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Rumors of the Death of Arts Philanthropy Are Wildly Exaggerated

By Tom Watson on February 1, 2007No Comment

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Rumors of the Death of Arts Philanthropy Are Wildly Exaggerated
By: Susan Raymond, PhD., 2/1/2007

 

True, no one knows how many museums there are in the United States.  True, whatever that number is, some museums do close their doors, as do other arts organizations (and hospitals and schools and soup kitchens).  True, performing arts theater attendance may be down by 5.5%.  True, charitable outpourings for tsunamis and the refugees of governments that kill their own people may grab bigger headlines than the local ballet.

But, philanthropy is not a zero-sum game. What the tsunami gains, dancers do not necessarily lose. Despite rumors of its death, the arts, and the philanthropy that supports them, are alive and well across the nation — in part because the arts organizations, in comparison to other nonprofit sectors, have done a nearly unique job in developing surprisingly resilient revenue structures. 

The topic of arts philanthropy is, of course, hugely broader than can be covered comprehensively in a single essay.  Indeed, Changing Our World is in the process of developing a set of essays on arts philanthropy that will be available in June of 2007.  Let us, therefore, turn initially to three issues: the role of philanthropy in the arts, the entrepreneurial bent of arts organizations, and the clouds looming on the horizon.

Based on a sample of 21,100 tax returns for arts organizations in 2002, private direct and indirect contributions represent 43% of total revenue. Unlike other sectors, where the role of philanthropy can vary widely based on organization size, this 43% is fairly stable across organizational size.  Whether an arts organization has $100,000 in assets or $50 million in assets, philanthropy is still the source of only about four of every 10 dollars in its revenue coffers.  In turn, arts and culture organizations display surprising balance in their revenue structures, with about half of their revenues coming from earned income and about 11% from government, with the remaining philanthropic giving equally divided between foundations (corporate and independent) and individuals.

So, arts organizations have developed revenue structures that have some ability to adapt to the natural ebbs and flows of year-over-year philanthropic funding. Which is, of course, not to say that all is merry in the land of arts philanthropy. The arts are still number four on the priorities lists of foundations, and total giving to the arts has declined in three of the last 10 years. The revenue diversity of arts organizations is thus an important strategy for stability.

Which leads us to the entrepreneurial side of arts organizations.

For theaters, for example, earned income has increased faster than inflation in the last four years, rising by 23% between 2001 and 2005 and now representing 63.4% of all theater income, with a concomitant sustained improvement in the financial health of theaters.  Museums, long known for their retail shops (with everything from giant snakes and bobble-head dinosaurs to Van Gogh reproductions), have gone online and upscale.  Museum shops are found in the priciest malls and tax-free sections of airports.  Indeed, the earned income makes up 85% of the revenue of Harvard Museum of Natural History.  And museums have moved from goods to fee-based services.  The Denver Children’s Museum, for example, developed a pre-Christmas Toy Trade to reinforce in children the importance of giving, and then solicited corporate investment for the event. 

Arts organizations have also developed partnerships with other economic and service industries to increase their community reach. A 2004 survey of the Joint Commission on Accreditation of Healthcare Organizations found that 2,000 U.S. hospitals had created some type of arts programming or partnership.  In New York, the Beth Israel Medical Center has opened the Louis Armstrong Center for Music and Medicine, adding the arts themselves to the art of healing.  Being part of healthcare partnerships not only opens new pathways for recognition of and loyalty to arts organizations, there is evidence that inclusion of the arts can itself argue for the monetized value of its participation.  A 2002 study at Tallahassee Memorial HealthCare indicated that live music played in neonatal intensive care units is associated with a reduction in lengths of stay of 12 days at an estimated savings of $2,000 per day.

So, arts organizations are pursuing diverse and productive strategies for combining traditional philanthropic support with new opportunities to play a role in both the commercial and community worlds.

There are, of course, clouds on the horizon, ranging from the global (who does that artifact belong to, really?) to the local (how important are the arts in schools when property tax revolts cut public education budgets). 

Costs and prices are perhaps the most obvious.  Arts institutions employ an estimated two million Americans.  The costs of labor added to the increasing costs of technology and the need for physical infrastructure improvements to accommodate technology mean increased costs. And fees and prices follow suit. That knife has two edges.  Entry fees of $25 for a day at the museum carry two risks. On the one hand, a big fee can reduce attendance, but, on the other, it also can endanger the image of the arts organization as an expression of creativity by and for the community.

Nonprofits, of any type but including those in the arts, erode public trust at their own risk. Work by Paul Light at the Brookings Institution has documented the degree to which public skepticism of the trustworthiness of the nonprofit and philanthropic communities has not recovered from the post-September 11 disputes. When the public is predisposed to be skeptical, prices that separate the public from its community institutions will only reinforce distrust. In turn, that hardening can erode the very philanthropy that the organization would need to halt price increases themselves. The downward spiral then begins to feed on itself.

Thus, the real philanthropic challenge for arts organizations may not be the challenge of philanthropic dollars at all. It may be to develop revenue strategies that build, rather than replace, public confidence and public accessibility.

The author gratefully acknowledges the research assistance of Changing Our World intern Sam Akabas.

Sources:
Foundation Center
Internal Revenue Service
ZG Voss et al. Theater Facts 2005, Theater Communications Group, 2006.
C Larson. The Fine Art of Healing the Sick.  U.S. News and World Report. (2006)  140:21, 54-56.

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