Nonprofit Theatre 2014 Assessment Of Success In America

In 2014, the success of nonprofit theatres in America remains questionable, as the inadequacy of the nonprofit theatre model continues to take hold.

Digital photo derived and used by Robert Kernodle from various Creative Commons sources
Digital photo derived and used by Robert Kernodle from various Creative Commons sources

The Art Of Financial Failure

I am not a theatre professional. Rather, I am an outsider looking in objectively, inspired by my association with a relative who IS a theatre professional (or was). In this capacity, as an associate of a theatre professional, I have witnessed firsthand the inside story about the daily operations of several nonprofit theatres. Regarding art, I DO have an artistic leaning, having spent decades as an amateur dancer and visual artist. Consequently, I think I know an inspiring picture when I see one.

In my judgment, the picture of nonprofit theatres that I have seen is NOT an inspiring one. Instead, the picture is disturbing, one where I get the feeling that communities across America are innocently enabling revolving doors of financial failure in the name of art. I have arrived at this feeling through my relative's gripping personal hardships , ...

combined with my own now acute awareness of industry trends that stand out in several research reports.

As of late, I suspect that the nonprofit theatre model is a disaster waiting to happen, particularly from a business standpoint. I also suspect that the reason for this might involve shabby standards of excellence in the most basic areas of corporate operations, maybe more widespread than many people might imagine. Such basics as organizational integrity, competent financial planning, a developed sense of stewardship, dedication to transparency in financial reporting, and other foundational standards might be notably flimsy across this entire arts business sector.

Any nonprofit theatre business that defies my present perception, therefore, is NOT a complete oddity. Chances are much greater that the nonprofit theatre marked by success probably does something very much more intelligent than its fellow theatres always operating on the verge of financial collapse. I suggest, therefore, that in such a business, more than in any other business, if you choose to do it, then you had better do it right. Otherwise, your fate is quite predictable, meaning you will NOT survive.


Research Findings

Zannie Giraud Voss and others [Theatre Communications Group] (2013), THEATRE FACTS 2012
http://www.tcg.org/pdfs/tools/TCG_TheatreFacts_2012.pdf

This report's longitudinal analysis (covering the years from 2008-2012) describes trends in 112 nonprofit theatres out of 1,782 nonprofit theatres represented in various parts of the whole study.

The report, at times, appears to downplay a noticeable negative trend or to confuse such a trend, when such a trend clearly suggests business failure even within this relatively small sample. Even in the face of evidence to the contrary, the report emphasizes the overriding value of nonprofit theatres to their respective communities. Such an assertion of "value" seems to reflect philosophical biases of the researchers rather than actual indicators of value from the communities.

Scrutinizing this report carefully, an observant person can see:

  • Half the theatres ended 2012 at breakeven or better – half ended in the negative. TRANSLATED: HALF of all nonprofit theatres in America today took in less money than they needed to pay the costs of operating the business.
  • The percentage of theatres ending in the negative increased steadily from 2010 to 2012. TRANSLATED: Between 2010 and 2012, the number of theatres that could not pay their bills increased steadily.
  • Theatres' liquid assets increasingly DECLINED. TRANSLATED: The amount of theatres' immediately available money to pay the bills steadily decreased.
  • Working capital for the average theatre was negative and a grave cause for concern in each of five years from 2008 to 2012, becoming increasingly severe in 2009 and 2010, improving somewhat in 2011, and declining again in 2012. TRANSLATED: In each of five years from 2008 to 2012, the average theatre's immediately available money to pay ordinary bills of operating the business was less than zero, which means it probably owed people money and had no clue where the money was coming from to pay off the debts.
  • Mid-sized theatres tended to operate under a serious (negative) working capital crisis – a trend that threatens the future viability of many theatres. TRANSLATED: Mid-sized theatres did not take in nearly enough money to pay the bills, and they had no clue where the money was coming from in the future.

Breakdown of Nonprofit Theatres' Changes in Unrestricted Net Assets 2008-2012

Breakdown of Nonprofit Theatres' Changes in Unrestricted Net Assets 2008-2012, courtesy Theatre Communications Group
Breakdown of Nonprofit Theatres' Changes in Unrestricted Net Assets 2008-2012, courtesy Theatre Communications Group

Nonprofit Finance Fund (2013), 2014 State Of The Nonprofit Sector Survey,
http://nonprofitfinancefund.org/files/docs/2014/2014_arts_survey_results_summary.pdf

This report surveyed 5,019 total respondents across ALL nonprofit sectors.
Of the 139 nonprofit theatres from this group,

  • 51% of nonprofit theatres ended the year 2013 with an operating surplus, 17% break even, 32% with an operating deficit.
  • 37% of nonprofit theatres anticipated ending the year 2014 with an operating surplus,
  • 37% anticipated break even, 18% anticipated an operating deficit, 9% unable to predict.
  • 86% of nonprofit theatres had LESS THAN six months cash reserve, where 66% (over half) had three months or less, and 44% (almost half) had 60 days or less cash reserve.

This report does NOT indicate a lot of improvement, because it shows only a few of the theatres presumably in the red for 2012 (from the previous report) coming up to "break even" in 2013, while 32% of all theatres were still operating in the red. More of a concern is the 86% of all nonprofit theatres with LESS THAN six months cash reserve, where 44% (near half) had cash reserves of 60 days or less.

According to Fraser Sherman , "The minimum recommended reserve covers three months of expenses."

Percentage Of Nonprofit Theatres In 2013 Operating With A Surplus, Break-Even Or Deficit

Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' 2013 Financials
Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' 2013 Financials

Percentage Of Nonprofit Theatres Anticipating 2014 Operating With A Surplus, Break-Even Or Deficit

Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' Anticipated 2014  Financials
Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' Anticipated 2014 Financials

Percentage Of Nonprofit Theatres With Cash Reserves Of Six Months Or Less

Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' Cash Reserves
Nonprofit Finance Fund 2014 Report On Nonprofit Theatres' Cash Reserves

Why A Nonprofit Theatre Business Model Fails 50% Of The Time

According to Rebecca Novick (2011), Please, Don't Start a Theater Company!: Next-Generation Arts Institutions and Alternative Career Paths, GRANTMAKERS IN THE ARTS READER: Volume 22, No. 1
http://www.giarts.org/article/please-dont-start-theater-company

Between 1996 and 2011, the number of nonprofit theater companies in the United States doubled, while audiences and funding shrank. This, of course, means that more and more theatres have been competing for fewer and fewer patrons. More and more theatres also have been competing for fewer and fewer grant makers or donors.

Novick suggests that the tradition of building a heavyweight physical structure [the theatre building itself] for an entity that is both underfunded and ephemeral does NOT make much sense. She also suggests that the size of administrative staffs and the amount of resources required to put on a good show are routinely excessive. A number of theatres apparently have been living beyond their means in this respect, resulting in an inevitable economic collapse.

.

Jeff Linamen [A professional working in performing arts related fields for over 30 years] (2011), Why Theatres Fail, THEATRE FROM THE CENTER AISLE [blog]
http://theatrecenteraisle.blogspot.com/2011/08/why-theatres-fail.html
reports that the reasons that theatres fail include the following:

  • Poor Financial Management
  • Bad Programming
  • The Wrong Staff And Board
  • The Elite Effect (sustaining a perception of snobbish superiority instead of changing this to a perception more friendly to a given community)

.

Diane Ragsdale (2012), Are We A Sector Defined By Our Permanently Failing Organizations? JUMPER [website],
http://www.artsjournal.com/jumper/2012/07/are-we-a-sector-defined-by-our-permanently-failing-organizations/ has this to say:

Researchers postulate that organizations reach a so-called ‘permanently failing’ state when those who are ‘dependent’ on the institution (primarily managers who depend on the institution for a paycheck) begin to amass power, which they then use to keep the organization alive, but in a low performance state.

.

Perhaps the most precise explanation of nonprofit theatre failure comes from

Richard Dare [CEO and Managing Director, Brooklyn Philharmonic; Entrepreneur] (2012), Paradise Lost: Can We Keep Nonprofits From Failing? HUFFINGTON POST IMPACT [blog]
http://www.huffingtonpost.com/richard-dare/how-to-run-a-nonprofit_b_1402841.html
who says this:

A popular analysis I read recently concluded that the current proliferation of nonprofit failures in America is the result of continuing fallout from the 2008 financial (housing) crisis. 'The result of the recent economic downturn?' You must be joking.

It's the result of more than 100 years of ignoring the mathematical realities about the ways in which economics works because the methods we were using appeared to work for other reasons entirely. It's not a downturn. It's a predictable systems collapse. And I assure you the coming years will likely be warrant and license for -- and enticement to -- an ever increasing abandonment of nonprofit support by wealthy patrons, corporate philanthropists and, eventually, even dedicated foundations that will lead to a bloodbath of nonprofit failures unless we undertake fundamental structural reform of the nonprofit business model itself, and unless we do so quickly.

No, our problem is this: The underlying business model of the nonprofit is too inadequate, and the need for our services is too fast-growing, and society's understanding of the situation isn't all that it might be. And we're afraid to say the word "business" in the same sentence as the word "art" for fear of alienating both our artists and their supporters. And we're afraid to admit we have a problem and so we close our eyes and try to believe in an irrational business plan that is so stupid and so inadequate that any first year entrepreneur can -- and all young MBA students do as you can plainly tell by their questions -- see right through it. And I think it should be -- this nonprofit modus operandi of relentless begging -- treated with great suspicion and indeed contempt. And I think we ought to fix it if we really believe in art and music and education and feeding the homeless and all the other nonprofit pursuits as much as we claim we do.

.

Other commentators include:

Jeremy M. Barker (2011), Why Theatres Fail And When We Should Save Them, CULTUREBOT
http://www.culturebot.org/2011/06/10822/why-theaters-fail-and-when-we-should-save-them/
who notes such issues as incompetence and fiscal mismanagement.

Linda Essig (2012), Avoiding The Begging Cup, Redux, CREATIVE INFRASTRUCTURE [website]
http://creativeinfrastructure.org/2012/04/09/avoiding-the-begging-cup-redux/
who concludes that when development focuses solely on asking for money, it is doomed to fail.

Dan Abbate [founder of Gorilla Tango Theatre as a for-profit business] (2013), Making Theater that Makes Money: Advice from Gorilla Tango Theatre, CHICAGO ARTISTS RESOURCE
http://www.chicagoartistsresource.org/artist-stories/making-theater-makes-money
who states very bluntly:

The people who don't succeed in theater probably couldn't run any other sort of business either. I think that is the root of the problem.

People who are interested in the creative side of theater should focus on being creative. They should not be starting companies. They should let business people like Gorilla Tango Theatre manage the business infrastructure and devote their own attention to the creative aspects. This is not a new concept.

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