By N. David Milder
These organizations face the same two overarching challenges that all businesses and nonprofits in the nation now face: 1) surviving the crisis and 2) then making any operational changes needed to be successful in the post crisis environment. The legacy layer of conditions for a large proportion of these venues already placed them in grave financial danger that the additional challenges unleashed by the Covid19 pandemic probably will only exacerbate. Their size and business models are two very important variables that impact on their ability to meet these two challenges. The larger organizations are more apt to have or attract the financial resources and staff talent to survive this crisis. Nonprofits usually have a troubling hybrid income model that combines revenues from earned income with contributions from various government and numerous private sector and individual sources. That presents a managerial challenge even for the strongest of them. Another important impacting factor is an industry’s long term trends, as is the case with movie theaters. In many instances, the impacts of the Covid19 pandemic do not have to be all that strong to quickly send financially teetering entertainment and arts/cultural organizations into extremis. Getting them prompt and appropriate assistance will be critical to their survival.
For those that do survive, legal or customer sanctioned adaptions to make them more pandemic proof could pose new operational challenges and financial burdens, especially for those with weaker financial and staff resources. Moreover, the book on what such adaptations might be has only begun to be written, so it is difficult at this time to scope out what the post crisis needs of these organizations might be. However, the more quickly this task is accomplished, the sooner programs can be created to help assure these organizations will operate well into the future.
Downtown organizations should not overlook the needs of these organizations as they also try to help retailers and restaurants.
Looking at Some For Profits
Downtown Cinemas. For many small and medium sized downtowns, their movie houses are one of their strongest assets and their most important entertainment attraction. It is often also a source of considerable community pride. When the conversion to digital projection threatened their local movie theaters, residents in many communities across the nation banded together to raise funds to keep them in business. Saving them unleashed an impressive amount of community action across the nation.
Nevertheless, movie theaters long have been on a rather steady path of decline, and “the totals for both 2017 and 2019 rank as the worst years for movie ticket buying since 1995.”1 Attendance also has been in sharp decline. Over the past 20 years, it has dropped by about 25% nationally, while the population has grown by 15%.2 Making things worse for theater owners, 2019 was the strongest year yet in the number and quality of the movies sent either directly or very early to streaming outlets. Netflix, for example, produced and distributed many films. It also “received the most Oscar nominations of any company (24) for films like The Irishman and Marriage Story”.3 Americans, since at least 1994, have preferred by rather large margins to watch their movies at home to seeing them in a theater (see the table below).4 And they watch more movies per person at home than in movie theaters by a 5 to 1 ratio. Moreover, even the most frequent movie goers prefer home viewing.5
Downtown cinemas can spark a lot of community pride
Movie theaters were immediately hurt by their inability to have onsite patrons during the pandemic crisis as long as social distancing measures are required, or they were closed outright by local governments. Many were already badly financially stressed, and they are unlikely to survive a year or longer recovery period. Long term, they were already likely to be hurt at an accelerating rate by increased studio direct releases to streaming, and consumers’ increased online movie going. Their financial and management burdens will only be increased if they are also forced by customer pressures or legal requirements to install anti- pandemic physical and operational improvements (e.g., reducing seating so they are 6 ft from each other, better air filtration, taking patrons’ temperatures, more frequent and more thorough cleaning, customer spacing on entry and egress).
Any downtown EDO that wants to keep its movie theaters should look at the toolbox of programs that was developed by many downtowns to help their movie theaters cross the digital divide and then have their own program ready to implement. Quick action is often needed when a movie theater gets in trouble. Crowdfunding and forming a community owned corporation to buy and operate a cinema were two of the most powerful tools used.6 The alternative is likely to be trying to find new uses for these empty large buildings. That may be an even more challenging task.
Professional Sports Events. Major league sports teams, these days, are often fairly large organizations that are worth billions of dollars (see table below) that are owned by people who often are billionaires themselves. They also have very significant annual sales and very high proportions of those revenues come from contracts with cable and tv networks. The NFL in 2019, for instance, had a total revenue of about $14.47 billion, with $452.375,000 the average team revenue.7 About 57% of the league’s revenues come from TV and cable contracts, with the remaining 43% coming from fans in the stadiums.
Most Americans do not attend professional sports events with any real regularity. Tickets are just too expensive, or the games/events are too geographically distant. They predominantly watch sports events on TV. Quartz reports that: “The average 2019 NFL regular season broadcast (and there are many of them) was watched by nearly 17 million Americans.”8 In contrast, the total attendance for all of the NFL’s regular season games in 2019 was 16.67 million.9 One may doubt if TV-based fans really care if there are fans in the stands of the arena or stadium. While social distancing directives are in effect, they might be adhered to, in part, by dispersed seating. That, of course, would mean reduced revenues for the teams and venue owners/operators. Heightened sanitation measures for seats, restrooms, and concession stands would also add to operating costs. The flows of fans entering and leaving these venues, and their use of parking, restrooms and concession stands also will need to be regulated while social distancing is in effect. At the moment, most discussions about resuming the play of professional sports games involve no fans attending them in person, an indication that making the needed adaptions in the operations of arenas and stadiums might be either too problematical or difficult.
However, these professional teams plainly have the on-hand financial resources and the financial and political connections to have a very good chance of getting through the crisis and adapting to any anti-pandemic requirements that may emerge in the post crisis period. The TV and cable contracts provide a very important assured revenue stream. “Fanless events” mean reduced revenues, but may also mean significantly reduced operating costs.
Look Out Fors:
- Given that office workplaces are very likely be under pressure to be reconfigured so that they are more pandemic proof, will existing sports arenas and stadiums be as well?
- Indeed, will the designs of future arenas and stadiums reflect newfound concerns about coping with potential pandemics?
- Will a recovery produce a return of former attendance levels?
- Will local governments be as willing to permit or fund proposals for such structures as they have in the past, especially if ticket sales revenues are significantly reduced?
- Will the revenues of sports venues be so reduced by Covid19 that existing loan/bond payments are endangered?
Cultural/Arts Venues: Nonprofits
Arts and cultural organizations are being hit hard by the Covid19 crisis. Americans for the Arts on its website claims that these organizations are ”experiencing $3.6 billion in devasting losses.”10 The organization’s recent survey of artists and craftspeople showed that a very large number of their incomes have been squashed by the pandemic. Over two-thirds reported being unemployed. However, unless these artists were hugely successful or working for a corporation, they have long had very modest incomes that had to supplemented by non-arts and culture jobs. That they have long been on the cusp of financial need is evidenced by how long the phrase “starving artists” has been a part of our culture.
“Word Class” Museums in Major Cities. Pre Covid19, many museums in our largest cities aspired to be world class and followed a strong bigger is better strategy comprised of major exhibitions that would attract lots of the tourists who were visiting their city. The result was often overcrowded galleries that impeded art appreciation, big museum budgets that often totaled in the hundreds of millions of dollars, and attendance numbers in the millions that were overwhelmingly the result of-out of- town visitors. For example, here in NYC, 87% of the Guggenheim Museum’s visitors are tourists and that number is 75% at both MoMa and the Metropolitan Museum of Art.11 The pandemic has shut off the entire tourist spigot, foreign and domestic. The museums for the most part are closed to in-person visits, but many are offering online access. Their visitor income streams have been choked. The Metropolitan Museum just announced an anticipated deficit of $150 million. However, many of their board members are titans of their business communities with records of making large donations and having strong connections to our largest financial institutions. The museums’ real estate properties and art holdings (which they normally should not deaccess), are often worth billions of dollars. They have huge capital assets, though they may not be very liquid. Equally important, they have very valuable political, social and financial connections. These arts organizations have proven capability of raising $400 million (MoMA) to $500 million (the Met).
If they reopen while physical distancing guidelines are still in effect, it will be interesting to see how that transforms the long lines of visitors who in the past entered their buildings, paid admission fees, and then stuffed their gallery rooms? Will they, too, strengthen their sanitation efforts. Can they take advantage of this crisis and treat it as an opportunity to make much needed improvements? Many museums in Europe, such as The Louvre in Paris are limiting access to famous works, such as the Mona Lisa, because of overcrowding. The Guardian has reported that: “The Vatican Museums are considering putting a cap on visitor numbers amid fears among tour guides that overcrowding could provoke a stampede unless security policy is changed.” 12
A Curmudgeonly Opinion. I think that these museums have holdings that are far too large – most pieces are not even exhibited – and they are far too crowded. They have lost sight of providing an excellent art appreciation experience and instead seem to focus on cramming as many visitors as possible into their buildings as often as possible. The actual feet on the gallery floors are undeniable and prove the veracity of that statement. Consequently, how they operate needs to be rethought. The Met in NYC, for example, has many galleries that are so wonderful they could be very strong museums on their own – something like Ron Lauder’s Neue Galerie. A visitor then can be have a less crushed and more intimate and relaxed interaction with the art. Entry to them could be more appointment based and limited to a tolerable number per hour. This is how the Glenstone Museum in Potomac, MD works and the Barnes Foundation operated in its former home. These decentralized museums could enliven neighborhoods across a city. If they instead were clustered together, that still would decentralize the entry and existing processes, and reduce the density of visitors in the galleries.
Smaller Arts Nonprofits.
Most Arts Organizations Are Small .13 Most arts organizations are small, with revenues probably under $28,000. In 2012, about 63% of the nation’s estimated 110,000 arts organizations had revenues below $25,000.14 A study done in 2017 estimates that there were 39,292 nonprofit arts and cultural organizations in the USA that had revenues over $50,000.15 This means most art nonprofits will have little or no staff and will very likely either have very few performances or very few hours when they are open to the public. If they rent street level storefronts, when closed, they function as dead spaces that detract from their block faces walkability, while also signaling a lack of vibrancy.
Even when budgets get somewhat higher, the impacts are not likely to be significantly large. For example, the Wyoming Territorial Prison, a museum in Laramie, WY, (population 32,000) reported revues of $90,290 on its IRS Form 990 in 2015, but its annual visitation was about 16,000 (averaging about 2,700 per month) during a season that lasts from May 1st through October 31st. To put that attendance in perspective, consider that the Laramie Main Street Alliance around then held seven one-day events that attracted a total of around 8,250 people.16
There is a real question about whether the positive impacts of these very small arts/cultural venues outweigh their negative ones that is too often drowned out by the advocacy efforts of those who believe that the arts are the engine for economic development in these communities. That is not to say that the arts cannot be a valuable asset, but that knee-jerk advocacy can produce a lot of underperforming or even failing arts organizations that really do little for their downtowns.
A Structural Propensity to Have Deficit Annual Budgets. 17 Roland J. Kushner and Randy Cohen in their National Arts Index 2016 paint a troubling picture of the financial condition of many arts organizations A very large number of them do not have break-even budgets and consequently, raise concerns about their long-term sustainability. According to Kushner and Cohen:
“Arts nonprofits continued to experience financial challenges: The percentage of arts organizations operating at a deficit has ranged from 36 percent in 2007 (during a strong economy) to 45 percent in 2009 (the deepest part of the recession). In 2013, a time of improved economic health, 42 percent of arts nonprofits still failed to generate positive net income—a figure that raises concerns about the long-term sustainability of arts organizations that are unable to achieve a break-even budget. Larger-budget organizations were more likely to run a deficit, though no specific arts discipline is particularly more likely to run a deficit…. (I)t is clear that the budget fortunes of nonprofit arts organizations got worse during the Great Recession and have been very slow to recover.” 18
Consequently, it would seem very reasonable and very prudent for downtown leaders to expect that large numbers of their arts organizations were long primed for being pushed over the edge by the Covid19 crisis.
The Proven Long-Term Uncertainty of Their Revenue Streams. The hybrid model is based on revenues coming from many very different sources and obtained through different means. According to Americans for the Arts: “Support for the nonprofit arts is a mosaic of funding sources – a delicate 60-30-10 balance of earned revenue, private sector contributions and government support.”19
Other research has found a slightly different funding mix. The National Endowment for the Arts (NEA), using data from the Urban Institute and Census Bureau for 2006-2010, found that the revenue sources for nonprofit performing arts groups and museums were:
- 55.1% Earned Income, Interest and Endowment Income
- 38.2% Contributions From Individuals, Foundations & Corporations
- 6.7% Government Grants.20
Earlier, pre-Great Recession estimates showed that earned incomes only accounted for about 50% of the revenues of nonprofit arts organizations.
Perhaps it is best to amend AftA’s statement to read that arts organization funding has been a delicate balance of 50% to 60% earned income, 30% to 40% private sector contributions and 10% or less from government support.
In any case, there is general agreement on the types of funding sources and the fact that there are many of them. In a 2012 study of the factors that challenge the financial sustainability of nonprofit organizations, the RAND Corporation’s authors placed at the top of their list:
“Risk of reliance on external funding sources and streams. In contrast to for-profit organizations, nonprofits in the United States depend on diverse sets of funding sources and streams of funding to sustain their operations. Most nonprofits receive funds from multiple sources (e.g., government, foundations, private donors) and streams (e.g., grants, contracts, membership fees). Substantial cutbacks in both government and foundational funds suggest that nonprofits should develop or revisit their fundraising plans to support financial sustainability.” 21
The hybrid business model both taxes the skill sets of nonprofit managers in organizations too small to structurally differentiate and staff their earned income and contributed income activities, and bets too much of their financial future on the strong generosity of many others. Consequently, nonprofits were easily badly hurt by the Great Recession and the Covid19 crisis.
Saved by The Feds? Americans for the Arts apparently feels that the recent stimulus program can be of great help to arts and cultural organizations. It cites the following programs that can help them.
- The annual appropriation for the National Endowment for the Arts and the$75 million for the National Endowment for the Humanities were each supplemented by $75 million in the CARE Act stimulus package.
- The $350 billion for?Small Business Administration?(SBA) emergency loans of up to $10 million for small businesses—including?nonprofits (with less than 500 employees), sole proprietors, independent contractors, and self-employed individuals?(like individual artists)—to cover payroll costs, mortgage/rent costs, utilities, and other operations
- $10 billion for Emergency Economic Injury Disaster Loans (EIDL) for loans up to $10,000 for small businesses and nonprofits to be used for providing paid sick leave for employees, maintaining payroll, mortgage/rent payments, and other operating costs.
- Expanded?Unemployment Insurance (UI) that includes coverage for furloughed workers, freelancers, and?”gig economy” workers.22
It will be interesting to see just how many of these arts and culture organizations get enough support from these federal programs to last into the recovery phase. There are about 30.2 million businesses in the US with fewer than 500 employees. To date only about 1.3 million, about 4.3%, have reportedly obtained the SBA loans. Hopefully recent legislations will produce a much higher number.
Looking to the Future. Looking out to the post pandemic phase, the anti-pandemic measures the arts/cultural organizations will have to take and the cost burdens that might add still remain largely unknown, but seem fairly likely to appear.
We have a consumer-based economy, so economic recovery will depend a lot on spending power and inclinations returning to our households. Revenues promise to be a serious problem for these organizations well into the future unless our national economy has an unexpected robust recovery.:
- Given their Covid19 induced revenue problems, state and local governments will likely have greatly reduced capacity, other than by passing through fed dollars, to fund arts and cultural organizations well into the future.
- During and after the Great Recession, large corporate and foundation givers substantially switched their funding away from the arts to help better meet pressing social and economic needs. If our past is in any way prologue, we might expect something of the same to happen as we recover from the Covid19 crisis, even well into the early part of the post crisis phase.
- As for individual donors, a lot depends on who lives in the market area of these arts/cultural organizations and how many households there are with incomes above $200,000/yr. Those with “lower incomes” only account for about 6.3% of the total household donations to the arts!23
The fact that these arts and cultural organizations continue to have the same problems time after time after time should be taken as a strong signal that the way they have operated is seriously flawed. For me, a major statistical indicator of this is their needed revenue per visitor, which probably is also a good indicator of their cost per visitor since few make any substantial “profit.” Computing from the data in the above table, among those with budgets above $50,000 per year, the revenue per visitor for museums is $72.01 and for nonprofit theaters it’s $56.15. If 50% to 60% of those revenues come from admission fees and other earned income streams, the admission prices of these venues are still probably multiples higher than what local cinemas are charging for their admissions, (a good benchmark for local affordability).
How do these organizations explain the amount of income needed by them that is not market supported? A curmudgeonly explanation are artistic aspirations that are unconstrained by their boards whose members are insufficiently concerned about their fiduciary responsibilities and the long-term well-being of their organizations.
These organizations need a new operational model that should:
- Enable them to increase their earned incomes by exploring new revenue streams. They need to stop thinking only about admission fees and museum store sales. They need managers who are more entrepreneurial in non-arts areas. The Red House Theater in Syracuse is one example of this. A lot of other arts organizations should go to school on it. Among other things, it provides paid services to the local school district and is now a landlord with several rental income streams. The Public Theater in Auburn, NY, is another example. While continuing to serve as a theater, it has also assumed more of a role as a community center with a café, mic nights, and classes for yoga, etc.
- Set a goal of having earned incomes cover 80% of the organization’s operating costs.
- Have their boards exercising greater constraints on costs that cannot be supported by earned incomes.
Some Take Aways
As a result of the Covid19 crisis, downtown leaders and their organizations need to be concerned about the health and retention of their arts and cultural organizations, not just their retailers and restaurants. Assisting them will often be a very challenging task.
These organizations have congenital weaknesses caused by their size and business model that make them prone to extremis even in none crisis times, but that worsen exponentially during trying times.
Art and cultural organizations have the potential to be more important than ever to our downtowns, as that of retail subsides. However, their financial fragility means that there will be substantial churn in the actual organizations that are present. While some downtown BIDs and Main Street programs have retail and restaurant retention programs, they now may also need one for their arts and culture organizations.
Downtown stakeholders and their leaders should definitely explore using the arts to spark more economic and community development, but they should do so with adequate awareness of and knowledge about the fragility of the organizations they will be working with, and the tendency of artistic aspirations to lead to financial shortfalls and organizational failures.
If appropriate lessons are not learned, then post pandemic, a lot of our arts and cultural organizations may be in worse shape than ever.
1) Dade Hayes, U.S. Movie Ticket Sales Dip Nearly 5% In 2019, Reflecting Competition Deadline ,January 17, 2020, https://deadline.com/2020/01/movie-ticket-sales-2019-decline-domestic-box-office-1202834469/
2) Brooks Barnes and Nicole Sperling, “Movie Crowds Stay Away. Theaters Hope It’s Not for Good”, New York Times, March 15, 2020 https://www.nytimes.com/2020/03/15/business/media/movie-theaters-coronavirus.html
3) Same as endnote 1.
4)Paul Taylor, Cary Funk and Peyton Craighill. “Increasingly, Americans Prefer Going to
the Movies At Home: Home “ticket sales” dwarf theater attendance 5-1”. Pew Research Center, May 2006. https://www.pewresearch.org/wp-content/uploads/sites/3/2010/10/Movies.pdf
6) See: Downtown Formal Entertainment Venues Part 4: Movie Theaters post to the Downtown Curmudgeon blog in 2014.
7) See: https://www.statista.com/statistics/193553/revenue-of-national-football-league-teams-in-2010/
8) Adam Epstein. “In the age of streaming, the NFL is the last refuge for traditional TV.” Quartz,
January 30, 2020. https://qz.com/1793242/the-nfl-and-the-super-bowl-are-tvs-last-weapon-against-streaming/
10) “FEDERAL ECONOMIC STIMULUS RELIEF FUNDS PROVIDE ENCOURAGING SUPPORT TO THE NATION’S COMMUNITY-BASED ARTS AND CULTURE ORGANIZATIONS EXPERIENCING $3.6 BILLION IN DEVASTATING LOSSES” https://www.americansforthearts.org/news-room/press-releases/federal-economic-stimulus-relief-funds-provide-encouraging-support-to-the-nations-community-based
11) See: N. David Milder .“Bryant Park Part 2: a comparison to other entertainment venues on attracting tourists, user frictions and costs to create or significantly renovate” Downtown Curmudgeon Blog, September 27, 2014 https://www.ndavidmilder.com/2014/09/bryant-park-part-2-a-comparison-to-other-entertainment-venues-on-attracting-tourists-user-frictions-and-costs-to-create-or-significantly-renovate
12) Angela Giuffrida, “Vatican considers limit on museum visitors amid safety fears.” The Guardian, Nov. 2, 2018. https://www.theguardian.com/world/2018/nov/02/vatican-considers-limit-on-museum-visitors-amid-safety-fears?CMP=twt_gu
13) This section is taken from: N. David Milder. “Let’s Get Real About*: The Arts As An Important Downtown Revitalization Tool — Redux. Part 1.” Downtown Curmudgeon Blog, June 18, 2017 https://www.ndavidmilder.com/2017/06/lets-get-real-about-the-arts-as-an-important-downtown-revitalization-tool-redux-part-1
14) Andy Horwitz, “Who Should Pay for the Arts in America?” The Atlantic, Jan 31, 2016. https://www.theatlantic.com/entertainment/archive/2016/01/the-state-of-public-funding-for-the-arts-in-america/424056/
15) Zannie Voss and Glenn B. Voss, “Arts and Culture Are Closer Than You Realize: U.S. Nonprofit Arts and Cultural Organizations Are a Big Part of Community Life, Economy, and Employment —and Federal Funding Enhances the Impact.” National Center for Arts Research, SMU. Pp.7. https://sites.smu.edu/Meadows/NCARPaperonNationalArtsandCultural%20Field_FINAL.PDF
16) Information kindly provided by Trey Sherwood, Executive Director of the Main Street Alliance in 2016.
17) See endnote 8.
18) 2) Roland J. Kushner and Randy Cohen. National Arts Index 2016, p.2; Americans for the Arts. http://www.americansforthearts.org/sites/default/files/2016%20NAI%20%20Final%20Report%20%202-23-16.pdf
They did not look at arts organizations with annual revenues under $50,000 so their finding that larger arts organizations are more prone to having deficits should be treated with caution.
19) See: http://www.americansforthearts.org/sites/default/files/ArtsFacts_ArtsOrganizationRevenues2014.pdf
20) NEA. “How the United States Funds the Arts.” 2012. P 1. https://www.arts.gov/sites/default/files/how-the-us-funds-the-arts.pdf
21) Lisa M. Sontag-Padilla, Lynette Staplefoote and Kristy Gonzalez Morganti. RESEARCH REPORT. Financial Sustainability for Nonprofit Organizations: A Review of the Literature. Rand Corporation, 2012. http://www.rand.org/content/dam/rand/pubs/research_reports/RR100/RR121/RAND_RR121.pdf
22) See endnote 12.
23) See endnote 12