Clause & Effect: <b>'Recoupment' Defined In Agreements for Theatre Productions</b>

In theatre, “recoupment” is a term of art that all knowledgeable persons in the business understand to have a specific meaning. Sometimes it is referred to as “Recoupment of Production Costs,” sometimes as “Recoupment of the Total Production Costs,” sometimes as “Recoupment of Capitalization” and sometimes as “Recoupment of Production Expenses.” These terms all are intended to mean the same thing: each is intended to fix a time when something occurs that creates additional benefits for certain people involved in a play production.

Simply stated, the concept is that the author, director or others involved in the play can be paid more after the play has started making a profit, which is the time when the investors could have recovered their respective investments. It has always been a good negotiation tactic, for example, to offer the author more after the play is making a profit. This tactic has saved many deals that could have fallen through.

There are several things to be acutely aware of. There is a profit when the amount of the production expenses paid or accrued as of opening night is recovered. The distinction between “Production Expenses” and “Running Expenses” must always be kept in mind ' expenses after the official opening are not to be considered as production expenses. If an amount of money is recovered so that the investors could have been paid the total amount of their investment, whether or not the funds are actually returned to them, the play has recouped. Bonds, deposits or other items returnable to the production company are not included as costs to be recovered. Once recoupment has been attained, subsequent expenses incurred by the production company will not alter the fact that the production company has recouped.

Calculating Recoupment

The measure of when the royalties increase may be 125% or 200% of recoupment. For example, if the amount of paid and accrued expenses on opening night is $1 million, the royalty increase will occur when the company has made a profit of $1.25 million.

All accountants who work in theatre know that the term “Recoupment of Production Costs” means the time that the company shows a profit – that is the time that the income covers all of the production costs up to the time of the official press opening of the play. They also know that in calculating recoupment, as noted above, the amount of bonds, deposits or other returnable items are not included as costs to be recovered and that once recoupment has been attained, subsequent expenses incurred by the company will not alter the fact that the company has recouped.

All of this is known and accepted by not only the accountants in the business but the producers, managers and anyone having to do with the business of theatre. In fact, the definition of recoupment is defined in detail in the Approved Production Contract (APC) of the Dramatists Guild Inc. The only problem is that the definition covers a full page of very small type on a letter size page, which is fine for an APC. But when an attorney is preparing an option for an off-Broadway play or for a not-for-profit theatre company doing a showcase or workshop production, it would seem that a reference to “recoupment of the production costs” would be ample.

The usual off-Broadway contract is maybe eight or 10 pages at most, and the not-for-profit theatre company acquisition of rights agreement is probably more like two or three pages. So agreements must sometimes compromise by utilizing Terms of Art and hoping that the persons they are dealing with will be acquainted enough with the business to know the meaning of the terms and honest enough not to attempt to distort the meaning.

The real problem occurs when someone outside the business for their own reasons, greedy or otherwise, wants to define a Term of Art in a way that is not in accordance with the understanding of those in the business.

A useful relatively concise definition of “recoupment” that can be used in Off-Broadway and Off-Off-Broadway agreements as well as with options for developmental productions or whenever a short agreement is in order is as follows:

“The term 'Recoupment' means the recovery of all costs incurred by each company producing and presenting the Play after payment or accrual (but not prepayment) of all operating expenses for such Company up to and including the Official Press Opening of the Play. Recoupment shall be calculated separately for each Company presenting the Play. In calculating Recoupment bonds, deposits or other recoverable items returnable to the Company and Running Expenses after the Official Opening performance shall not be included as costs to be recovered. Once Recoupment has been attained, subsequent expenses incurred by the company will not alter the fact that the company has Recouped. If there is no official Press Opening of the Play the computation will be based on the date eight weeks after commencement of rehearsals.”

In theatre, “recoupment” is a term of art that all knowledgeable persons in the business understand to have a specific meaning. Sometimes it is referred to as “Recoupment of Production Costs,” sometimes as “Recoupment of the Total Production Costs,” sometimes as “Recoupment of Capitalization” and sometimes as “Recoupment of Production Expenses.” These terms all are intended to mean the same thing: each is intended to fix a time when something occurs that creates additional benefits for certain people involved in a play production.

Simply stated, the concept is that the author, director or others involved in the play can be paid more after the play has started making a profit, which is the time when the investors could have recovered their respective investments. It has always been a good negotiation tactic, for example, to offer the author more after the play is making a profit. This tactic has saved many deals that could have fallen through.

There are several things to be acutely aware of. There is a profit when the amount of the production expenses paid or accrued as of opening night is recovered. The distinction between “Production Expenses” and “Running Expenses” must always be kept in mind ' expenses after the official opening are not to be considered as production expenses. If an amount of money is recovered so that the investors could have been paid the total amount of their investment, whether or not the funds are actually returned to them, the play has recouped. Bonds, deposits or other items returnable to the production company are not included as costs to be recovered. Once recoupment has been attained, subsequent expenses incurred by the production company will not alter the fact that the production company has recouped.

Calculating Recoupment

The measure of when the royalties increase may be 125% or 200% of recoupment. For example, if the amount of paid and accrued expenses on opening night is $1 million, the royalty increase will occur when the company has made a profit of $1.25 million.

All accountants who work in theatre know that the term “Recoupment of Production Costs” means the time that the company shows a profit – that is the time that the income covers all of the production costs up to the time of the official press opening of the play. They also know that in calculating recoupment, as noted above, the amount of bonds, deposits or other returnable items are not included as costs to be recovered and that once recoupment has been attained, subsequent expenses incurred by the company will not alter the fact that the company has recouped.

All of this is known and accepted by not only the accountants in the business but the producers, managers and anyone having to do with the business of theatre. In fact, the definition of recoupment is defined in detail in the Approved Production Contract (APC) of the Dramatists Guild Inc. The only problem is that the definition covers a full page of very small type on a letter size page, which is fine for an APC. But when an attorney is preparing an option for an off-Broadway play or for a not-for-profit theatre company doing a showcase or workshop production, it would seem that a reference to “recoupment of the production costs” would be ample.

The usual off-Broadway contract is maybe eight or 10 pages at most, and the not-for-profit theatre company acquisition of rights agreement is probably more like two or three pages. So agreements must sometimes compromise by utilizing Terms of Art and hoping that the persons they are dealing with will be acquainted enough with the business to know the meaning of the terms and honest enough not to attempt to distort the meaning.

The real problem occurs when someone outside the business for their own reasons, greedy or otherwise, wants to define a Term of Art in a way that is not in accordance with the understanding of those in the business.

A useful relatively concise definition of “recoupment” that can be used in Off-Broadway and Off-Off-Broadway agreements as well as with options for developmental productions or whenever a short agreement is in order is as follows:

“The term 'Recoupment' means the recovery of all costs incurred by each company producing and presenting the Play after payment or accrual (but not prepayment) of all operating expenses for such Company up to and including the Official Press Opening of the Play. Recoupment shall be calculated separately for each Company presenting the Play. In calculating Recoupment bonds, deposits or other recoverable items returnable to the Company and Running Expenses after the Official Opening performance shall not be included as costs to be recovered. Once Recoupment has been attained, subsequent expenses incurred by the company will not alter the fact that the company has Recouped. If there is no official Press Opening of the Play the computation will be based on the date eight weeks after commencement of rehearsals.”