Once again I’m turning the floor over to Minneapolis non-profit professional Mary Schaefle… You can read Part I of her series on the Minnesota Orchestra’s finances here.
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I’m back with another installment on Minnesota Orchestra finances. If you haven’t seen my first guest post, head on over to learn about the Minnesota Orchestra’s endowment.
The last post focused on the endowment. According to the Orchestra’s strategic plan, endowment/trust proceeds are one-third of their annual income. It’s time to turn to the other two legs of the stool, ticket sales and contributions.
Ticket Sales and Other Earned Income
Management lists declining ticket sales as a significant financial challenge. It’s true ticket revenue declined 8.3% when you compare the season ending in 2009 with 2011 (990, page 9 available on Guidestar).
Let’s turn to the words of Orchestra management to learn why that happened. In 2011, the change was “due primarily to a reduction in the number of concerts”. This refrain was repeated in the 2010 report, when a reduction in ticket revenue was attributed to “16 fewer concerts, a dropoff of 9 percent.” Mr. Henson went on to say decreasing the number of concerts was part of their financial strategy to control costs. Sure, decreasing the number of concerts means lower costs for ushers, box office staff, concession staff and many other things. But it also means lower revenue. If your financial strategy is to decrease costs through fewer concerts, but that same strategy also means decreasing revenue, do you really come out ahead?
Orchestra concerts are not the only events at Orchestra Hall. Decreases in other earned revenue, things like the Jazz series and hall rentals, were more than double the drop in classical tickets, by more than $1.3 million or 18%. We don’t know why those things decreased (interestingly, concessions showed an increase). But it makes me nervous that the new business strategy plans to broaden “program offerings to respond to customer interest.” If the plan does rely on income that has been dropping more rapidly than concert sales, major revisions are required.
You may remember my suggestion in the last article for an independent financial analysis. The questions I’m raising here wouldn’t be answered by that kind of oversight. A respected leader in performing arts management, preferably orchestra management, would be the best person to review the strategic plan to ensure it is sound.
Contributions and Grants
If you go to the Orchestra’s tax forms (after all, I have been harping on them), you’d see huge dollar amounts in contributions. Those figures are a combination of all donations, including the Hall renovation, the endowment, and other restricted funds. The Orchestra’s management is correct that they can’t divert money from the endowment or any other restricted fund to pay for this year’s season.
We see a steady increase in government grants (990, Part VIII). My guess is this is due in part to the Clean Water, Land and Legacy Amendment, though we should give credit where it’s due to the grant writing staff at the Orchestra. Competition for those funds has been fierce.
If we turn to the financial statements, we get more details about what is contributed for operating activities (translation- things such as musicians’ salaries and concert expenses). Again, grant income is strong. Current year grants double from 2009 to 2011 – impressive. Grants released from restriction ($$ received last year for programs this year) increased to a lesser degree. Grant writing staff deserve kudos for the $1.75 million they brought in. Before anyone starts questioning or speculating, no I don’t know the individuals doing the work. I don’t even know if the Orchestra has staff grant writers or if they hire a consultant as some nonprofits do. But I think we should give credit where it is due.
Contributions, on the other hand, didn’t fare as well. Remember we are focused on unrestricted donations for current operations, not any of the $$ for the Hall or the endowment. Unrestricted gifts decreased by close to $750,000 in three years, or almost 25%. I wondered whether focusing on the campaign would have a dampening effect on general, or annual, contributions. We can’t say for certain, but it’s tempting to think that the same effort for the Orchestra as a whole would have eased or erased the deficit.
Wrapping Up the Income Side of Things
We know that ticket sales have declined as a whole, but aren’t sure how much of that is due to the decrease in concerts. There could have been other factors. We know that hall rentals and non-classical concerts fell by even larger amounts.
Grant writing is a bright spot, but annual or unrestricted donations have decreased while the Orchestra was focused on the endowment and Hall renovation campaign. Again we don’t know if there were additional influences causing the decline.
I’ll be posting a #1A in the ”Minnesota Orchestra Financials Series” (never thought I’d see those words together). I asked a colleague who works as a nonprofit investment analyst to review my previous post. The one thing I can share now is the 5 year return on the endowment is within a reasonable range. That is reassuring. But it doesn’t answer what I consider the most significant question – why did the Board use only half of the 2011 draw for current operations, and how was the remaining $6.1 million spent? After I look at the Notes with my colleague’s help (did you know they have such a thing in Financial Statements?), I’ll provide an updated and/or corrected view on investments and my questions about the 2008 stock sales and the Orchestra’s portfolio.
After all these words about income and revenue, what do we know? Management’s statement that revenue has decreased is true. But I believe there are enough questions posed here that the Board needs to take another look at ways to increase revenue in addition to considering cuts. They need to take a good hard look at the Strategic Business Plan. Is it a “Vision for a Sound Future”? We all want the Minnesota Orchestra back on stage and performing. We need a plan that will get us there and keep us there.
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Thank you, Mary! Mary will be in the comment section to answer any questions or comments you may have.
Song of the Lark 
Lark said:
“They [mgt] needs to take a good hard look at the Strategic Business Plan. Is it a Vision for a Sound Future? We all want the Minnesota Orchestra back on stage and performing. We need a plan that will get us there and keep us there.”
Good point, raising an equally good question — if management is not implementing the Vision for a Sound Future, which should result in a plan to keep the MO in working order and moving forward, then what is it doing? What, or whose, agenda are they following? Maestro Vanska has expressed his deep dismay at the affairs as they now stand in his dramatic letter a few days ago. How can they say they are following his vision if he has been put in such a difficult position by them? Will he be the next casualty of a hidden agenda? I certainly hope not.
Just to be clear, I (Emily) did not write that. Mary Schaefle did.
Thank you. I stand corrected.
No problem.
The “Vision For a Sound Future” refers to their new Strategic Business Plan. It’s posted on the Orchestra’s website, and in their contracts section Management refers to it as their guiding document to make the Orchestra stronger. http://www.minnesotaorchestra.org/pdf/strategic_plan/
Fascinating work, as always, Mary. Thank you thank you.
Thinking out loud here; forgive me; the thoughts below are in the process of forming and open to changing…
I’m very uncomfortable with that 18% decrease. Would like very much to hear more about that.
I’m *assuming* the new hall will attract new rentals, but will it be enough to make up for that decrease, much less make back $55 million? I’ve heard over the months that the Minneapolis Convention Center auditorium has been a financial dud; is that true? Would a renovated Orchestra Hall do any better? Or am I looking at this from the wrong perspective? How was this a good business decision and wise use of resources? Do we know if alternate cheaper plans were ever discussed? Don’t get me wrong; I know Orchestra Hall needed help desperately. I’ve been backstage. I know accessibility was a HUGE issue; and (from what I’ve read) mold infestation, etc. But I wonder what a “spruce-up” just fixing the bare-bones basics would have cost, as compared to a total reconstruction, and adding the City Room, and the million-dollar sound system, etc? Maybe a “spruce-up” would have cost so much that a $50m remodel wouldn’t have been that much more on top of what they already would have been doing. But it would be interesting to hear the numbers on that, or if it was even considered, and if not, why not. I know you asked a question along these lines when you wrote your letter that’s on the musicians’ website…I’m assuming you never heard back from them?
Now I’m curious what another orchestra manager would recommend, or anyone in Minnesota management ever brought in someone else for a second opinion besides Mr. Henson…?
And I wouldn’t be surprised AT ALL if the decrease in unrestricted giving could be ascribed to increases in giving for the Future fund. Especially when they were being incredibly disingenuous about the true state of their finances in 2009 on. If given a choice between giving to an orchestra that gave every indication of being on firm footing re: day-to-day expenses, and investing in the endowment for the future, I’d direct my money toward the endowment. I’d think a lot of people would feel the same way. This is where it would get really interesting to get a hold of donors and interview them all and ask what their feelings are now. Maybe they’ve changed; maybe they haven’t; I don’t know. But it would be interesting to know…
Not a “big” donor here; just a member of the Concertmaster’s Circle, (it’s always an ego trip to look in the back of the program & find my name…) I will say that if the management had been saying, “Our operations are in trouble, we’re in serious trouble, & if unrestricted donations don’t go up. we’ll have to take drastic action,” I would have responded. That never happened. They lied to us.
I didn’t contribute much to the renovation, but if I had been told that the MO was in such dire straits, I’d have doubled my annual contribution. It wouldn’t have been painless, but I’d have done it. Now, I’m debating whether I should ask for my contribution back. It hurts “them” a little to have to give it back, but on the other hand, as long as I remain an active donor, I have “skin in the game,” and feel like I have more of a voice when I complain to them.
That’s an interesting question about what you should do. I’m sure Mary would have input. Thanks for your comment.
Kevin, I’ve heard different sides about what to do with your contributions and think it’s a personal decision. You are the donor. You decide. Some say it just makes the financial situation worse (true), some say it’s a way to the send a message (may be effective, I don’t have any way of knowing), and others stopped monthly contributions and are holding on to those $$ saying they might be available to the Orchestra depending on the outcome of the lockout.
I personally asked for a refund of my season tickets. I thought about it for several weeks, but didn’t feel like they should keep my $$ and make interest on it when I didn’t know if/how many concerts I would see. Probably won’t get those seats back and I really liked them. But this is much, much bigger than “my” seats. I just want to hear the Minnesota Orchestra.
Another option for any donors wondering what to do is to give your money to the Musicians of the Minnesota Orchestra. If I was in your position, that would probably be what I would do, but as Mary says, this is a personal decision. http://www.minnesotaorchestramusicians.org/?page_id=2685
For the immediate future, this is the best place to put money – support the musicians directly so that they can continue the fight. That’s what I’m doing.
IMO, you can’t define what is best. One of the great things about the nonprofit sector is each of us can give to those things that mean the most to us. Kind of a weird version of free speech or being able to vote. There definitely is a best for each donor, and I encourage folks to be as educated as possible when donating.
I’ve always thought of myself as a pretty savvy donor, I gave some to Building For the Future, and have been kicking myself for not asking more questions. I did ask some questions, but not enough in retrospect.
If LOMoMO is the right place for you to give, then do it! You can certainly try to persuade others to give there as well. Just wanted to chime in about donor choice.
I for one called the Minnesota Orchestra Association on October 1st to discontinue my monthly contribution. Granted it was small but my intent was to help the operations budget whichI thought included musician salaries. I was asked why I was discontinuing my donation and I replied that I thought my donation was to be applied to the operations budget. The response I received was that the “Building For The Future” included the Hall renovation, the endowment and artistic projects.” I explained that if that were the case the musicians would not be in the position they are in as I would think the “artistic projects” would include the musicians themselves. I was really excited to contribute to the Minnesota Orchestra. Like Kevin say’s it is a kick to see your name in the program. However, I now have a more personal interest in the musicians and my $$ are needed more on the home front in support of sustaining a household during this lock out.
Thank you Mary for your informative writing.
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