Is Your Nonprofit Theater Headed for its Final Curtain Call?

Curtain

Have you ever heard the phrase, “It’s a community’s duty to support its local arts programs?” Though this scenario might be ideal, the model on which it’s founded is failing. As a result, many nonprofit groups and organizations, such as theaters, are being forced to shut down. According to Theatre Communications Group’s (TCG) 33rd Annual Research Report, 2012 saw positive trends in individual giving and foundation support. However, average working capital—the unrestricted resources available to meet day-to-day obligations and cash needs, and a fundamental building block of a theater’s capital structure—was negative and grave cause for concern in each of the past five years, becoming increasingly severe in 2009 and 2010, improving somewhat in 2011, and declining again in 2012. Now more than ever, we have to find creative ways to generate revenue and ensure longevity on our own.

Unfortunately, most nonprofit theaters suffer from old-fashioned thinking, in that they rely too heavily on development as opposed to revenue generation.

It’s time to throw the old model out the window and start thinking like a private entity. The primary goal should not be to fundraise, but to generate unrestricted revenue sufficient to meet and even exceed operating expenses such that you have reserve funds and recapitalization money. If you have your financial house in order and a strategic business plan, you might actually start attracting donors because they can see their money being put to good use.

This article will provide the following steps for how theaters, specifically, can creatively generate their own revenue:

  1. Utilize all spaces within your facility to close the gap on non-operating hours and generate additional income. For instance, can your parking lot be rented out during the week when it’s not in use, or can your venue be rented between performances for things like festivals, film or photo shoots or video production?
    We have multiple spaces within our facility that are available for rent, so we built an internal staff to focus on booking private events. Our Private Events team now generates 12 percent of our revenue, which helps fuel our restoration projects as well as our marketing efforts.
  2. Know your limitations and exactly what your facility can accommodate. For example, as a 4,600-seat theater, we had to come to terms with the fact that we cater primarily to popular entertainment as opposed to fine arts. As a result, we book many current artists who are on the rise, but not yet big enough to play arenas.
  3. Seek and apply the advice from private entities such as sports arenas and other entertainment venues, even if they are in an unrelated field. We have learned a great deal from various sports arenas, specifically when it comes to our ticketing and marketing strategies. For instance, we looked at Major League Baseball’s tickets.com for inspiration when we decided to establish our own ticketing system.
    Also, I was fortunate to work with and learn from Olympia Entertainment, who managed the Fox Theatre in Detroit. They did an exceptional job of applying lessons in sports to theater. For example, in 1986, they were one of the first to allow food and beverages into the theater. They also turned their loges into 14 individual suites, which came with meal and waitress service and a private entrance, and they offered specialized parking options.
  4. Be willing to admit when you can’t do it all. For instance, we made the decision last year to retain a marketing agency to gain expertise in marketing, public relations, media buying, and digital strategy, as well as expand our resources and manpower. Previously, we had been doing everything on our own, but we realized that in order to grow our business, we needed outside help. Working with an agency has afforded us the opportunity to increase our bandwidth less expensively than it would have been to hire in-house experts with individual salaries. Keeping payroll costs under control is important, since according to the Theatre Communications Group, payroll accounted for 54% of total expenses in 2012 for theaters.
  5. Remain flexible and entrepreneurial-focused. We are constantly pushing the envelope to see how far we can take an idea. Just last spring, we launched weekly, in-house tours of our historic theater. Since then, we have created specialty tours to coincide with our annual movie festival and holidays. So far, the Tours program has grossed to date $75,000 and we are at pace to generate $150,000 by year’s end.

 

About

Allan Vella is the president and CEO of the Fox Theatre in Atlanta, Georgia

  • Wil Sherk

    I commend to all performing arts board members Michael Kaiser’s Art of the Turnaround. This short, helpful book reminds us that although diversification of revenue is important, the most important requirement of sustainable nonprofit arts enterprises is a quality product that is valued by consumers.

  • DPearson

    The first comment to the article is a good consideration to keep in mind. I always worry when organizations start talking about renting parking lots and expanding unrelated special events to support themselves. These ideas are normally coupled with expanding other business activities and, before you know it, it’s hard to determine when the business activities end and the charitable mission begins. Much less, in small organizations, these business activities can easily outpace traditional sources of funding which can result in all sorts of property tax and exemption issues for organizations.

    At what point does it not just make more sense to just convert to a for-profit business….?

  • Trevor O’Donnell

    Thanks for a great article. And thank you for encouraging arts organizations to begin taking cues from the sports world, which is way ahead of the arts in audience development and especially community engagement.

    I’d caution against encouraging arts organizations to outsource marketing to agencies, however. Agencies don’t build audiences; they sell creative and media services to people who want to build audiences. The difference is monumental. If an arts organization doesn’t have a sophisticated marketing pro on staff who can hold the agency’s feet to the fire, they can find themselves working with agencies that will happily sell them anything they think they want to buy. There’s no substitute for professional in-house marketing talent.

  • Alan Harrison

    Assuming that your UBIT is being paid on your non-mission revenues (parking lots, book-in events, etc.), the Fox’s financial obligations are being met. But the 501 c 3 code is pretty strict on mission:

    “(d) Exempt purposes—(1) In general. (i) An organization may be exempt as an organization described in section 501(c)(3) if it is organized and operated exclusively for one or more of the following purposes:

    (a) Religious,

    (b) Charitable,

    (c) Scientific,

    (d) Testing for public safety,

    (e) Literary,

    (f) Educational, or

    (g) Prevention of cruelty to children or animals.”

    That said, unless the Fox is serving an historic purpose (stretching the use of the word “educational”) or is directly serving its community by offering quantifiable charitable outcomes (as its main purpose, not as a sidelight), then it should probably just be a for-profit institution and seek investors rather than donors. There’s nothing wrong with making money, either as a true nonprofit or as a for-profit, but in the case of the former, there had better be a direct, specific, and measurable public good – or else it’s just another ruse to evade taxation.

  • John Godfrey

    I agree with the overarching premise, that we have to think beyond traditional fundraising practice. We need to think in terms which one US colleague of mine labels “financing not fundraising”. That may include, as this piece suggests, looking at other revenue producing ways of using assets. However, there are many kinds of theater and theater organization and the focus of this article seems to be on a theatre venue (maybe one that has programing and perhaps production responsibilities). How might other types of theater and other types of arts organization adopt this advice?