Nacht Theatre Consulting, LLC

The State of the Not-for-Profit Theatre’s Finances

 

The financial struggle of the American not-for-profit theatre continues unabated. The 115 theatres that participated in the five most recent annual fiscal surveys of the professional not-for-profit theatre in America[1] reported both unhealthy financial condition and unsatisfactory financial performance, even though this group included some of the largest and most prestigious theatres in the United States.

 

Recent Results

Concerning financial condition, approximately 67% of survey participants reported negative working capital in 2013, the last year for which data are available. Negative working capital means it is difficult if not impossible to pay current obligations on time. Concerning financial performance, 50% of these theatres reported a loss from current activities.

 

Both operating revenues and expenses trended negatively in 2013. More specifically: 1.) average total ticket income for theatres in this group declined in 2013 by 4.7% from the prior year and grew at the negligible compound rate of 0.5% over the five-year period after adjustment for inflation; 2.)  average contributed income declined 4.6% from the prior year and actually declined from five years earlier at a 4.3% compound rate when adjusted for inflation; 3.) meanwhile, total expenses grew 3.7% over the prior year and grew at a compound rate of 3.2% over five years after adjustment for inflation.

 

Results Over the Long Term

Statistics concerning the 87 theatres that participated in the surveys of each of the last ten years (2004 – 2013) make clear the most recent financial results of the not-for-profit theatre are not unusual. Over that ten-year period, the average percentage of theatres reporting an annual loss was 43%. Ominously, total attendance declined by nearly 6% during that time and there was a 20% reduction in the number of subscribers. Slightly over 50% of the theatres in the survey reported negative working capital in every one of the last ten years!

 

What Ails the Not-for-Profit Theatre?

There are three fundamental problems in not-for-profit theatre financial performance. First is the failure of theatres to attract new patrons in sufficient numbers to offset an aging audience whose size is naturally diminishing. The second problem is the ever-increasing cost of live performance that cannot be offset and, indeed, should not be offset by productivity improvements assuming the maintenance of artistic standards is paramount. The third problem is the misallocation of scarce resources towards buildings and endowments, away from theatrical productions themselves.

 

I believe that not-for-profit theatres can better focus on these three problems and thereby substantially improve operating results and liquidity if management and board jointly define and management creates: 1.) high value financial report information; and 2.) strategies with substance. Improved financial information and improved strategies will result in more resources for artistic purposes.

 

 



[1] These 115 are so-called “Trend Theatres”, as reported in Theatre Facts 2013: A Report on the Fiscal State of the Professional Not-for-Profit American Theatre by Zannie Giraud Voss and Glen B. Voss, with Ilana B. Rose and Laurie Baskin. Published by Theatre Communications Group.