Can Arts Center Perform in the Future? : Segerstrom Says It Can--If Orange County Friends Give It a Hand

The financial debut of the Orange County Performing Arts Center was a resounding success, but the prospect of rising costs and smaller crowds at each event has given its executives a case of second-season jitters.

Henry T. Segerstrom, the Center’s chief executive and major benefactor, contends that a critical period lies ahead for the privately funded 18-month-old Center.

“The community feels that they built the Center and the problem of providing for the arts is solved,” said Segerstrom, developer of Costa Mesa’s huge South Coast Plaza. “But it must be supported on an annual basis. Corporate support is very important to this organization for the maintenance of our programs and is necessary for our very survival.”

Segerstrom’s fund-raising efforts seem even more urgent in light of an expected increase in the Center’s operating deficit in 1988, a growing “income gap” caused by declining attendance per performance as the Center’s novelty wears off.

The Center’s operating revenue fell $3.2 million short of covering expenses last year--a plight shared by major arts centers across the country--but the shortfall was more than covered by fund-raising efforts.

The revised 1988 budget, approved last Thursday by the Center’s board of directors, projects an operating deficit of $4.1 million and a fund-raising target of $4.8 million.

The Center’s expenses for 1987 were $12.1 million. Revenue from theater receipts, concessions and retail operations was slightly less than $9 million. But fund-raising efforts brought in nearly $4.3 million, leaving the Center with a budgetary surplus of $1.1 million.

These numbers, Segerstrom said, show that the Center is run with a financial discipline that would appease the toughest chairman of the board; it is a business enterprise as fiscally conservative as the area it serves.

“We have demonstrated financial discipline in our operations,” Segerstrom said. “We have practiced realistic budgeting. We have careful administration and tight financial controls.”

Segerstrom is confident that the first-year figures will help demonstrate that the Center is fiscally sound and worthy of increasing contributions from Southern California corporations.

His basic equation when discussing the Center is this: Prudent management plus artistic achievement equals a strong case for corporate sponsorship. He contends that he has the first two and he is out to capture the third.

Segerstrom is quick to acknowledge the past generosity of local corporations, noting that companies gave $17 million from 1980 through 1986 to help build the Center and capped that amount with $616,042 in additional operating support in 1987.

Sagging Support

But according to Segerstrom, corporate giving has “fallen behind” its initial pace. Through 1986, corporations were the source of 23.3% of all donations to the Center, averaging just under $3 million a year. Corporate giving exceeded that of foundations, which provided 12.6% of the Center’s 1980-86 contributions but lagged far behind individual support, which supplied 64.1%.

In 1987, corporate support fell to 14% of total contributions. Individual support also tapered off, but the difference was made up by other fund-raising sources, including direct mail appeals and contributions from the Center’s various foundations.

Segerstrom’s answer to the corporate contribution crunch is to try to convince chief executives from Santa Barbara to San Diego--with special emphasis on those in his home turf--that the Center deserves their support.

“I want to create a feeling of confidence in the Orange County business community so we can continue to seek and get that support,” said Segerstrom, whose family has donated about $13 million, including the land upon which the Center is built, the mammoth “Firebird” sculpture that adorns its facade and additional contributions to construction and programming funds.

Although the Center would have shown a surplus in 1987 without any corporate support, performing arts centers have traditionally depended on big business to augment their budgets.

At the Tampa Bay Performing Arts Center in Florida, “you could not keep the place open with only the support of individuals,” said Robert Z. Elek, director of development.

Although the dollar amount was far lower, corporate support was a greater percentage of total donations at the Tampa center than in Orange County--in both the original building fund and in contributions to ongoing operations.

48% of Contributions

Corporations gave $10 million to the Tampa center’s building fund, or 48% of total building contributions. Although corporations so far have given only about $350,000 to the first year’s operating fund, that still represents about 48% of contributions, Elek said.

Despite the 1987 corporate contribution lag, operators of several major music centers generally agreed that the Orange County Performing Arts Center was right on key in its first-year financial efforts.

To Marlow Burt, president of Louisville’s 5-year-old Kentucky Center for the Arts, a $1.2-million surplus and a community willing to give $4.3 million are conditions to be envied.

“You (the Orange County Center) are a 3,000-seat roadhouse and don’t do a lot of community stuff,” Burt said. “But I think you’ll be a very successful 3,000-seat roadhouse. You have to have the ability to take loss and take risk. But given that, you have all the tools and ingredients to be very, very successful.”

Burt’s major caveat about Orange County’s Center has to do with artistic style and community duty. His two-theater complex is home to five local performing groups, including a dance troupe, a children’s theater ensemble and an orchestra.

In contrast, Orange County’s Center has chosen to be a presenting center only, although its board has set aside $500,000 in a performance fund to bankroll future collaborations with other centers.

“I would not want to run that operation (the Orange County Performing Arts Center),” Burt said. “Just presenting shows would not be satisfying. But for what it is, as it stands, it is going to be a superb operation, I predict.”

One problem that all centers face is balancing financial solvency with artistic reputation. Thomas R. Kendrick, the Center’s president and chief financial officer, contends that ticket sales for cultural performances cover less than two-thirds of the hall’s operating costs.

The major reason, he said, is that performance costs have skyrocketed in the last 20 years. “It’s an established pattern, and the amount (of operating costs covered by the box office) is going down,” Kendrick said.

Sources of Revenue

Kendrick estimates that symphony ticket sales cover about 75% of the costs of presenting a symphony, opera sales cover 50%, ballet sales cover 70% to 75% and musicals break even.

“That’s the last discipline where there’s a chance of making money,” he said.

Adding to that problem is the fact that Center officials consciously choose to rely on only three of the five traditional means of financial support available to performing arts operations.

“The Center has only three sources of revenue--ticket sales, endowment and private donations,” Kendrick said. “Virtually all other major performing art centers have two other sources of revenue--government support and ancillary revenue (such as) parking fees and restaurants.”

The Center has no restaurant, and the parking lot is owned by Center Tower Associates, a partnership that includes Segerstrom. According to a CTA spokesman, currently “there is no surplus (revenue) after the debt service” for the Center’s lot.

“It was a conscious decision not to include a restaurant in the facility,” Kendrick said. “The first and foremost reason is that there are 43 within walking distance of the Center. . . . Regarding the parking lot, we have parking available to the Center, but we did not have to raise the $14 million necessary to build it.”

At the Music Center in Los Angeles, a 24-year-old complex with three theaters, annual parking revenue will top $3 million in fiscal 1988. The county of Los Angeles will pocket that money but in return will give the center an estimated $6 million in maintenance services, said Esther Wachtell, executive vice president of the Los Angeles arts complex.

John Rau, a former board member of Orange County’s Center, views the first-year numbers with caution. While 1987 fund-raising efforts were good, he said, they may be difficult to sustain in coming years.

Well Could Dry Up

After nine years on the board--including two as chairman--Rau was not invited back when his latest term expired in April, 1987. He said at the time that he believed that he was dropped because of his outspoken style.

During those nine years, he said, he became concerned that Orange County’s many arts organizations are competing for a finite amount of charity dollars and that some day in the near future the donation well could run dry.

Center board member Leonard Shane disagreed, arguing that the 1987 fund-raising effort “isn’t even remotely as good as it will be in the future. . . . Corporate support is part of the maturation process, and we’re doing it extremely well here in Orange County.”

Attendance figures are a good indicator of an arts center’s health, and operators of other centers say arts complexes average 70% to 75% overall paid attendance.

Segerstrom refuses to release attendance figures by performance for Orange County’s Center, citing a desire not to bruise artistic sensitivities by showing which performing groups drew the largest audiences. But he said about 600,000 tickets were sold for 247 performances at the 3,000-seat Segerstrom Hall, for a paid attendance of about 81%.

That is a figure his fellow center operators envy.

“Everything you estimate (in budgeting) is based on a 70% attendance figure for a total year,” said Tim Northcutt, media coordinator for the Tampa Bay Performing Arts Center. “They’re doing well if their average attendance is 80% to 85%. That’s good. That’s very good.”

Major Changes Expected

Tampa’s complex of three halls was formally opened last September and has been averaging about 70% attendance ever since, Northcutt said.

According to Kendrick, ballet performances at the Orange County complex averaged 83% paid attendance in 1987, opera about 95%, jazz about 82% and big band performances about 95%. Two 1987 shows during the Center’s series of performances by international artists averaged 32% and 88% respectively.

But 1988 promises to be a very different year, Kendrick and Segerstrom said. And the major change expected during the Center’s second full year of operations involves attendance and advertising--two tightly intertwined issues.

In the Center’s first year, advertising costs were low because the novelty of opening season kept attendance relatively high. Segerstrom and Kendrick contend that attendance figures per performance will be lower and advertising costs will increase because of a natural loss of first-year interest and momentum.

While the two men said they are budgeting 75% paid attendance for the 1988 season, they refuse to divulge anticipated advertising costs.

Perhaps the most troublesome issue facing Segerstrom and Kendrick is the Center’s endowment, which stands at about $1 million. An endowment is an investment account established to generate perpetual income to benefit a nonprofit organization such as the Center.

Interest earned by the Center’s endowment is used to help cover programming and operating expenses. In 1987, that endowment earned $30,000 for the Center, and $50,000 in endowment income is projected for 1988.

Help From Endowments

The Center has received endowment pledges totaling about $64 million in the form of deferred gifts. Those gifts are generally bequests and insurance assignments, and the Center will receive no money from them until the benefactors die. Kendrick estimates that the deferred gifts will start trickling into the endowment in about a decade.

Rau said that at one point the board considered a plan to split initial fund-raising proceeds between the Center’s endowment fund and the building fund. That plan, however, was scuttled.

“We ended up putting all the cash in the building fund and the deferred gifts in the endowment,” Rau said. “So we have $65 million in deferred gifts and not a heck of a lot of cash.”

In contrast, the Tampa center will earn about $125,000 in annual endowment income from a nest egg of about $2 million during its first year of operations, Elek said. And the 5-year-old Louisville arts center earns about $400,000 a year on an endowment of $5.3 million, Burt said.

“When that endowment comes into play, some of our fund-raising pressures will be lessened, but these are deferred gifts,” Kendrick said. “Significant help is not forecast for 10 years.”

The proposed 1988 budget for the Orange County Performing Arts Center includes a few significant changes from the first-year budget, reflecting the Center’s aging process.

For starters, the cash reserve for repair and replacement of such big-ticket items as carpeting, lighting equipment and seats will increase to $715,000 for the year from $100,000. It is a move that Kendrick emphasizes is “prudent planning” and an effort to “avoid the future problem of being forced to raise substantial renovation monies,” which would cut into fund raising for programming.

Projected expenses for 1988 are expected to rise to $15.6 million from 1987’s $12.1 million, and theater receipts are expected to increase to $10.5 million from $8.6 million--mostly because of an increase in the number of performances. “The more you program, the more you lose,” Kendrick said.

In addition, the Center is expecting what Segerstrom euphemistically refers to as an “income gap” (read operating deficit) of $4.1 million, up from $3.2 million. So fund-raising goals have been raised to $4.8 million from $4.3 million to cover the expected shortfall.

Wachtell, of the Los Angeles arts complex, contends that Southern California is big enough for both arts centers and that Orange County’s Center can prosper in the region’s growing economy.

“The Southern California community is growing tremendously, and there’s no question that they will be successful,” Wachtell said. “If they serve the community, the community will definitely support them.”

While Segerstrom says the future looks good, “like any business, we will be dependent on the market’s response to our product.”

ATTENDANCE AT PERFORMING ARTS CENTER

During the first year of the Orange County Performing Arts Center, partons filled a larger percentage of seats for most types of events than the national average, according to figures produced by the Performing Arts Center.

PERFORMING ARTS CENTER BUDGET SUMMARY

1987 Actual 1988 Budget Theater receipts $8,582,907 $10,503,000 Other revenue 396,835 318,480 TOTAL REVENUE 8,979,742 10,821,480 TOTAL EXPENSES 12,135,129 15,642,560 Net loss before support (3,155,387) (4,821,080) Fund-raising efforts 4,245,681 4,775,000 Endowment income 30,076 50,000 TOTAL SUPPORT 4,275,757 4,825,000 Net gain after support 1,120,370 3,920

Source: Orange County Performing Arts Center