PERFORMING THE FINE ART OF SELLING

It wasn’t so long ago that the only pitch heard in most concert halls was the musical kind.

But in recent years music lovers have been increasingly subject to the sales pitch: for souvenir T-shirts, sweat shirts, books, records, lapel buttons, post cards, designer jewelry, crystal wine glasses and other mementos of the evening’s performance.

Product merchandising, which has long been a gold mine of revenue for “Star Wars” movies, Saturday morning cartoons, amusement parks, sports franchises and rock ‘n’ roll bands, is also catching on big in the refined and sophisticated world of opera, ballet and symphony music.

Taking a cue from the rock ‘n’ roll world, where sales of merchandise at concerts sometimes generates more net profit for a band than paid admissions, performing arts groups and administrators are finding product merchandising to be one hedge against rising performance and production costs, new tax laws that may threaten charitable donations and dwindling government funding.

And merchandising can pay off not just at the cash register, but also in self-promotion and in public relations.

“I’m surprised that more people aren’t doing it,” said Paul Gruber, director of business development for the Metropolitan Opera Guild, whose vast professionally staffed merchandising program he claims is the largest and most successful of any performing arts group’s in the country.

Though he didn’t break down figures, Gruber said the guild’s on-site product sales, book publishing, original record pressings and a mail-order catalogue business represent a significant part of the $3 million the guild contributes to the Met’s $65-million annual budget.

“It’s the new horizon of revenue for us,” said Craig Palmer, director of marketing and media relations for San Francisco Ballet. “We have pretty much maximized our traditional sources for funds, including ticket sales and donations. So in the last year or two we’ve begun to give (merchandising) higher priority in our operation.”

Sales of various products in formal gift shops or makeshift booths, which are typically handled by volunteer members of performing arts support groups or guilds, account for an average of 7% of a given organization’s budget, according to figures from the American Arts Alliance, which represents more than 350 nonprofit U.S. arts groups.

Chip Raymond, managing director of New York City Ballet, said that company will raise about $200,000 of its $22-million budget this year from sales of a plethora of dance-related items--from autographed pictures of principal dancers to a line of custom jewelry--both when the company is in residence at the New York State Theater and traveling the country on tour.

Raymond said earned income from ticket sales made up about 75% of the company’s budget in 1980, but that figure has dropped to 63% this year.

“Where do you get (the balance) from? You can raise ticket prices, but we want to keep ticket prices down,” Raymond said. “The number of performances we do is pretty much fixed. Expenses are going up faster than earned income and that gap is widening. You can either get it from the government, which has flattened out, or from individuals and corporations. . . .

“But we are reaching a plateau. So the gift bar, as small as it may be, is important because it might pay for a couple of dancers,” Raymond said.

Figures from the National Endowment for the Arts show how much federal arts funding has slowed during the Reagan Administration.

In 1966--the first year the endowment made grants--a modest $2.5 million was distributed. But that figure rose an average of $10.4 million every year until it reached $158.7 million in 1981, Ronald Reagan’s first year in office. Subsequently, endowment funding fell in 1982 and 1983, increased in 1984 and again slightly in 1985, then dropped in 1986--partially due to budget cuts mandated by the Gramm-Rudman Deficit Reduction Act--back to $158.5 million. The arts office’s allocation for 1987 is $165 million.

Yet the decline in federal funding is only part of the bleak overall financial picture for arts groups. According to the American Arts Alliance, two-thirds of all professional symphony orchestras in the United States ended their 1986 seasons with deficits, double the amount of groups operating in the red just five years earlier.

So for many organizations, merchandising is at least one small bright spot in the constant scramble to balance their books.

At the Orange County Performing Arts Center in Costa Mesa, which faces first-year operating deficits of some $4 million even after having successfully raised more than $70 million in private funds for construction, officials are putting a greater emphasis on merchandising as the facility moves into its second year of operation.

Ron Rice, director of facility services at the center, said the facility will rely on traditional souvenir items, adding that a mail-order catalogue operation patterned after the Met’s and even private-label wine bottlings are under consideration.

“I think downstream there’s a very nice potential of additional revenue for the Center in selling quality merchandise,” Rice said. “By the end of this year we’ll have a data base of 100,000 names (of ticket buyers and arts supporters) and we can certainly do some marketing with that.”

Lately, however, performing arts groups that operate as nonprofit, tax-exempt entities, have become increasingly worried that the federal government is throwing them yet another curve. In June, a congressional subcommittee spent five days in hearings to review the whole nonprofit issue and the tax on unrelated business income, or UBI.

“The UBI tax hasn’t been reviewed comprehensively since its enactment in 1950,” said Beth Vance, staff director for the oversight subcommittee of the House Ways and Means committee that conducted the hearings.

“The oversight subcommittee is looking at the tax to see if it is effective, if it is appropriately structured, if it is being complied with and if government agencies responsible for the tax--principally the IRS--are administering the tax. What we have found in general is that there is very little information to answer those questions,” Vance said.

The arts is just one small part of the nonprofit picture under a wide-ranging examination encompassing everything from health-care facilities to churches and other charitable groups. Even so, many arts groups believe they are in a governmental “Catch-22” over federal versus private funding.

“This comes at a very bad time,” said Lee Kessler, deputy director of the Washington-based American Arts Alliance, which supplied testimony to the subcommittee on behalf of the arts groups it represents.

“Government funding has gone down. You’ve got the Reagan Administration urging nonprofit groups to come up with new ways to raise dollars and not look so much to the federal government. Our groups have taken that charge and tried to run with it,” Kessler said.

“Now Congress is having an investigation into earned income. The point is not that we don’t want to be examined. But this is a critical subject.

“Any time you’re talking about income-producing activities, you’re talking about nonprofit status: why a group was founded and what is related and unrelated to that purpose. So if I were running an arts organization, I would be paranoid,” Kessler said.

Generally, income-producing activities must be promotional or educational in nature to comply with nonprofit regulations, a tenet that doesn’t appear to be in for major changes.

“I don’t know that anyone will have to change what they are doing,” oversight subcommittee staff director Vance said. “The only reason groups might have to do something differently is if Congress changed the rule that defines when an organization is liable for the UBI tax.

“We don’t have a mandate to do anything specific,” Vance added. “We have no legislative agenda. We are really just trying to get information into a public hearing to analyze what we have and whether something should be done or not.”

Nonetheless, many groups worry that stricter IRS scrutiny will translate into greater tax liability.

“There is a whole gray area,” said Meigs Ingham, general merchandise director for San Francisco Opera. Like the Metropolitan Opera in New York, San Francisco Opera has its own separate retail store, which is across the street from its headquarters at the War Memorial Opera House. The company also contracts for the sale of some promotional designer clothing through Capezio retail stores in San Francisco.

“There are no specific laws, just court rulings from hearings,” Ingham said. “And up to this point, it has not been a significant argument to say that you support a parent organization and that you may turn over $1 million a year to that organization. That is not a valid argument (in meeting nonprofit requirements).”

Additionally, the private business community is exerting more pressure to make sure arts groups are not using their nonprofit status to unfair advantage. Why, the small businessman argues, should an opera group make a tax-exempt profit from selling a compact disc of “La Boheme” when the owner of a music store down the street is taxed for the very same sale?

“Unrelated income laws probably are not terribly aggressively enforced,” said John Toohey, director of marketing for the Los Angeles Philharmonic.

“The large organizations naturally have to be more careful than the small ones. We are always careful to file the appropriate tax forms. We don’t have trouble keeping track of concert income and related income. But for a group that only had a staff or two or three, it would be a real challenge and definitely would affect their willingness to plunge into this.

“I don’t see any problems coming for us,” Toohey added. “We are given nonprofit status because we give concerts and provide musical and artistic status to the community, not because we sell T-shirts.”

“Barber of Seville” shaving kits. “I Stravinsky” bumper stickers. Joffrey Ballet coffee mugs. Metropolitan Opera cookbooks. Opera Pacific tote bags. San Francisco Ballet stuffed teddy bears. Rhinemaiden shower curtains. Salvador Dali-designed “Carmen” pendants. . . .

With so much attention focused on income-producing, few arts officials say they’ve encountered aesthetic objections to merchandising from board members, performers or patrons--no complaints that products crassly commercialize Bach, Beethoven or Balanchine.

“You have to sell high-quality merchandise because your image is on the line,” said George Weston, director of marketing for Orange County’s new Opera Pacific, which netted nearly $30,000 through merchandising during runs of three productions in its inaugural year at the Orange County Performing Arts Center.

Because of the image factor, matters of taste are often left to artistic directors.

“Generally speaking, the aesthetics are up to (artistic director) Peter Martins,” said New York City Ballet’s Chip Raymond.

“He is most particular if an item uses the image of a dancer. He is very concerned about how they look, how the foot looks, if it is turned out, how the head is held or how the hand is held. If they aren’t just right, he will pick that up immediately. The word is civic. We don’t want our products to look civic.”

Said Tom Morris, director of audience development and operations at Santa Fe Opera: “We are not interested in making a quick kill on a product that in the long run could damage, or at least not enhance, the image of the company.”

Added Met Opera Guild’s Paul Gruber: “The Met trusts us (at the Guild) not to embarrass them. If you’ve got 10 different people, you’ll get 10 different answers as to what’s appropriate and what is in good taste.

“But we think opera lovers have a sense of humor, too. If they enjoy it, they have to be able to laugh at it. Opera can be as ludicrous as it is serious. In the end, we always have respect for the art form because we love it.”