyers) are still working out the details.  When you’re trying to work out the details to your equity incentive for key contributors (and you aren’t in the center of a cultural phenomenon big enough that it has been credited with making the Treasury Secretary re-consider and put Harriet Tubman on the $20 bill, replacing Andrew Jackson, rather than replacing Hamilton on the $10 bill) start with the basics:

  • What are you trying to accomplish?
  • How can you make sure that the recipients understand and appreciate what they’re getting
  • Don’t forgot to consult your tax and legal advisors because there are “fun” traps for the       unwary (409A anyone?).

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