Music awash in red ink

The drumbeat started late in the summer, as one high-powered American symphony orchestra after another made it clear that they had lost money on the 2001-2002 season. For most of them, it represented the first red ink in nearly a decade.

In late August, the mighty Cleveland Orchestra announced a $1.3-million deficit on a $34.6-million budget.

In early September the Pittsburgh Symphony, which had burned through a $2-million surplus fund, said it was more than $1 million short and could end up in bankruptcy. A few weeks later, the Philadelphia Orchestra posted numbers similar to Cleveland’s.

The latest casualty came just over a week ago, as the normally sturdy Chicago Symphony Orchestra, with a $60-million annual budget, was $6.1 million in the hole.

And those are the big guys. Among smaller organizations, some outcomes were worse. In June, the San Jose Symphony canceled its 2002-03 season, facing bankruptcy; in July, the Washington (D.C.) Chamber Symphony folded.

Jack McAuliffe, vice president of the American Symphony Orchestra League, a service organization in New York City, says the beat will go on. Once all the balance sheets are in -- by December or January -- he expects that a majority of U.S. orchestras will show some sort of deficit for 2001-02.

The trail of bad news prompts a worried question: What’s the problem with classical music?

As it turns out, all unhappy symphony orchestras are unhappy in their own way, but the answer is surprisingly consistent.

“It really is ‘the economy, stupid,’ ” says McAuliffe, pointing to the general downturn and to the aftermath of Sept. 11. “It’s affecting all those revenue sources” -- especially corporate, foundation, government and individual donations -- that are crucial to an orchestra’s bottom line.

One revenue source that has stayed relatively stable is ticket sales. Just after Sept. 11, particularly in New York and New Jersey, according to McAuliffe, ticket sales dropped enough to have a major if mostly short-term impact on revenues. The New Jersey Symphony Orchestra, which lost $1.1 million, saw its ticket sales down for almost four months. But according to McAuliffe, an informal survey of the nation’s 50 largest orchestras showed ticket sales down only 1% from the previous year. And in the big picture, sales are up: McAuliffe reports that, nationwide, orchestra attendance in 2000-01 was 32 million people, a rise of 16% from a decade previous.

But in bad economic times orchestras run into trouble because they have high fixed costs -- long-term contracts with halls and their musicians, guest artists booked years in advance. Joe Kluger, president of the Philadelphia Orchestra, says his organization is a case in point. He employs roughly 100 musicians, every week of the year, with salaries and benefits determined by a competitive union contract. In 2001-02, he says, the Philadelphia Orchestra increased its ticket revenue by 27%, or $3.5 million, largely thanks to the excitement around its new Verizon Hall, which opened in December. But, given rising health-care costs, and staff and musician pension funds that were pummeled by stock market declines, the orchestra still posted a $1.3-million deficit.

Chicago was also hit by stock market problems; the market’s fall cut into its employee pension plans by almost $3 million, and a slight decline in ticket sales didn’t make things easier. The orchestra also posted what it calls a “one-time, non-cash accounting adjustment” of $2.3 million that included old debt.

Many of the red-ink orchestras cite a downturn in corporate giving in explaining their shortfalls. In Texas, where the Dallas Symphony Orchestra posted a $877,000 deficit, many nonprofits took donation hits tied to the Enron scandal, beleaguered energy companies, and corporate mergers, according to McAuliffe. In Cleveland, similar pressures have meant that corporations are leaving town. Thomas W. Morris, the Cleveland Orchestra’s executive director, says his organization was hardest hit by a 29% drop in corporate contributions.

“It’s not that they’re contributing less,” Morris said, “it’s that they’re not here.”

Foundation giving is also down, says Jim Ferris, director of the Center on Philanthropy and Public Policy at USC. Not only have foundations seen their net worth fall with the stock market, since Sept. 11, they may be more likely to give money to human services, tolerance programs and international efforts than to the performing arts these days.

“The foundations are thinking, ‘What are the lessons of September 11, and how should that affect our giving?’ ” Ferris says.

Orchestra endowments are another casualty of the stock market decline. When there’s a budget shortfall, a nonprofit can draw a set percentage to cover deficits. But as the value of the endowment falls, that percentage yields a smaller figure for the bottom line. The Minnesota Orchestra, for example, has seen its endowment decrease in value 30%, or $36 million, since 2000.

Southern California’s orchestras have yet to reveal their 2001-02 numbers. The Los Angeles Philharmonic, which won’t make its figures available until December or January, has already been grappling with deficits. For 2000-01, its shortfall was $1.3 million on a $50-million budget.

Some of its current news is good. As was the case in Philadelphia, the promise of a new venue -- Walt Disney Concert Hall is set to open in fall 2003 -- has increased interest in the orchestra, especially given that the only way to ensure a seat in the Frank Gehry-designed structure is to subscribe now. Deborah Borda, the Philharmonic’s managing director, says subscriptions have risen from 22,000 in 2000-01 to 27,000 for the current season, and ticket sales were up about 10% at the Dorothy Chandler Pavilion and the Hollywood Bowl. Last season, donations were $800,000 over goal. Still, she makes no promises that the 2001-02 budget will be balanced.

In Orange County, the Pacific Symphony Orchestra’s president, John Forsyte, paints an even rosier picture. “Fund-raising was at an all-time high last year” -- especially personal philanthropy -- “and ticket sales were at an all-time high,” he claims, though he would not release budget figures. “This fiscal year is going to be far more challenging.”

The situation of the San Diego Symphony, which is in its fifth season since rebirth after a bankruptcy, shows just how volatile orchestra economics can be. With a long-term $120-million gift from Qualcomm founder Irwin Jacobs and his wife, Joan, it’s one of the few U.S. orchestras posting a surplus for 2001-02: $700,000 on a $10-million budget and an estimated 25% increase in ticket sales and individual giving. But the summer season, and recent fund-raising, have been disappointing, according to Douglas Gerhart, president and chief executive.

Each orchestra facing deficits has its own plan to balance the budget. In most instances, they won’t be changing their core programming (as Philadelphia’s situation shows, offering fewer concerts does little to cut costs). Instead they will cut staff and auxiliary programs, such as radio broadcasts, tours and chamber series. The Chicago Symphony Orchestra, for example, has trimmed administrative positions, limited overtime and the use of extra players and launched a more aggressive subscription drive to bring the numbers into the black.

“I don’t want to say, don’t worry, this will correct itself,” McAuliffe says; administrators and especially donors need to step up to the plate. Still, of the dozen that have filed for bankruptcy or ceased operation in the last 15 years, all but Sacramento and San Jose have bounced back, he points out, and San Jose is reorganizing and may return. “Orchestras have proved surprisingly resilient.”