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The Art of the Deficit-The Dysfunctional Business Model of the American Orchestra

January 21st, 2008

       This is a new series that I am launching on the blog.  The intention of “The Art of the Deficit” is to focus on the business aspect of the orchestra world.  I have always been interested in the way that these institutions operate (or don’t operate) and the dysfunction that surrounds their work.   Mismanagement and orchestras are two words that seem to go together.  As an orchestral musician, I can’t even count the times when I heard people say “That group was mismanaged” or “they ran the group into the ground”  Due to my entrepreneurial nature, I have always been interested in what makes business’s work and how they operate behind the scenes.  When it comes to orchestras, what I found when I started studying their business models was intriguing.  After observing the landscape in the late 1990’s I finally said to myself  “What is really going on here?” 

       During my final year as a member with the New World Symphony, I observed the Florida Philharmonic heading towards financial ruin.  I auditioned for the group twice and had many colleagues of mine from New World won auditions there and joined the orchestra.  One day while reading the local newspaper I saw a headline that left an indelible imprint on me.  It read something like this “The Florida Phil needs $500,000 in 48 hours”  They needed this to make payroll.  I sat there and wondered what an experienced business person would think when they read this.  I was shocked by the financial desperation that this group was going through.  What if I won that audition and that was my job.  What would I do if my employer vanished like a puff of smoke?  It is not like musicians can just go get another job.  Seeing this with my own eyes was a very powerful experience. 

       When you peel away some of the layers, you see that these institutions are tremendously expensive to operate.  At times they almost look like unfunded liabilities.  If you have 100 musicians in the ensemble making $90,000  a year, that is $9 million dollars just for the musicians.  Conductor salaries are in the millions and the big name soloists can garner $50,000 to $75,000 dollars a performance.  Everyone knows that tickets sales barely cover anything.  Any orchestra is lucky if a 1/3 of their costs are covered from ticket revenue.  I personally think they bolster this percentage in order to make it seem like they have more money coming in from tickets than they really do. 

       Having experience producing concerts and paying musicians, I was startled to be on the other side and see how lopsided the cost structure is.  I still remember the day when I had my “Revenue Epiphany”  Revenue is the most important thing to an enterprise.  Revenue is defined as the amount of money coming in.  Now I realized why earnings on Wall Street are so important.  Understanding that this is an artistic endeavour and cultural institutions are not publicly traded corporations, the money coming in is just as important.  I think we are at a point now where the cost structures of these orchestras are hitting a wall.  It is like a ship.  Once you move all the furniture to one side, the momentum starts pulling you over.  If the cash flow out consistently exceeds the cash flow in you are in trouble.  It is like trying to stop a leak in a dam with your finger.  

       In the old days, one angel donor would write a check at the end of the fiscal year without questions asked and that would erase the structural damages for that budget cycle.  That was easier when the deficits weren’t in the millions.  Most of these issues were probably kept behind closed doors and not made accessible to the public.  This is the beauty of the information age.  In the past, one would have to go to a library and look up some 1000 page book on the top of a dusty case to look up financial info from a previous year.  One of my goals of this series is to be a real time observer to financial situation of orchestras.  Since all professional orchestras are 501-C3 non profits, their information is in the public domain. 

       This will be an exciting adventure to say the least.  Since this is my business, it is also very personal.  The epidemic of structural deficits is upon us and needs to be dealt with.  The last thing we want for musicians is their orchestra vanishing from the face of the earth.  Even though deficit spending is an addiction in our modern day society, it does not absolve the orchestra industry of its personal responsibility for its own financial health. 

      For a animated version of the picture at the top of the post CLICK HERE!!!

Entry Filed under: Music Business