American Symphonies Often Spend More Than They Earn
STANFORD GRADUATE SCHOOL OF BUSINESS—Most major symphony orchestras in the United States regularly spend more money than they take in, and some dip so far into endowments that they risk their long-term survival, according to a new report commissioned by the Andrew W. Mellon Foundation.
“The industry should realize that there is an inherent long-term economic challenge,” said Robert J. Flanagan, the Konosuke Matsushita Professor of International Labor Economics and Policy Analysis at the Stanford Graduate School of Business and the study’s author. “Nowadays, even if symphonies filled their halls for every concert, the vast majority would still not be able to cover their performance expenses.”
Although recessions exacerbate their woes, Flanagan said many symphonies have financial troubles even in good times. Attendance has been declining for most types of concerts, and orchestras may not be adequately scrutinizing the returns to their expenditures on marketing and fundraising, said Flanagan, an amateur musician since childhood who plays clarinet and saxophone. He said larger symphonies, for example, appear to spend nearly twice as much on fundraising as they realize through donations.
Some orchestra managers told Flanagan they disagreed with that conclusion, but other symphony officials he interviewed were hardly shocked.
“Some of them say it doesn’t surprise them because many symphonies have a bias towards revenue growth strategies and a bias against cost-cutting strategies,” Flanagan said, adding that nonprofit board members often shy away from conflict. “It’s not clear that they’re willing to be as tough minded about costs as directors in the private sector.”
Flanagan’s study includes data from every orchestra that ranked as one of the 50 largest U.S. symphonies for at least two years during the 1987-88 through 2003-04 concert seasons, a total of 63 orchestras. During that time 46 orchestras ran deficits on average—excluding their money from endowments—versus only 17 with surpluses.
In many U.S. industries, companies have been able to increase salaries gradually because technology has made workers more productive. Flanagan said symphonies have much slower productivity gains—technology isn’t about to turn a string quartet into a string duo—but musicians still expect bigger paychecks. The salaries of symphony musicians increased more rapidly than the pay of most other groups of workers in the late 20th century. Higher ticket prices did not fully compensate for cost increases, but those higher ticket prices reduced attendance at a typical performance.
Any stumbles in the economy only exacerbate the problem. A slumping economy reduces attendance as well as philanthropic support, but has little moderating effect on performance expenses.
Flanagan said the study’s scope did not try to identify similarities among the 17 symphonies that usually did have surpluses. Overall, he said, he noticed how widely all orchestras studied varied in terms of expenses, sources of income, and even how they invested their endowments. “With this much variance, it would seem there is an opportunity to discover what the best practices might be,” he observed.
One common thread he found is that the orchestras’ marketing expenses paid diminishing returns: “The last $100 you spend yields far less than the first $100 that you spend.” What the optimal threshold would be varies widely from orchestra to orchestra, but Flanagan said many could save money by scrutinizing marketing expenses.
Fundraising efforts are more complex. Professional fundraisers in many fields often say that they bring in 8- to 10-times as much money as they spend, but Flanagan is skeptical. “A lot of that money would have come in anyway.”
Flanagan said many people choose to support the local arts and hardly need a fundraising event to remind them. Based on population, unemployment, and economic data, he analyzed normal fundraising expectations in regions surrounding the orchestras. For the smaller half (based on budget size) of the orchestras he sampled, the investment was worth it: They received about $1.96 for each $1 they spent on fundraising. It was far different for the larger symphonies where each $1 spent returned only 51 cents.
Some say the fundraising efforts pay off in future years, but Flanagan did not find that during the study, which covered 17 years. “The question becomes: When are these expenditures going to pay off?”
Although Flanagan believes a best-practices effort would help many symphonies improve their financial status, he stressed that the financial circumstances vary greatly from city to city and orchestra to orchestra.
“You can’t go through this analysis and conclude that there’s a single solution—a single smoking gun,” he said. “I think the report documents the futility of single solutions.”