The million dollar question

Every year on the first day of class for my intro course, I ask the students what they think the biggest problem is that arts groups face today.  Every year, the answer is unanimous: Funding.

When I go out to do strategic planning for cultural organizations, or meet with local arts roundtable groups, the topic that comes up most often?  Funding.

We all agree that the arts need more capacity to create.  But, as I dig deeper with my students and local arts organizations, I always ask: is more money really the root of the problem?  And, by assuming that our problems will be solved if only we had more money, aren’t we placing a burden on funders to fund us and deflecting the burden of proof from ourselves?

Last week, I posted about being nimble, and I made a comment about funders which I attributed to Stephen Butler, director of CNY Arts in Syracuse, New York.  The comment was that funders tend to funnel most of their institutional support to large organizations, which leaves smaller grassroots organizations struggling to find operating capital. Steve contacted me and requested a clarification: by saying this, he was not criticizing the funders, he was making a plea for more operating and multi-year grants for smaller organizations.  I heartily concur. But I also feel as though we need as an industry to take a close look at our economic model and figure out if it is, indeed, the correct one for the 21st century.

For most of my professional life, the national average of earned to contributed income in the arts has been about 50/50.  Obviously, this ratio varies among different artistic media and types of organizations: a performing arts organization that sells tickets will have a higher earned income ratio than a free community gallery.  But in most organizations, the presence of contributed income helps the organization keep the art accessible to its audiences.  If we were working on a for-profit model, we would have to charge as much for our tickets as it costs us to put on the performance.  This model works for the entertainment industry, which can amortize its costs through mass production (and, of course, doesn’t always work even then).  But for not-for-profit arts organizations, where the artistic decisions drive the money and not vice versa, contributed income is an important piece of the pie.

Speaking of pies, then, here is the latest chart of arts revenue sources from the National Endowment for the Arts (2012, data taken from 2006-2010).  It shows a significant shift.  Earned income is now over 60% of the national average for cultural organizations, with 14% of that being income from endowments and investments.  That means that ticket sales and other forms of direct earned income (tuition, merchandise and food sales, dues) has dropped to only 41%.

RevSourcesArtsCulture_20130923_v1Now it could be that they’ve just never broken this out before in the same way. Or it could be that the endowment building that many organizations engaged in during the 90s is starting to realize its intended purpose.  But I look at that 41% figure and I get a little nervous.  I get especially nervous when I look at the government funding and realize that it  is currently only about 6.2%, down from 10% a decade ago.

The decrease in earned income and decline in government funding places additional burden on other sources: individuals (many of whom are also buying tickets), corporations (whose pure philanthropy has decreased in favor of sponsorships), and foundations (whose income is also dependent on the success of their investments).  And speaking of additional burden, most of the grassroots organizations I know do not have endowments or even any savings to speak of.  Where do they fall on this chart?

Most people, including politicians, do not understand the need for arts funding.  As Mitt Romney said in 2012: “[F]irst there are programs I would eliminate –  the Amtrak subsidy, the PBS subsidy, the subsidy for the National Endowment for the Arts, the National Endowment for the Humanities. Some of these things, like those endowment efforts and PBS I very much appreciate and like what they do in many cases, but I just think they have to stand on their own rather than receiving money borrowed from other countries, as our government does on their behalf.”  By calling government arts funding a “subsidy,” Romney falls into the common trap of thinking that contributed income for the arts is there only because the arts can’t make it in the marketplace.  I often think that many board members believe this too.

So where do we need to be?  You tell me.  Perhaps I’m wrong in my concern, but 50/50 always seemed like a good balance to me and the new numbers have upset my need for tidiness and order.  Should we be moving toward less reliance on contributed income?  Or will that continue to make arts inaccessible to all but the wealthy?

One thing’s for sure: we need to make a better case for our income mix.  And we need to make it with everyone, from funders, to ticket buyers, to students, and to politicians.

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About Ellen Rosewall

I am Professor and Chair of Arts Management and author of Arts Management: Uniting Arts and Audiences in the 21st Century (Oxford University Press, 2013). I believe that arts and culture are undergoing a profound change in the 21st century, and I love talking with people about how we continue to bring arts to our communities and individuals give the brave new world of social media, technology and economic changes. Join the conversation!
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4 Responses to The million dollar question

  1. lindaessig says:

    Hi Ellen:
    The most recent AFTA revenue pie (http://www.americansforthearts.org/sites/default/files/pdf/2014/by_program/research__studies_and_publications/one_pagers/1.%20Source%20of%20Revenue%20for%20Nonprofit%20Arts%20Organizations.pdf), which I think is drawn from National Arts Index data, indicates a 60% share of the pie from earned income. The 40% share is drawn form older data (2006-2010). The long slog up the hill out of the recession caused a real shift in funding priorities for foundations and giving priorities for individuals that may be the cause of the redistribution. In any event, there are many reasons that nonprofit arts need contributed income, not the least of which is fostering the expressive life of the country. – Linda

  2. Yes, I saw that one too, but was unclear where the data came from so I didn’t use it. I wonder, however, if the 60% includes investment income, which would make it closer to the NEA chart. No matter what, though, it’s worth discussing whether the shift from 50/50 overall is a temporary or permanent situation.

  3. Heather says:

    I’d love to see a version of the pie chart drawing only from companies with less than a $1M budget. As you say, smaller companies don’t have investment and endowment monies to draw on, and are more driven by directly earned income. I’d also like to see the earned income further broken out into separate categories for ticket sales and education/class/program fees, and the unearned income broken out into “general operating support”, “production support”, and “other program support”. I think funder interests are pushing unearned funding away from theatrical production toward ancillary arts education and community engagement programming. This can paradoxically result in less direct earned income and higher expenses, because classes are smaller than audiences and classes have a higher staff/artist-to-person-served ratio. But I’d love some data to support that hypothesis.

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