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Badly Bungled Philanthropy

The New York Philharmonic* just gave everyone a lesson in how not to fundraise. I am talking, of course, about the announcement that David Geffen has promised $100 million to the Phil for the renovation of Avery Fisher Hall.  There are two problems with this gift.

2012 Summer TCA Tour - Day 2First, the Phil’s leadership seems to have been enchanted by that number, the same amount David Koch gave to rename the New York State Theater after himself five years ago. (And the same amount that Stephen Schwarzman gave to the New York Public Library before that, but that’s another story.) It’s simply not enough–not for the reason, five years difference in time, mentioned in passing by The New York Times. Inflation is low and using the government’s inflation calculator, there would be only a $7 million or so difference. (Actually, Koch made the announcement in 2008, so I’m not sure how the Times arrived at five years, but…that’s what its story said.)

It’s not enough because of proportionality. Refurbishing the New York State Theater cost about $50 million to start, according to the Times, and another $150 million for Phase II. So Koch provided half of the price tag.

afh-exterior-julie-skarratt-675wNow look at Avery Fisher Hall–the gutting and remaking of it is currently estimated at $500 million, but with construction slated to begin in 2019–still four years hence–that’s a squirrely number, as even Katherine G. Farley, chairwoman of Lincoln Center, has admitted. Geffen is getting his name on the building for providing less than 20% of the cost. Farley et. al. say his gift will galvanize other donors–why? Where are they going to put their names? On the stage? Sure, sell the stage–but it can’t be for much more than $25 million, say. Make it $50 million, fine–how many stages have they got?

That means the NYPhil is left raising smaller gifts–a lot of them. Do you know how hard that is, to make smallish gifts add up to $400 million-plus?

Just as bad, the Phil made the same mistake with Geffen that it made with Avery Fisher. Both got naming rights in perpetuity. So several years ago, the Phil was stuck when it tried to rename the hall and last year it agreed, scandalously, in my mind, to pay Fisher’s heir $15 million. Koch agreed to 50 years; I know other donors who want and get 75 years. But truly in perpetuity? That idea should be buried. No organization should define it as infinity.

Museums should take a lesson here: don’t do what the Phil did. Don’t be that stupid.

No wonder Geffen is smiling.

Photo Credit: Courtesy of the Hollywood Reporter (top); the NYPhil (bottom)

*I consult to a foundation that supports the NYPhil

Comments

  1. Mary L Bullock says

    I thought the same thing when I heard about it this morning — $100 million is chump change in the name game.

  2. Thanks Judith, for putting this event in context. Contributions at one time were thought of as philanthropy – now they are transactions. And if we are discussing them as transactions, then we may as well talk dollars and cents.

    Many arts organizations have found themselves in trouble after receiving a magnanimous capital gift because the new building is more expensive to build and to run, the interest on the bonds are an added operating expense and with a new building, or museum or hall comes the expectation for new and more expensive programming.

    So the $100 million may be more of a curse than a blessing. I agree. And perpetuity is a long time. If we consider the value of a gift as a formula, and that the gift has a value that can be redeemed and resold in the future, and if we remember that a tax deductible contribution is subsidized by the IRS (by all of us), then the formula is something like; amount of gift is $$; length of time in years is T; government subsidy, G is .35$$ [the tax rebate] The formula is

    $$/T – G . For The Geffen gift, since T is infinity, the value is -.35$$ or a cost of $35MM to society.

    Of course, this is not really the “actual” value since ultimately there will be a concert hall with, we hope, better acoustics – the third time may be a charm – and some citizens will be able to enjoy that experience.

    As a footnote, it seems the Barbican will be building a better hall for Sir Simon Rattle as he takes over as Music Director of the LSO.

  3. $100 million would be chump change to name a football, hockey, basketball or baseball stadium. With the size of the audience for classical music, it’s a great deal of money.

    Let’s compare this to the cost of naming Suntory Hall in Tokyo, which is supposed to have cost
    ¥ 6,000 million in 1986. That year, the Yen traded for 168.35 to the US Dollar, which would make the 1986 price in USD $35,650,000 (rounded). In 2015 USD, that is $135,000,000 in Economic Cost.* This number should probably be somewhat higher, since Suntory Hall was built between the late 1970’s and 1986, which would increase the present Economic Cost, but I can’t spend all day looking up the details and doing the calculations. For this purpose the rough number will serve.

    Considering that Suntory Ltd. built one of the best concert halls in the world for $135 million in today’s dollars in Tokyo, where land and labor was/is as expensive as in NYC, Geffen is the one getting ripped off by giving $100 million to an already built hall which needs an outrageously exorbitant $500 million make-over. I sure hope he asked some questions about why the project is going to cost so much that his oversize gift only makes up 20% of the total cost.

    The problem with Geffen’s gift that I’d be concerned about is why it costs half a billion dollars to “restore” or “upgrade” an existing concert hall. Did Lincoln Center exclusively ask the Mangano/Gambino Family or the Gagliano/Lucchese Family Construction Ltds. for contract bids? Lincoln Center already owns the land, which is the most outrageously expensive part of most construction projects in NYC unless you’re building the Freedom Tower. They must be planning a hall with antique Persian rugs, massage chair seating and 18 carat gold fixtures from the door handle to the janitorial closet to the faucets in the water closets.

    * Economic Cost is the cost of a project measured using the relative share of the project as a percent of the output of the economy; this measure indicates opportunity cost in terms of the total output of the economy; the viewpoint is the importance of the item to society as a whole, and the measure is the most inclusive using, among other measures, a share of GDP.

    • I disagree with parts of your analysis. For one thing, philanthropy has changed completely since the 1970s and ’80s. Further, Suntory was a commercial transaction, whereas Geffen’s donation is supposed to be philanthropy. The distribution of wealth in the U.S. has also changed since those days. Geffen is worth some $6- to $7-billion; he donated more than $200 million to USC or UCLA, I forget which. He has the capacity to do that here. The idea that he has been ripped off is, to me, ludicrous.

      • Ms. Dobrzynski, I appreciate your reply. Geffen gave the money of his own free will, and he is not dumb by any stretch of the imagination, so I presume he wasn’t ripped off, but knew what he was giving to. I’m a bit puzzled by your distinction between philanthropy and a “commercial transaction” such as made by Suntory Ltd. by building a concert hall for the enjoyment of all Tokyoites and tourists. I worked for a corporate philanthropy foundation back in the early 90’s. I don’t see how philanthropy back then differs from that of Geffen’s or anyone else’s today, at least not in essence.

        True, in an ideal world, philanthropy should be selfless and consider only the benefit of the recipient. However, to meet that bar of selflessness in philanthropy, Geffen’s, Suntory’s and all the other corporate and private donations we see plastered all over the walls of museums and concert halls as well as in concert programs (which today make them as thick and difficult to read as Cosmopolitan magazine) should just be listed as “anonymous.” If they aren’t, then I don’t see much of a change in philanthropy since the time of Alexander the Great and before. People give to promote either their own, family or corporate name and gain societal status.

        Perhaps I don’t understand what your criteria for philanthropy are; if I don’t, I’d appreciate your enlightening me. How is giving more to educational institutions – which everyone acknowledges are becoming increasingly unaffordable for many Americans – a requirement to give even more to music organizations which cater to those who can afford entering them, or, if not, won’t necessarily suffer like they would without getting an education? Running a huge university like UCLA is far more expensive than the NYPhil and the $300 million total that Geffen has given to UCLA in 2002 and 2012 will partially fund the full cost of attendance for up to 30 students per year, beginning with the Class of 2017.

        OK, I am admittedly being pretty cynical here, but that is basically the bottom line for me when I make a comparison between giving to humanitarian vs. cultural causes (aside from the visibility value derived from market size as mentioned in my previous comment above).

        Be that as it may be and to return to my previous comment, I would be interested in your take on why the renovation of Avery Fisher Hall has such a humongous price tag, which is really the point I was getting at in my previous comment. If I were as rich as Geffen – which I’m not – I’d be concerned about that. I agree with Mr. Abruzzo’s take on societal or benefit allocation when it comes to the duration of naming rights, though for nonprofits, it’s the depreciation schedule that matters.

        For some reason, top professional sports teams have figured that one out, inasmuch as naming rights are tied to annual payments, which, if not forthcoming, lead to a name change. Why hasn’t the NYPhil figured that one out? If anything, it’s a sign that philanthropy hasn’t changed over time; arts organizations haven’t become financially savvier than they were in the 70’s and 80’s if they give naming rights in perpetuity for a one-time bricks-and-mortar grant.

        The area where I’d have a debate with Mr. Abruzzo is the practical value of using his formula for calculating the functional value of a construction grant (apart from the fact that I strongly doubt Geffen pays as much as 35% in taxes of his income). Being nonprofits, arts organizations tend to disregard the economic cost to society of the tax deduction an individual or corporation gets as a result of making a “donation.” The brick wall (pardon the pun) that arts organizations typically run into is lack of realistic depreciation planning – making depreciation low looks SO nice on the balance sheet of the annual report – and that the revenue boost from increased attendance a new/renewed facility gets only lasts a few years before dropping off.

        Let’s leave the latter one for now. Depreciation is more interesting. Given that a nonprofit doesn’t pay taxes on related income, they use the straight method of depreciation. Nonresidential buildings can currently be depreciated over 39 years according to the IRS, so I’d assume that the NYPhil wouldn’t use a longer timeline since it has to publish its financials. So giving Geffen naming rights shouldn’t be for more than 39 years at most, and probably 1/5th of that time would be more fair, given that he is “only” financing 20% of the project. Nevertheless, as we all should know, depreciation schedules look nice on paper in year 1, and then tend to become uglier and uglier with time, especially if actual repairs and renovations don’t match the depreciation schedule. But that’s for the NYPhil to worry about in years to come.

        Seen from this perspective, Geffen is of course not being ripped off; au contraire as you say. The point of my earlier comment – gotten to here after far too much verbiage, I suppose – was that anyone contributing philanthropic funds to a reconstruction of a concert venue costing half a billion dollars is getting ripped off, be they Mr. Geffen or not.

        • Well, sorry, but you say it yourself: there’s far too much verbiage in your comment to warrant a point-by-point reply. But I have a few reactions.
          Please see MWnyc’s response to your question about costs of the gut renovation.

          It may be true that 1990s philanthropy is similar to today’s–though I would argue that there has been a progression to more self-aggrandizement since for donors of $100 mn. or more–but Suntory, as you said, was in the 70s/80s (you were not specific). Philanthropy was not the big business then that it is today.

          I would also say there is a difference between corporate philanthropy, which has a more overt corporate goal (marketing, reputation improvement, branding etc.), since it is shareholders’ money that is being spent, not an individual’s. Yes, of course, individuals often want the same things. But not all and often the motivation is mixes. Some donations are indeed anonymous. Your assertion that I’m suggesting that all should be is a non sequitur.

          If you are going to reply to this or to other comment, please keep your comment succinct. Thank you.

        • There’s another point to keep in mind: naming rights for sports stadiums are, in effect, worth far more than naming rights for even high-profile arts venues.

          Sports venues appear on television every week. They get mentioned on television – in the sports portions of newscasts – every day.

    • “Lincoln Center already owns the land, which is the most outrageously expensive part of most construction projects in NYC unless you’re building the Freedom Tower.”

      The land under that building could very well be worth more than $500 million by itself. By the way, it belongs to the City of New York, not to Lincoln Center.

      “They must be planning a hall with antique Persian rugs, massage chair seating and 18 carat gold fixtures from the door handle to the janitorial closet to the faucets in the water closets.”

      Nope, that’s not it.

      For a start, the buildings at Lincoln Center are all landmarked, so they can’t tear the hall down and build a new one from scratch. Doing a gut renovation without damaging or altering the building’s exterior or the large-scale art visible through the front windows is more difficult and more expensive than new construction.

      What’s more, the sole reason for this renovation is the hall’s acoustics – which have gone from god-awful when the building opened to the lower end of mediocre after two previous renovations. So they want to get the acoustics right. That means getting the best acousticians available (they aren’t cheap), paying the architects and engineers (not cheap either) for the extra time spent working with the acousticians, and using the best materials and surfaces for reflecting and diffusing sound and not skimping. (They skimped in Verizon Hall, the home of the Philadelphia Orchestra, and it made a difference.)

      • Thank you for the explanation – it’s very helpful. I’ll look up the cost of similar projects involving landmarked buildings to compare. Hopefully I can find some info on that.

        • Don’t forget to adjust for inflation. Google can direct you to several inflation calculators.

  4. Does it amount to a spit in the ocean as to what kind of tombstone Mr. Geffen builds to himself if the latest
    stupidity at NYYS is an example as to how abysmal ignorance controls this concert world .? What is the
    point of having the best concert hall in the world if fools can and will dictate and allow or not what you can hear .

    • Well, somebody has to decide what does and doesn’t get performed at a given venue.

      And considering your posting history, ariel, one has to wonder: Is there anyone you don’t consider a fool?

  5. It’s 100 million minus the 15 million to buy off the Fisher family (that money has to come from somewhere) so now it’s 85 million. Then there’s the 25 or 30 million it will take a few decades from now to buy off the Geffen heirs. So you have to set aside about another 10 or 15 million or so to (hopefully) appreciate to that amount by the date it’s needed. Now we’re down to about 75 million in spendable dollars. Which as you observe, won’t go all that far, alas.

    While we’re talking, let’s imagine another world. A world in which Geffen says, “$100M for naming rights? Here’s your money. Now please call it Leonard Bernstein Hall.”

    • Lincoln Center chair K Farley said the $15 mn. for the Fisher heirs would come from other funds, and shouldn’t be subtracted, but I’m with you on that. It’s just another sign of poor judgment on the part of LC and NYPhil leadership. And where was the NYPhil leadership in this announcement anyway? Totally silent?

      • A little inflation perspective here: The Fisher naming gift, according to Wikipedia, was $10.5 mn. in 1973. Today, that is equivalent to $55.27 million, using the BLS inflation calculator. So subtract the $15 mn. that the Fisher family is getting back, and they gave away the Hall back then for about $40 million.

        And none of this figures in the tax benefits to Geffen or Fisher, back then.

        It all reinforces my original point: Lincoln Center–or the Philharmonic–bungled their fundraising efforts and now face a very steep climb to raising $500 million or more.

    • Actually, when Ross Perot (yes, that Ross Perot) donated $10 million for the concert hall in Dallas (designed by I. M. Pei) he named got to choose the name… He chose the Morton H Meyerson Symphony Hall, in honor of his colleague and friend, Morton Meyerson.

      Maimonides who place that act high up on the charity scale.

      • True, but look how far you had to reach back to find an example. There’s also Charles Feeney, who gave most of his fortune anonymously. And a few others. But nowadays there are not many people who don’t want the “glory” and name recognition.

        • Examples have to be set. Donors will demand what they’re allowed to demand. Why not Philharmonic Hall by David Geffen? Like they do in Fashion. Donors have to be trained properly, and so do foundations. When you let them run things, it’s a mess.

  6. Why is there never a mention of the primitive ego that demands one’s name on a building? He would have the satisfaction of having donated, all his friends would know of his generosity and everyone else who cares, and still he needs more? Why wouldn’t a plaque be enough, or maybe a bronze bust in the lobby? In this and most other cases, the donors are intelligent, worldly people. That they need the additional boost to their vanity has always disappointed me. Every gallery in MoMA is emblazoned with the name of a donor, or a donor and spouse.

    Read them Ozymandias.

  7. Perhaps it should be mentioned more , even here . Carnegie Hall as an example . The
    auditorium has a name the stage has a name , will the urinals be next .? the toilets ?
    Maybe the toilet paper can have the current program printed on it .It would appropriate.

    • The auditorium, at least, is not named after a donor. It’s named after the single musician more associated with Carnegie Hall in the 20th century than any other – and the man who led the campaign to keep the building from being knocked down and replaced with a skyscraper.

      It’s not unlike Greg Heins’s suggestion that someone give a large gift on condition that the NY Philharmonic’s home be named Leonard Bernstein Hall.

      • A plaque to Stern would have been appropriate .. Carnegie Hall by its history has become an icon ….
        There are enough rich people in this world who believe money buys them a place at the table and
        so it does at some tables , they make do at those tables.

  8. The “best” acousticians? Who would that be? The “best” ones ruined every hall they touched. The mediocrity of their results was covered up by mounds of publicity. The best materials, yes. But acoustics is mostly, I think, a matter of common sense and musician’s ears. You need classical/Beaux Arts architecture to give myriad reflective surfaces of hard natural materials. No concrete. No modernist baloney. People need something to fill their eye. Decoration serves more than one purpose. Orchestra Hall in Minneapolis is so often touted as a great hall, but it is not. It is far too reverberant and artificial sounding. The brass and percussion notes bounce off the walls. That is unforgivable. The same team could not make a gem out of Avery Fisher Hall, or any other they worked on. I simply don’t trust them. It’s not a science. It’s art.
    As for naming, I will never call the State Theater anything but that, and I will from now on call it Philharmonic Hall. Let them name the toilet stalls if they must name something. Art has to be bigger than their egos.

  9. Greg Heins says

    Paul Mellon comes to mind. As far as I know, the only buildings anywhere with his name on them are the arts center and a humanities center at the Connecticut prep school Choate Rosemary Hall. Interestingly, the science center originally (late 1980s) was his gift and his name, but was renamed about 10 years ago for Carl Icahn. Some would say that the scale of his gifts was matched by his desire to not have his name carved over the door.

  10. For some perspective, the David H. Koch fountains and plaza that were recently built in front of the Metropolitan Museum were reported (by the Met) to have cost $65 million. If it cost that much just for two fountains and landscaping, we can assume that $100 million is less than it seems.

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