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An obvious, crucial, and (on this blog) overdue question — how will the economic mess affect classical music?

In the short run, it won’t be pretty. Yesterday I recorded a short broadcast for the BBC, about the state of the arts in the US, on the eve of the election. This was a discussion — me, Dana Gioia, the chairman of the National Endowment, and Karen Stone, who used to run the Dallas Opera, and now runs a company in Germany, along with a BBC radio host.

We all agreed the economic downturn would hurt. Maybe in the long run, it’ll help arts institutions be more entrepreneurial (because they’ll have to be), but in the short run — big trouble. If you want to know which candidate would be better for the arts, their arts policy (or whatever hint they’ve given of it) counts a lot less than their economic policy.

And the immediate problem, at least for big institutions may not be completely obvious, except of course to people who regularly think about with big-institution arts budgets. It’ s not that donations and ticket sales will very likely fall, though they probably will. It’s that endowments have already declined. If you’re a major orchestra, you have an endowment that might well top $200 million (as it does, for instance, in the case of the Chicago Symphony). Or at least it used to be at that level. Now, because most of it is invested in securities, it’s taken a hit. When the stock market falls, endowments fall.

And major institutions take money every year from their endowments’ earnings, and put that into their operating budget. A six percent endowment draw would be, on the average, considered reasonable. Your endowment earns dividends, and you also — historically — can expect its value to rise. So you take perhaps six percent of it each year for your operating budget.

But now? Maybe your endowment has fallen thirty percent! So you take 30% less for your operating budget. That’s a major hit. One classical music institution I know of feels that it’s lucky, because its endowment fell less than the stock market did. But still it fell, so that’s an immediate hit for this year’s budget. Worse still, they’d planned future budgets on the assumption that their endowment would grow. So the hit for future budgets will be even more than the decline this year. For next year, they’d figured that their endowment would be larger than it used to be; now it very likely will be smaller. They have to revise their future plans.

Who will this affect? Every large institution, but those already in financial trouble, or in the midst of large expansions, may be hard hit. I’ll give two examples I know about, at least from the outside. First, the New York City Opera, which appears to be reeling financially (laid off 11 staff members; had to borrow recently to make its payroll, and even then had its staff work two days without pay; promised Mortier, its incoming director, a large budget increase, and now, reportedly, has decided it can’t go ahead with that). They could be facing a real disaster.

And also the Metropolitan Opera, which has a large endowment, and a generous board. But it’s no secret in the business that Peter Gelb’s stunning innovations have been expensive, and will continue to cost a lot. He can keep ahead of that, in the short to medium run, with larger than usual endowment draws, and generous contributions from his board. But when the endowment takes a hit, he’s got to run even faster just to stay where he is.

Everyone, I’m sure, is facing budget cuts. How bad will they be?

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Comments

  1. says

    It has already started.In Melbourne Australia:

    The Federal Government is to stop funding the Australian National Academy of Music (ANAM) in South Melbourne.

    Twelve people will lose their jobs if the academy closes.

    ANAM currently receives annual federal funding of more than $2.5-million.

    A spokesman for the Federal Arts Minister, Peter Garrett, says the academy no longer represents the best way to support Australia’s elite performing arts sector.

    ANAM Artistic Director, Brett Dean, says it will be hard to attract corporate or philanthropic support in the current economic climate.

    “It’s going to be tricky, and I don’t think we’re entering the most opportune moment as far as that’s concerned,” he said.

    “But I do hope there may be sufficient support and recognition in the community of what we’ve been doing.”

    http://www.maestronet.com/forum/index.php?s=06160b6b5207506be61102fee6f65867&showtopic=318715&pid=412946&st=0&#entry412946

  2. andrew says

    The problem could be far worse that you say as many endowments, particularly those that had a recent significant new-gift campaign will have a substantial portion of their endowment in a restricted form. The draw they typcially take comes from the appreciation of the corpus. If the balance falls below the threshhold of the restricted balance, i.e. the total of original gifts, then even with a substantial endowment they could be forced to leave all of it untouched, so rather than a 30% reduction in draw as your example suggested, one could be in a position to take zero until the copus appreciated beyond the restricted threshhold.

    Were that the case in your Chicago example, imagine replacing all of a $12 million annual draw?

    (It probably is not the case there as their endowment is old enough to not hit this challenge, but the theory could apply to many others.)

    Thanks, Andrew. Glad you could take us past the place where my own knowledge starts to run out. And I hope your orchestra will get through this without too much stress.

  3. says

    It’s interesting that you feel the economic downturn will be bad for the entertainment industry. Historically the opposite is true. Initially there is a shortage of funds as the well-to-do tighten their belts and cut out excess (read:ntertainment). However, eventually there is an outpouring into the arts, a way to look on the brighter side of things, to escape from the misery of the economic downturn.

    In the early 1930’s money was pouring into Hollywood and Broadway, with new musical artists popping up all over the place.

    In the mid 1970’s the US hit a recession and again there was a blossoming of arts in theater and music. It wasn’t as big as the one in the 1930’s but the times were no where near as bad.

    I suspect, if history repeats, we (the artists) will see a short spell of funding shortages and then a boon – at least for those who are able to weather the initial shortage. Only time will tell.

  4. Suzanne Derringer says

    Hi, Greg –

    When I returned to NYC at the end of summer, I took a job with one of those arts fundraising orgs to pick up some cash quickly, and get an close-up view of how it’s done here. I stayed only one week. That was enough.

    This was before the total economic meltdown, but things were shaky enough. The trainers told us: When times are tough, the arts do well; people want to escape from their problems. We were told to sell the experience: not the objective performance but how good it would make the concert-goer feel. sell the sizzle. “You DESERVE it!” was the message we were to deliver.

    And the Met’s posters have sold the same message – glamour shot of Fleming with the slogan: “Let yourself go”. Allow yourself this luxury. You deserve it.

    Of course, though the people we called were previous ticket-buyers, there was a great deal of resistance; already in August, people were tightening their belts. Many polite apologetic refusals. A reluctance to let themselves go. Maybe next year, they said.

    Restaurants are hurting. Retail is reeling. Why wouldn’t concert or opera ticket sales also suffer?

    Unless of course “classical” music is really, primarily, an indulgence of the wealthiest people. And even then – with the Dow down another 400-odd points today – one can only expect private endowments as well as public subsidies to be reduced.

    Hi, Suzanne. Thanks for this. Very interesting. Not a surprise, but it’s bad to make assumptions, and good to have real data, even anecdotal.

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