During the first quarter of Overture Center's current fiscal year, ticket sales fell short by 48% of what was budgeted.
Is the Overture Center for the Arts dying?
Short answer: Nope. Long answer: Read on.
We've been treated to so many shrill reports that it's difficult to know what to believe. But if you want to really know Overture's fate, read its financial statements.
The first quarter of Overture's current fiscal year ended Oct. 31, 2009. Despite lagging ticket sales, says Overture CEO and president Tom Carto, "We're actually ahead of budget [compared to] where we thought we were going to be by the end of October, and we hope to be in that same position at the end of six months. I don't attribute that to stellar ticket sales."
The first quarter's numbers are quirky because Overture recently changed its fiscal year to match the industry standard, running from July to June. (Second quarter figures are not yet available.)
Also, notes Carto, Overture has "other areas of revenue that we're seeing an uptick on: promoter activity, room rentals, other ancillary income and the efficiencies that we're seeing by cutting expenses."
This is an accounting story. Dry, boring accounting. But as with any good drama, dollars have their own story and even their own characters. There's suspense and surprise endings. So hang in there while - to make things interesting - we build a theater of numbers.
The name of our play could be Nonprofit Management for Dummies, except everyone agrees that Overture's structure is not easily explained. "We have this cobbled-together group of government entities that no one can really look at as The One That Runs Overture," says Carto.
To understand it, we need to walk through the entire operation.
Money comes in
The devil is in the details, and the script for our accounting play is very, very detailed. It's what in any other business would be called a profit and loss statement. Nonprofit managers hate talking about "profits," though. They call it a "revenues and expenses" statement.
We have many actors in our cast. They're the different accounts that are collected into opposing revenue and expense armies. There are 15 accounts on each side, and they seldom meet head-on. For example, a utilities expense is never met by utilities revenue. But all the actors wage war with each other, even with their own sides. In this economy, some are even expected to underperform, like ticket sales. One budget strategy, says Carto, has been "to diversify our revenue stream so we're not putting all of our eggs in the ticket-sales basket."
Another big shortfall in the first quarter was in ancillary in-house revenue, down by 43% of what was budgeted. That includes add-on fees you pay for ticket handling. While the percentage drop is huge, in actual dollars it's peanuts compared to the cost of the tickets. An analogy would be that Overture makes dollars on tickets, but only cents on fees.
School sales are down by 15% of what was budgeted. That remains a mystery to Overture management. Operating leases are also down by 34% of what was budgeted, but that's revenue from space leased to the Madison Museum of Contemporary Art and the Wisconsin Academy of Sciences, Arts and Letters. The drop is because Overture has made the building more energy-efficient, and those savings have been passed along to tenants.
One surprise is how good revenues are from resident companies such as Children's Theater of Madison and the Madison Symphony Orchestra. In the middle of a recession, revenue from them is up 5%. It's not because Overture is charging more. When the stock market crashed, says Overture spokesman Rob Chappell, "there were two things we decided early. Number one, we're not going to increase rental for resident companies, or for that matter other local nonprofits who also get a discount. And we're not going to raise ticket prices."
Straight rentals of facilities to outside promoters are up 27% over projections. For the whole year, 13 shows were expected. "We're already approaching that," says Chappell.
Depending on promoters was a big strategy change for Overture. Mark that down as a huge win. Most important of all, sales for the extended run of The Lion King, part of Overture's Broadway series, are already at 80% of capacity - dizzyingly successful for the industry.
At this point we need drama. We need conflict. End Act I, begin Act II.
Bring on the villains! Which is to say, expenses.
Money goes out
Compared to budgeted figures, salaries and wages for the first quarter are down 5%. Artist fees are down 43%. Advertising is down 32%. In fact, all total production costs, under which these huddle, are down 25% over what was expected.
That's despite whopping production increases such as an increase of 982% for equipment rental. But again, don't mistake percentages for actual dollars. The actual outlay for equipment in the quarter was $6,361. That's small change compared to the total 2009-10 Overture budget of $13.7 million.
Under "overhead," utilities are down 28%. Purchased services are way up over what was budgeted, by 116%, but that was anticipated; contracted services are covering for laid-off staff.
Still, for the fiscal year to date, while total revenues so far are down 6% of what was budgeted, total expenses are down 8%. From July 1 to Oct. 31, Overture had projected a deficit of $978,155, while the actual deficit as of Oct. 31 was $903,777.31. "In other words," says Chappell, "we are $74,377.69 ahead of budget projections.
"We always plan on a deficit for the summer and early fall, as those are not active times for ticket sales."
Overture projected a budget surplus of $9,885 by the end of the year, while accepting a 4% less subsidy from the city of Madison.
Then came the crash
But our play is not yet over. Let's bring in another player: The Overture Development Corporation. It built the center, and it carries the $28 million debt that's garnered so many headlines. Where did that come from?
Philanthropist Jerome Frautschi's $205 million gift to the Overture Foundation was split, to leverage a loan to pay not only for construction but to provide operations support. The loan was eventually refinanced, and it went into an investment fund. Then came the stock market crash. Suddenly Overture couldn't depend on that subsidy.
"The fund was liquidated per agreement with the banks when the collateral principle fell below $87 million," says Carto. "We did react rather quickly to that situation. We took severe steps and created an austerity plan to give us a chance to operate while we're restructuring the governance situation to become more efficient and self-sustaining. And that's what we're doing now."
The loan still has to be repaid, of course. "People relate that [debt] with Overture. But don't forget that the debt is actually our landlord's debt," says Carto.
As of last month, it's Overture's, too. "We have a reserve fund that was set to make the firewall payments, and that's still sitting there: $6.5 million," says Carto. Overture is now on the hook for those payments. That was all arranged when the investment fund was refinanced. Nobody thought the fund would be liquidated, but when it was, money was set aside to repay the loan.
"Now, I can tell you there is a lot of activity going on to deal with that issue, and I'm confident that will be taken care of, probably sooner rather than later," says Carto.
A solution will be tied to a revamped management structure, which has been in the works for a year. Carto is mum on details of the new structure, but he agrees that the debt solution will likely be something like a debt consolidation loan, when your credit cards get out of hand.
"Nobody wants to continue to pay interest on this original refinancing loan, which is 6% or something, and at the end of the day end up with no assets and still have the debt," he says. "That doesn't make sense to anybody, and I'm sure it doesn't make sense to the banks, either."
The Madison Cultural Arts District, the appointed board that manages the facility, has taken an active role with the 201 State Foundation, a fundraising group, in hiring an attorney to deal with the debt issue alone.
"I'm not really at liberty, because of attorney-client privilege, to explain what's going on in this solution, but there are many options for us," says Carto. "It's just a matter of navigating through to the best one."
The critics speak
Just as in real theater, there are critics.
"I'm always suspicious of savings that arise from cuts in professional staff, particularly when we talk about this sort of privatization," says former Mayor Paul Soglin, under whose administration Overture's predecessor, the Madison Civic Center, was created.
"You get what you pay for," he says. "While the current fiscal statement looks good, it does not tell you about long-term trends regarding service and maintenance levels."
The 48% shortfall in projected ticket sales needs examination, Soglin says. Is this only a result of the recession, or a long-term trend that would have arisen anyway, at least to a degree?
Anne Katz, executive director of Arts Wisconsin, a state nonprofit arts advocacy organization, is sympathetic. "Ticket sales are down everywhere during the global economic downturn," she says.
"But all of that belies the fundamental issue, which is content. And the content is no longer there," says Soglin. "I'm really not amenable looking at it only in terms of the financials. When you look at what was available to the Madison community in the old Civic Center, in terms of both professional touring companies and accessibility to the arts, for both local audiences and local performers, it's not the same facility. It never will be."
That's a whole different debate. Meanwhile, Overture's doing the best it can with the hand it's been dealt.
"People want to throw around things like, 'They don't know how to run anything, they don't know how to run a business,'" says Chappell. "In fact, we're doing fine. We're breaking even. Contributed income [to the 201 State Foundation] is climbing, climbing, climbing. Ticket sales are soft, but they're soft everywhere. We planned for that.
"So day to day, year to year, we know what we're doing. We're doing a pretty good job."
Whatever the successes or failures of Overture's operating budget, it's hard to deny that it's had a major economic impact.
Overture released an economic impact study Feb. 3. It says the facility, its resident companies and audiences spent $37.4 million in 2008.
An earlier study using 2005 figures showed a slightly greater economic impact: $37.5 million, but that study had a different methodology. Stripping it bare of padding reveals a more accurate 2005 total of around $27.1 million.
In other words, 2008 audiences pumped $10.4 million more into the downtown economy than in 2005, for restaurants, hotel stays, parking and so on.
The 2005 figures are from a study by Americans for the Arts, a national nonprofit support agency. The more recent study is based on Americans for the Arts figures but was written by a consultant, AMS Planning and Research Corp.