Thursday, February 5, 2004

Cash flow (or lack thereof)

An article in today's New York Times highlights the cash flow problems of American Ballet Theater, a company who's history is plagued by that common arts challenge. Similar doom and gloom came in this overview of the Denver arts scene, showing that for many Denver organizations, subscriptions are down, memberships are down, and attendance is down. Add that to a down economy, when endowments and their interest are down, as well, and you quickly move from 'cash flow' to 'cash trickle'.

There are several reasons that the amount of available cash is a continual problem for arts organizations, some of them so structurally engrained it's hard to see a way out.

First, cultural organizations that produce events or exhibits have 'sunk costs' disproportionate to most other industries. Before they see a dime of event-related revenue, they've got to build sets, ship artwork, rehearse musicians, pay production staff. These costs are called 'sunk' because they are difficult if not impossible to retrieve once spent...it's not like an opera stage set has much value on the open market.

Second, a corollary to the first perhaps, arts organizations have become dependent on next year's subscription and membership sales to pay off last year's bills. So the big subscription ticket push in the spring for the upcoming season provides cash to pay the overdue bills from last season's set designer, production crew, and creditors of all kinds.

It's a scary but functional model, as long as your subscription and membership sales increase or stay level from one year to the next. That's not how most arts organizations would describe 2003.

Third, of course, nonprofit arts organizations -- almost by definition -- produce cultural experiences that cannot be sustained by their earned revenue. That's why they're nonprofits in the first place.

How do you address these structural issues? It's hard to change the third issue without changing your very nature, so let's set that one aside for now. Sunk costs will always be there, but they can be softened through collaborative productions (two or more different theater companies or museums co-producing and co-presenting the show, sharing sets, costumes, directors, etc.). They can also be softened on the revenue side by harvesting what cash you can from what you've already created (see the CostumeRentals initiative of the Children's Theatre Company and the Guthrie).

Getting the monkey of subscription sales off your back takes a bit more effort, as it requires a slow weaning from dependence on next year's sales (requiring more cash now, somehow, or less expense). Perhaps there's a nicotine patch for the nonprofit arts.

posted on Thursday, February 5, 2004 | permalink