Comparing orchestras' financial health:impossible!

Your 'hot spot' for all classical music subjects. Non-classical music subjects are to be posted in the Corner Pub.

Moderators: Lance, Corlyss_D

Post Reply
piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Comparing orchestras' financial health:impossible!

Post by piston » Tue Mar 17, 2015 7:24 pm

I have been looking for two very simple pieces of financial information: a. revenues from ticket sales and other orchestra-related performances; b. operating expenses. These two budgetary categories seem straightforward enough: what is the disparity between performance-related revenues and how much it costs today to operate an orchestra, inclusive of salaries to musicians and non-musicians, pensions, transportation, etc.

While some orchestral annual report provide this information, many others find ingenious ways of avoiding it. In the case of the Cleveland Symphony Orchestra, for example, it's not even possible to know from these annual reports their operating expenses, let alone their orchestra-related revenues.

I think it's an important piece of financial information because the most financially stable orchestras are obviously those that can narrow the gap between orchestra-performance revenues and operating expenses. Once you're there, you don't have to deal with whimsical big donors and recession-sensitive small donors. And you don't need to keep drawing as much from your assets to project the image of a "remarkable" year.

Some examples:
From the Boston Symphony Orchestra's 2012-13 annual report, one finds that orchestra-performance related revenues amounted to $39,475,000 compared to $43,000,000 of operating expenses. Very healthy, if you ask me! Compare that to Minnesota's four million dollars of ticket sales in their short 2014 season and their 13.4 million of operating expenses (and they call that "remarkable"), or to Seattle's 11.2 million of orchestra related revenues and 25.6 million of operating expenditures, to Indianopolis's 7.5 million of orchestral revenues and 24.5 million of operating costs, or to Chicago's 22.4 million of ticket sales and 78 million of operating expenses! The deficit in Chicago has been growing in spite of vigorous fund-raising campaigns and excellent orchestral performances.

These differentials don't lie. One needs a lot of non-music related activities (and their corresponding expenditures) to make up for any great gap between orchestral revenues and operating expenses. And, most importantly, these activities have nothing to do with artistic performance and everything to do with financial resourcefulness.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

slofstra
Posts: 8971
Joined: Mon Jan 08, 2007 2:23 pm
Location: Waterloo, ON, Canada
Contact:

Re: Comparing orchestras' financial health:impossible!

Post by slofstra » Tue Mar 17, 2015 8:22 pm

You also need to look at earnings on an orchestra's endowment fund. These will often match or exceed ticket revenue. The bigger, longer standing orchestras have large endowment funds, and often do not earn significantly more from ticket sales over a middle size orchestra, while paying higher salaries for top talent. What I'm saying is that just comparing ticket revenue and operating expenses is not enough. Orchestras with a large endowment fund can afford to incur operating expenses far in excess of ticket revenue.

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Tue Mar 17, 2015 8:46 pm

slofstra wrote:You also need to look at earnings on an orchestra's endowment fund. These will often match or exceed ticket revenue. The bigger, longer standing orchestras have large endowment funds, and often do not earn significantly more from ticket sales over a middle size orchestra, while paying higher salaries for top talent. What I'm saying is that just comparing ticket revenue and operating expenses is not enough. Orchestras with a large endowment fund can afford to incur operating expenses far in excess of ticket revenue.
Those are the assets that orchestras with a persistent or growing gap between orchestral revenues and operating expenses draw upon when fund-raising campaigns don't make up for that difference (or they've also been known to sell real estate, but it's the same outcome of using assets to compensate). Ergo, the determining factor in an orchestra's financial health remains the differential between orchestra-related revenues and expenditures. Look at the Met! It's trying to renovate a hall, replenish its endowment, and balance its budget all at once. How did it get there?
More worrisome data emerged: the Met’s endowment, never impressive to begin with, has collapsed, from a high of $336 million in fiscal 2007 to $247 million in fiscal 2009.
It was valued at 253 M at the end of last year.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

John F
Posts: 21076
Joined: Mon Mar 26, 2007 4:41 am
Location: Brooklyn, NY

Re: Comparing orchestras' financial health:impossible!

Post by John F » Wed Mar 18, 2015 12:42 am

Interesting information, but so what? There's no way the balance sheet of the Chicago Symphony can be transformed into that of the Boston Symphony, whose finances presumably include ticket sales for Tanglewood and the Boston Pops as well as the regular season. (Is Chicago's revenue from the Ravinia Festival counted?) Symphony Hall has 100 more seats than Orchestra Hall, so there are more tickets to sell. Both orchestras tour, but how this affects their finances varies. And so on.

I wouldn't say that box office revenues are more stable than donor support. Both depend on the public's attitude toward classical music and toward the orchestra itself. There's a cap on how much the orchestra can take in from performance-related activities; the number and price of tickets is set and is not elastic, raise ticket prices too much and fewer are sold. But the amount that can be raised from donors has no defined limit. In the Chicago Symphony's annual report for 2012-13, it says that "Donors contributed and pledged a total of $38.25 million to the endowment, CSO investments and funds, and future year operating support—a 14% increase over 2013 contributions to these areas. A total of 13,442 individual donors contributed during the 2013/14 season, a 26.2% increase over last year’s total. The CSO was supported by 13,267 annual donors, a 26.8% increase over the prior year and a 34.8% increase since 2011. There were 4,476 new donors and 1,310 reinstated donors who contributed during the 2013/14 season." I'm impressed.

As for operating expenses, Chicago's $78 million is extraordinary, and I have to wonder what it includes. The Chicago Symphony's players and conductors can't be paid nearly twice as much as the Boston Symphony's, and its administrative staff can't be twice as large. It's a puzzlement.
John Francis

slofstra
Posts: 8971
Joined: Mon Jan 08, 2007 2:23 pm
Location: Waterloo, ON, Canada
Contact:

Re: Comparing orchestras' financial health:impossible!

Post by slofstra » Wed Mar 18, 2015 5:44 am

piston wrote:
slofstra wrote:You also need to look at earnings on an orchestra's endowment fund. These will often match or exceed ticket revenue. The bigger, longer standing orchestras have large endowment funds, and often do not earn significantly more from ticket sales over a middle size orchestra, while paying higher salaries for top talent. What I'm saying is that just comparing ticket revenue and operating expenses is not enough. Orchestras with a large endowment fund can afford to incur operating expenses far in excess of ticket revenue.
Those are the assets that orchestras with a persistent or growing gap between orchestral revenues and operating expenses draw upon when fund-raising campaigns don't make up for that difference (or they've also been known to sell real estate, but it's the same outcome of using assets to compensate). Ergo, the determining factor in an orchestra's financial health remains the differential between orchestra-related revenues and expenditures. Look at the Met! It's trying to renovate a hall, replenish its endowment, and balance its budget all at once. How did it get there?
More worrisome data emerged: the Met’s endowment, never impressive to begin with, has collapsed, from a high of $336 million in fiscal 2007 to $247 million in fiscal 2009.
It was valued at 253 M at the end of last year.
The endowment fund itself is an asset. It can't be touched. The earnings of the fund -- think of this as interest and dividends on the principal of the fund -- are a part of the general revenues of the orchestra and the orchestra budgets those to help cover the operating expenses of the orchestra.

Generally you can obtain the financial statements for any orchestra, often online. Orchestras are legally required to disclose their finances in some detail although I don't know the exact rules on who and how.

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Wed Mar 18, 2015 6:18 am

In principle, the endowment is "restricted"; it's not supposed to be for a rainy day. In practice, it's been drawn upon, often at the worst possible time when endowment revenues were flat, because of an economic recession. It was the case in Minnesota:
"The [Minnesota Orchestra] endowment today is not as large as we had expected it to be," Campbell said.
There are two reasons for that, he said. The stock market plunged during the great recession. Even though stocks have recovered, the endowment hasn't grown.
"The investment performance is basically flat," he said. "It went down. It's come back up. But there's a compounding problem. That is, we have been taking excessive draws that are not sustainable out of that endowment for a number of years."

The orchestra board has the leeway to tap one of the four endowment funds as needed to pay for operations, Campbell said.
The Metropolitan Opera board did the same in 2009 and I wouldn't be surprised to find this managerial prerogative elsewhere.

As to your second point, I have been consulting these orchestra annual reports online but nobody is obligated in their financial statements to include categories such as "ticket sales" and "operating expenses."

Hiding revealing information in public financial summaries is nothing new. Cincinnati was doing that more than ten years ago and some of its dark secrets included tapping into its endowment:
70 percent of the endowment is invested in the stock market. The CSO's portfolio fell by $10 million over the year, from $72 million to $62 million.The CSO earned $1.05 million less interest than last year.
• Orchestra ticket sales dropped nearly $900,000.
• Contributions to the CSO, in particular public support, were down about $1 million.

None of this is mentioned in the orchestra's "Summary Financial Report." The CSO reported an operating deficit of $417,000 for the last fiscal year, which included two large write-offs. That deficit was erased by its "four-year, break-even" budget cycle, showing a small surplus, the report states.
"The report paints a much rosier picture of them than the (IRS form) 990," Cumming says.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

John F
Posts: 21076
Joined: Mon Mar 26, 2007 4:41 am
Location: Brooklyn, NY

Re: Comparing orchestras' financial health:impossible!

Post by John F » Wed Mar 18, 2015 3:21 pm

slofstra wrote:The endowment fund itself is an asset. It can't be touched.
Where did you get that idea? As piston says, musical organizations and other non-profits often do "touch" their endowment funds in hard times. New York City Opera helped itself liberally to the capital in its endowment, one of many bad decisions by its board and administration that led to its bankruptcy and death. The board of directors is the guardian of the endowment, but who guards the guardians?
slofstra wrote:Generally you can obtain the financial statements for any orchestra, often online. Orchestras are legally required to disclose their finances in some detail although I don't know the exact rules on who and how.
The annual report of the Chicago Symphony Orchestra, which is indeed online, doesn't include a balance sheet, not even an accounting of gross revenues and expenditures. Most of it is a listing of all its donors. In effect, it's a vanity publication. The hard information must be reported to the IRS and no doubt it can be obtained somehow, but I haven't found it online. piston has tried harder than I have and he does have some numbers, but even he wasn't able to uncover the details that would really disclose where the money is coming from and especially where it's going.
John Francis

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Wed Mar 18, 2015 6:30 pm

John F wrote: As for operating expenses, Chicago's $78 million is extraordinary, and I have to wonder what it includes. The Chicago Symphony's players and conductors can't be paid nearly twice as much as the Boston Symphony's, and its administrative staff can't be twice as large. It's a puzzlement.
No public information about that. The "ticket sales" revenues listed do not include Ravinia but they're still a very long way from their combined category of "total operating revenue and support." Basically, the CSO is running about one-third on ticket sales and two-thirds on donors and endowment revenues.

So what, you say? I'd like to see demographic data on these donors..... A time bomb, if you ask me.
https://cso.org/res/AnnualReport2014/#5/z
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Wed Mar 18, 2015 7:37 pm

I do wonder if there's not a regional "malaise" about classical music in the Midwest. Could Minnesota, Detroit, and Pittsburgh merely be the tip of the iceberg? Regionally, classical music is faced with a great lack of health in the Southeast, the land of country music; with spotted success stories in Texas and good health in California's metropolises; with a sound financial foundation in the Northeast, but many question marks in New York; and with what strikes me as less than transparent reports from several midwestern orchestras. Chicago has the strongest artistic and financial back, with a growing endowment, but even it is apparently not in the black.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

John F
Posts: 21076
Joined: Mon Mar 26, 2007 4:41 am
Location: Brooklyn, NY

Re: Comparing orchestras' financial health:impossible!

Post by John F » Thu Mar 19, 2015 4:14 am

Classical music has never really taken root in the American southeast. There are only two big-time symphony orchestras in that quarter of the country, and one is in Washington DC; the other, the Atlanta Symphony Orchestra, which evolved in 1947 from the Atlanta Youth Orchestra, has never hired an internationally recognized music director (Robert Shaw was known as a chorus master). As for opera, there's no full-season company in the region, and the best-established, the Washington National Opera, seldom engages top talent.

The United States has an extraordinary number of symphony orchestras - 1,200 in 1998, according to Wikipedia - though a minority have full seasons and some include amateur players as well as professionals. As of 2007, 117 of them had annual budgets of $2.5 million or more. For a country in which classical music is a niche culture, though an important niche to be sure, this is excessive, and reflects more the nation's wealth and the attitudes of its wealthiest than general public support. If there were genuine grass-roots support for classical music, then the people would require their government to subsidize performing arts organizations directly, as nearly everywhere else in the world, instead of merely providing a tax break and leaving the orchestras to go out with their begging bowls year after year to stay afloat.

It can be hard to say what "in the black" means with a not-for-profit organization that depends, as most do, on voluntary private donations. It can run a deficit during the season and still, by post-season fundraising, cover the loss and end the fiscal year with its books balanced. I suppose the criterion is whether the organization is actually in long-term debt. The Metropolitan Opera is definitely in the red, as it has been depending not just on gifts but on loans and even a bond sale to cover some of its operating deficit.
John Francis

Heck148
Posts: 3568
Joined: Sun Jul 06, 2003 11:53 pm
Location: New England

Re: Comparing orchestras' financial health:impossible!

Post by Heck148 » Thu Mar 19, 2015 9:37 am

Orchestra revenues come mainly from these categories:

ticket sales
contributions [individual, and corporate]

and to some extent:
grants
advertising [program book]

orchestras try very hard to increase ticket sales of, course, because this shows lots of popular support - people are coming to the concerts. if an orchestra can generate over 50% of its budget thru ticket sales, that used to be considered pretty decent...I don't know what the standard is now...but ticket sales in no way cover the operating expenses...orchestras are very dependent upon contributions - both from individuals and corporations...
having a wide support of individual contributions is overall, quite healthy - having hundreds of "Mr. and Mrs Music-lover" all contributing their $100 or $500 each year provides a steady base of support. it takes a lot of hustling by the fund-raisers, but it does provide pretty steady insurance against tough economic times. a wide base of support can see you thru the rough stretches.

Corporate contributions tend to be much greater - but in tough times, these can dry up, and suddenly the orchestra is without the $20,000 Coca-Cola contribution, since the company can only manage $3000 in a tough economic climate. corporate contributions are a great boon, but they can also be a great loss as well.
many orchestras for a while, depended upon state Arts grants to provide funding, but this source became very shaky, and orchestra managements very soon learned not to count on public $$ as a dependable funding source.

John F
Posts: 21076
Joined: Mon Mar 26, 2007 4:41 am
Location: Brooklyn, NY

Re: Comparing orchestras' financial health:impossible!

Post by John F » Thu Mar 19, 2015 10:04 am

Also, for some orchestras, recording fees and royalties, fees for broadcasts and telecasts, and payment for movie soundtrack work, though less so now than before.
John Francis

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Thu Mar 19, 2015 11:05 am

That's what I mean by economically sensitive sources of funding. According to Moody's rating report on the Chicago Symphony Orchestra nearly 62 percent of its operating revenues include gifts (43 percent) and investment income (18.6 percent). In my opinion, these sources of revenue, particularly the latter but also corporate gifts, are more vulnerable to market volatility than its admissions revenue (36 percent).

Most of CSO's operating revenues are vulnerable to market volatility given its dependence on economically sensitive sources, including gifts (43% in FY 2013), admissions revenue (36% in FY 2013), and investment income (18.6%). As you can see, John F., if the CSO draws additional revenue from fees, royalties, etc., they don't amount to much; gifts, admissions, and investment income total 97.6 percent of all revenues. If the CSO,with its truly successful fund-raising activities, nevertheless ran a 1.4 million dollar deficit for the last fiscal year, what will it do when the market turns, endowment revenues dry up, and corporate donors no longer need this kind of tax exemption?

Moody's report further indicates that nearly two thirds of the orchestra's very high operating expenses are consumed by salaries and benefits. BTW, Moody's nevertheless upgraded the orchestra from its former "junk rating" to A3 -- "stable."
https://www.moodys.com/research/Moodys- ... -PR_287182
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Thu Mar 19, 2015 11:17 am

For its part, Atlanta, which also seriously dipped into its endowment funds a few years ago, is down to very basic cost-cutting practices such as leaving vacant positions unfilled for longer periods, raising the musicians' contributions to their health insurance plan, etc. Yet, it still ran a deficit of two million dollars in its most recent annual report. There was a second lockout last September and their 70th season began a few months later on a very pessimistic note.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

Heck148
Posts: 3568
Joined: Sun Jul 06, 2003 11:53 pm
Location: New England

Re: Comparing orchestras' financial health:impossible!

Post by Heck148 » Thu Mar 19, 2015 11:25 am

piston wrote:That's what I mean by economically sensitive sources of funding.............
all sources of funding are subject to economic conditions...

piston
Posts: 10767
Joined: Thu Jan 04, 2007 7:50 am

Re: Comparing orchestras' financial health:impossible!

Post by piston » Thu Mar 19, 2015 2:49 pm

Heck148 wrote:
piston wrote:That's what I mean by economically sensitive sources of funding.............
all sources of funding are subject to economic conditions...
More or less. There's a real difference between a ten to twenty percent decline in ticket sales, on the one hand, and zero investment revenues and a sinking endowment fund, on the other.
In the eyes of those lovers of perfection, a work is never finished—a word that for them has no sense—but abandoned....(Paul Valéry)

Heck148
Posts: 3568
Joined: Sun Jul 06, 2003 11:53 pm
Location: New England

Re: Comparing orchestras' financial health:impossible!

Post by Heck148 » Thu Mar 19, 2015 3:40 pm

piston wrote:
Heck148 wrote:
piston wrote:That's what I mean by economically sensitive sources of funding.............
all sources of funding are subject to economic conditions...
More or less. There's a real difference between a ten to twenty percent decline in ticket sales, on the one hand, and zero investment revenues and a sinking endowment fund, on the other.
but ticket sales are the basic sign of orchestral health and well-being...increased ticket sales usually lead to more contributions, and to more advertising, and higher community profile. orchestras are always trying to increase ticket sales - Ralph Black, the fund-raising guru of the American Symphony Orchestra League - was always pushing orchestras to promote ticket purchase as the primary form of orchestra support - "Come to the concerts" - followed closely by individual and corporate contributions

John F
Posts: 21076
Joined: Mon Mar 26, 2007 4:41 am
Location: Brooklyn, NY

Re: Comparing orchestras' financial health:impossible!

Post by John F » Fri Mar 20, 2015 1:23 am

I'd say that increased ticket sales are the effect of the orchestra's "community profile," not its cause. If the orchestra has a reputation in the community as where exciting things happen, if concerts are events to talk about and the place to be, then more people will attend them. If not, then not.

That community profile is affected not just by the orchestra's programming and its conductors and soloists, but by creating buzz, which is the mission of the publicity and marketing people. We may think some of that publicity is dumb - Carnegie Hall's subscription brochure for this season actually offended one of us for that reason. But the orchestra or presenter isn't just preaching to the choir, encouraging past subscribers to renew. It aims to get a broader public interested, get them talking about positive things (not just news of deficits and strikes), and sell tickets to them as well.
John Francis

moldyoldie
Posts: 588
Joined: Wed Oct 18, 2006 2:51 pm
Location: Motown, USA

Re: Comparing orchestras' financial health:impossible!

Post by moldyoldie » Fri Mar 20, 2015 8:46 am

As one can read on Page 35 of the Detroit Symphony Orchestra's latest annual report, "contributed" revenue makes up the great bulk of operating revenue. I'm guessing the orchestra's well-publicized financial difficulties made for a surge in contributions, nearly doubling the amount from just three years ago.

http://issuu.com/detroitsymphony/docs/2 ... 6/10530679
Last edited by moldyoldie on Fri Mar 20, 2015 8:49 am, edited 1 time in total.
"Everywhere is within walking distance if you have the time."
- Steve Wright

Heck148
Posts: 3568
Joined: Sun Jul 06, 2003 11:53 pm
Location: New England

Re: Comparing orchestras' financial health:impossible!

Post by Heck148 » Fri Mar 20, 2015 8:46 am

John F wrote:I'd say that increased ticket sales are the effect of the orchestra's "community profile," not its cause.
They are inter-related...increased attendance creates a buzz, a higher profile, an "event not to be missed" aura, which hopefully leads to more ticket sales...
increased attendance sounds good to potential subscribers, to advertisers, contributors, and to grantors..
....the orchestra or presenter isn't just preaching to the choir, encouraging past subscribers to renew. It aims to get a broader public interested, get them talking about positive things (not just news of deficits and strikes), and sell tickets to them as well.
exactly - expanding the audience base [or preventing it from shrinking] is a major task of orchestra managements.

Post Reply

Who is online

Users browsing this forum: Google [Bot], Majestic-12 [Bot] and 38 guests