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Overhead Funding May Not Be Expanding, But The Conversation Is

June 8, 2016

by:

Joe Patti

Something I had meant to mention in my post yesterday was that Priceonomics’ admiration of Yerba Buena’s Dream House Raffle sounded very similar to fund raising philosophy espoused by Dan Pallotta.

Said Priceonomics,

There is something admirable about Yerba Buena’s Dream House Raffle.

Every nonprofit spends a lot of time conducting and worrying about fundraising, and that is time that could be spent on the nonprofit’s mission. The Yerba Buena Center for the Arts identified a new revenue stream and has done well at it. It now raises more money from its raffle than it receives from individual donations or from the city of San Francisco.

Dan Pallotta says something similar in his 2013 TED Talk:

Now, if you were a philanthropist really interested in breast cancer, what would make more sense: go out and find the most innovative researcher in the world and give her 350,000 dollars for research, or give her fundraising department the 350,000 dollars to multiply it into 194 million dollars for breast cancer research?

If you have been following my blog for any period of time, you know that there has been a lot of discussion and examination about overhead ratio as a valid measure of institutional effectiveness.

Of late, the topic has been spilling out of publications focused on non-profit audiences and into the mainstream. This week, FastCompany’s FastCoExist took up the topic in a piece titled, “Demanding That Nonprofits Not Pay For Overhead Is Preventing Them From Doing Good.”

Upon reading the transcript of Dan Pallotta’s talk, I see the FastCoExist article basically says everything he did three years earlier. Except there continues to be more research conducted that is supporting the validity of the claim. FastCo cites a new Bridgespan Group study that shows how uniformly applying a flat rate limit on overhead is undermining non-profit effectiveness.

According to a recent report by Oliver Wyman and Seachange Capital Partners only 30% of New York nonprofits can be considered “financially strong”—and “many trustees do not understand the financial condition of their organization or how it compares to its peers.”

[…]

Part of the problem is that many funders have become obsessed with measuring their impact on a per-dollar basis, which means they’re more eager to give to specific projects than the institutional upkeep that supports them. But the 15% overhead limit doesn’t even parallel what commercial companies shell out. According to Bridgespan’s research, the average S&P 500 firm spends about 34% of their budget on essential behind-the-scenes support. For IT companies it’s more like 78%, the report notes. Some 21st-century nonprofits probably require the same kind of tech firepower.

Similarly Pallotta noted,

So we tell the for-profit sector, “Spend, spend, spend on advertising, until the last dollar no longer produces a penny of value.” But we don’t like to see our donations spent on advertising in charity. Our attitude is, “Well, look, if you can get the advertising donated, you know, to air at four o’clock in the morning, I’m okay with that. But I don’t want my donation spent on advertising, I want it go to the needy.” As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy.

What Bridgespan did in their research was segment non-profits into four general areas (U.S.-based direct service, policy and advocacy organizations, international networks, and research organizations) and then broke down expenses into five different categories. It probably isn’t any surprise that different segments of the non-profit sector vary widely in their needs.

There is a graphic in the FastCo article that illustrates this, but for example research organizations spent huge percentages on physical assets compared to policy and advocacy organizations. Policy and advocacy organizations didn’t spend any money on field and network operations, whereas the international and research segments did, but in greatly differing amounts.

They use this research to support their assertion that requiring flat-rate reimbursements for overhead costs across the entire non-profit sector is inappropriate. Not to mention that the percentages they set are restrictively low.

Regardless of whether this research brings about change in the immediate future, at least the scope of those involved in the conversation continues to expand.

Advocacy, Finance, Fundraising, Working In The Arts

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Is It Worth Gambling On A High Stakes Raffle Fundraiser?

June 7, 2016

by:

Joe Patti

Via the Marginal Revolution blog, I recently read a piece on Priceonomics about how the Yerba Buena Center for the Arts was using a loophole in California state law to “raise $4 million by selling $10 million in raffle tickets.”

Since the authors note that other states have a similar loophole (or lack thereof), I thought this could be something of interest to arts organizations in general. While it can be something to explore, before rushing out to organize one, you should also be aware that there are some elements to their raffle that have raised more than a few eyebrows.

Essentially what they do is sell $150 raffle tickets for the opportunity to win a $5 million Dreamhome or a $4 million payout.

Yerba Buena does not buy a house every year, and it is unlikely that it has ever given away the dream home that it advertises on fliers and billboards. Instead, as SFGate has reported, the organization finds someone who is trying and failing to sell their expensive home. The homeowner signs a contract with Yerba Buena agreeing to potentially sell their house, which would allow the nonprofit to give it to the winner of the contest.

[…]

Since taking the dream house comes with a big tax bill, winners always choose the money. SFGate failed to find any winners who moved into the San Francisco dream homes, and this seems to be the case nationwide. “I believe that with most, if not all, [dream house raffles] around the U.S., the winner takes the cash,” says Brian Yacker, a lawyer who works in nonprofit law. “I don’t recall a winner taking the house.”

A San Francisco Chronicle piece on the raffle notes,

Often owners of these homes connect with the Dream House Raffle because the nonprofit will pay them to take their property off the market as it becomes a marketing tool.

“Usually, the nonprofit is not given the home,” Pender wrote. “It might lease it from the owner with an option to buy if the winner chooses the home. The owner gets paid for keeping the house off the market during the raffle, and even if it doesn’t end in a sale, the home gets plenty of free publicity.”

This actually sounds like a smart approach and win-win all around, especially if you know that people will generally choose the money.

What raises eyebrows is the fine print. You only get the dream house or the $4 million payout if a minimum number of tickets are sold, in this case, 65,000. According to that same San Francisco Chronicle article, the art center won’t reveal if they ever reached that minimum in the seven years they have held the raffle and have deflected inquiries by the Better Business Bureau saying it was proprietary information.

The SF Chronicle notes though that even if only 70% of the 65,000 tickets are sold by June 24, the winner still gets to claim 50% of the profit from ticket sales which would come to $3,412,500, not an insignificant amount. They also peg the chances to win some sort prize at 1 in 30.

In terms of the operational nuts and bolts of these types of raffles, Priceonomics reports that California law requires 90% of the raffle proceeds go to the non-profits’ programming. (Though they say thanks to legal maneuvers, Yerba Buena actually spends 60%-80% of the proceeds on the prizes and cost of running the raffle.) Other states have looser requirements,

In other states, no loophole is required. Tennessee law, for example, only requires that 25% of the raffle proceeds go toward charitable causes; in Minnesota, it’s 40%. Massachusetts law just states that a “reasonable” amount of the proceeds should fund the nonprofit’s work.

Now before you start pondering the potential to use a raffle of this scale to make money, you should note Priceonomics’ comments the perceptual issues involved.

For one, there is the ongoing discussion of overhead costs. If people feel like the money they have donated isn’t going toward programming that benefits a needy organization or people that they serve, it can undermine donor confidence. Priceonomics cites a number of instances where people felt burned upon learning that only a small portion of what they gave actually benefited the group they were being solicited to help.

They list a number of examples where organizations have abused people’s ability to gain tax credit for donating homes and vehicles. The SF Chronicle article cites a few sketchy situations with dream home raffles.

Though Priceonomics does note in Yerba Buena’s case,

Most participants in Yerba Buena’s raffle probably would not be shocked to learn that a good chunk of their $150 raffle ticket goes toward the cost of the $4 million cash prize. And since the cost of raffle tickets is not tax-deductible, taxpayers are not subsidizing these fundraisers.

Actually, one of the criticisms of the billboard and bus advertisements for the dreamhome raffle is the fact it is a fundraiser for the arts center is downplayed.

The other perceptual issue Priceonomics cites in relation to raffles of this scale it can be equated with gambling. While a $150 ticket is not going to be viewed as exploiting low income people the way state lotteries are, if people feel like too little is going toward programs, it may create a negative view of the organization.

“The original reason for the 90-10 raffle rule—and having those raffles just for nonprofits—is because it’s not gambling but a fun way to support nonprofits you want to support,” says Berlin. “Once you move away from most of the money going to charity, it looks more like gambling.”

If you think you might want to do a raffle of this sort, it is worth reading both the Priceonomics and SF Chronicle pieces.

The former does a good job analyzing the logistics of such a raffle and ends stating their general admiration of the arts center for freeing up their time to focus on programming rather than fundraising. The SF Chronicle article takes a more skeptical view of the whole arrangement, questioning and then physically verifying the house even exists. Between the two, you can get a good sense of all the questions you might need to answer if you choose to replicate this sort of raffle.

Fundraising, Info You Can Use, Legal Topics

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Pursuing Better Artist Treatment Through Cultural Shift Rather Than Rules

June 6, 2016

by:

Joe Patti

Given all the attention recently being paid to the release of Americans for the Arts’ Statement on Cultural Equity, I thought it would be a good time to call attention to the draft of a Code of Conduct for Non-Equity Theatre being developed by a pilot project group in Chicago.

The Code of Conduct seeks to set guidelines for the sexual content/nudity, physical safety, violence and use of cultural representation in non-union performances. Essentially, the creators want artists to be fully informed about any of these issues from the time the audition notices go up through to rehearsals and performances.

There are also some general “be decent to the artists” guidelines like:

[at auditions] Actors will be made aware of people present that are not the casting authority.

[…]

You will not be asked to audition more than 3 times for this production;
You will not be kept at any audition more than 3 hours; or past 11pm;
You will not be asked to disrobe, or perform any intimate contact or violence as a part of your audition;

Even without sexual content and violence, the interminable, anxiety-inducing audition environment has long been a source of complaints by performers. One element of the code that appears frequently is that the performer has the right to refuse to audition or refuse a casting offer without fear of future reprisals.

The code doesn’t just stipulate that you need to tell people that the roles they are auditioning for will include sexual content, staged violence or place them in physically precarious situations, it also insists that a clear plan about how these things will be handled be communicated and provides guidelines about how to address them. (i.e. at what point in the rehearsal process is full nudity implemented and how the environment should be managed.)

Cultural appropriation and stereotypes in performance has been a frequent topic of discussion and the code includes that as well.

“…actors have the right to make inquiries about how the producer plans to use their cultural personhood…

…participants have the right to speak up if…

Costume pieces that can be reasonably understood as culturally demeaning are not disclosed at audition/casting.

Staging (culturally based violence or abuse not disclosed at the time of auditions/casting)

Accents to underscore a cultural presentation not disclosed…

Make up that can be reasonably described as “blackface” or “brown face” not disclosed…

Some elements of the code are attempts to create some parity with union situations. For example, appointing a Non-Equity Deputy as an extra set of eyes too make sure the physical, social and emotional elements of the production are being handled appropriately. Included in this is addressing an environment of harassment or intimidation, be it based on sexual, gender, racial or ethnic identity; age, ability, citizenship, etc.

Again, one of the frequently mentioned aspects of the code is a clearly defined complaint path for any issue that may arise.

Reading the Code of Conduct a number of thoughts struck me. First, there is fair bit in the document that has long been part of the rules Actors’ Equity union contracts. The code is essentially asking that all performers enjoy the same basic level of consideration that union actors have received.

At the same time, there are decades old unaddressed issues here that have long bedeviled the arts community regardless of union affiliation. These are problems that everyone has talked and complained about, but nothing has been done to rectify.

Of late, many of these complaints have been addressed by action thanks to the conversation being picked up by larger constituencies. In this I see some hope that even if this specific code of conduct is not adopted, practices may change to achieve the ends the authors seek.

As they note on the project homepage, they seek to engender a cultural shift, not construct a legal document.

Advocacy, Art(ist) Education, Terms and Ideas, Working In The Arts

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Community Theatre, Beijing Style

June 1, 2016

by:

Joe Patti

Before traveling to Beijing, I took the opportunity to arrange to meet with Beijing Playhouse Executive Director, Chris Verrill. Beijing Playhouse describes itself as “China’s English Broadway Theatre.” It is essentially a community theater that casts ex-pats from various English speaking nations. Though anyone with sufficient skill in English can audition. Looking through some of the playbills, I saw people from the U.S., British Commonwealth countries, Africa, Japan, India and China.

While the Beijing Playhouse does conduct kids’ theatre camps and classes, they only just mounted their first children’s theatre performance this Spring. I got to meet up with Chris Verrill after a performance of Rapunzel at a new theater space they were trying out. Unfortunately, the house staff quickly locked the theater up after the performance so I didn’t get an opportunity to see inside.

Verrill has been running the Beijing Playhouse for 10 years now. The Playhouse was founded when he was traveling in Beijing and decided to mount an English language production seeing that no one else was. People were so pleased, they urged him to stay develop a permanent theater company.

As you might imagine, running an English language theater in China has its own set of challenges, not the least of which is the fact that the Beijing Playhouse is categorized as a performing arts consulting entity rather than a theatre and needs business partners to help them produce shows.

Technically, they aren’t supposed to sell tickets so they can’t use China’s online ticketing equivalent of Ticketmaster. (The seat numbers on the ticket samples Verrill gave me need to be filled in by hand.) Nor can they do much marketing via print and broadcast media.

They also have to be careful about the content of the shows they present. Not all of the problematic subjects are political. The ghosts in Dickens’ A Christmas Carol tread a fine line.

This isn’t to say Beijing Playhouse is furtively darting into theaters. Verrill invites Communist Party members to all the productions and events.

Verrill also strives to remain in favor with the merciless powers of Western theater–dramatic and musical rights licensing agents. While it might be easy for a company in China to fly under the radar, the Beijing Playhouse pays all due royalties. As a result, they have run into the same frustrating problems faced by theaters in the US–having rights blocked due to an incipient tour.

Verrill said his request for the rights to Sound of Music were deflected for six years before the tour actually came through Beijing.

Beijing Playhouse supports itself by soliciting corporate support from a variety of sources. They can’t really engage in fundraising.

One of the interesting things I learned was that the average age of theater audiences in China is about 25 years old. Beijing Playhouse audience tends to be a little older. Theater is viewed as cutting edge given that the Cultural Revolution had sought to eradicate it.

Most of Beijing Playhouse’s performances are presented with projected Chinese supertitles. Verrill says it can get entertaining when the subtitles get a little out of synch because there will be two sets of laughter–the first from those who understand English and the second moments later from those who are just getting the joke in the supertitles.

Verrill noted that Chinese audiences tend to be poorly behaved by Western standards. They get up and move around, chat with others, potentially climb up on stage from time to time. He said after 10 years they had gotten their audience to modulate their behavior quite a bit. A higher than average ticket price helps to deter some people as well.

However, he said, the Children’s Theater performances of Rapunzel were pretty chaotic between normal kid behavior and a new audience segment that wasn’t familiar with the expectations of live performance attendance.

Now lest you think they are adherents of the philosophy that audiences should watch quietly until it is time to laugh or clap, Beijing Playhouse performs many shows using the British Pantomime style which takes children’s stories, mixes in people in drag, innuendo and double entendre, and audience participation.

Verrill swears by it and encourages theaters in the U.S. to include it in their season. He said the first time around, people might not understand that they are expected to participate, but thereafter they will jump in and participate whole-heartedly.

Verrill is also an advocate for Readers Theater. Beijing Playhouse will frequently engage in an intensive week long rehearsal process to put a show together for a single performance to benefit charity. They use this format to introduce audiences to slightly edgier content than might be found in their main season. For example, this June they are planning to perform One Flew Over the Cuckoo’s Nest.

Since Beijing Playhouse ends up performing in spaces all over the city, we got to talking about the quality of different places both around the city and the country. One thing I had been aware of was that many cities were building big grand performing arts centers without sufficient programming available to fill a calendar even before considering whether the shows are of interest to audiences.

Verrill noted that one of the things that China lacks is the regional development system the US has where shows get developed and refined before going to Broadway. As a result, some times things are mounted in the big houses before they are quite ready for prime time.

I wonder what sort of structure might evolve over time in response to this need. Without a doubt it will be particular to China and may not ever really occupy the spaces currently constructed for performances.

My thanks to Chris Verrill for taking the time to meet with me. Also, for quickly responding with verification and clarifications on the content of this post.

Arts in an Age of Technology, Business Models, State of the Arts, Working In The Arts

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