Don Quichotte Rides Again: Viswa and the San Diego Opera

Just because I’m lazy here’s another post from my colleague Viswa Subbaraman on the San Diego Opera situation:

 

A lot has been going on with the San Diego Opera in the past week. I’m going to try to talk about the most updated information I’ve seen, but it’s changing pretty rapidly. If I’m behind in my analysis, I apologize. I want to preface all of the following tirade with these important disclaimers:

I don’t know the exact numbers behind the SDO issues. I have not seen a statement of cash flows, a balance sheet, the state of their donations, etc.

The opinions are mine and mine alone – they don’t reflect on the Skylight board or management.

I’m blessed with a board at the Skylight that is interested in being an active part of the strategic planning process. They keep tabs on the financial situation of the company, and they try to propose solutions. They are looking at our changing demographics with open eyes and are working on being a strong part of the solution. I couldn’t be more thankful to be working at the Skylight and with a dedicated board and staff.

 

I have to say that my favorite moment of the past two weeks was the board president’s letter in the San Diego paper. <http://m.utsandiego.com/news/2014/mar/29/opera-board-made-right-decision-to-close/> While I eat this cake that Ms. Cohn metaphorically suggested we eat, I’d like to submit a rebuttal to her column.

 

Second-guessing the board, of which I am president, is not productive. And when that second-guessing devolves to personal attacks, it is reprehensible.

 

Well, Ms. Cohn, I agree that the board should not be subject to personal attacks. Serving on a non-profit board is a difficult and thankless job. I truly believe that, so I agree that personal attacks are reprehensible, and I hope that those fighting to save SDO refrain from them. I would, however, like to address the first point – second guessing the board can be productive, and it is absolutely allowable. (Second guessing a for-profit board is also allowable.) When one serves on a non-profit board, one is basically agreeing to steward a company for the community it serves because in the end, all non-profits provide a service to a community. We are given a non-profit classification by the government because in economic terms, we are seen to create a positive externality that is not fully remunerated by simply ticket sales. Thus, we’re allowed that tax free status and people are allowed to donate to us and deduct it on their taxes – they are helping remunerate us for the positive effects we have on our community that is not captured in the ticket price. Because we’re a service organization in our community, the community has the right to question our decisions. It doesn’t make our job easier, but it is true. I’m sorry, Ms. Cohn you have a responsibility to your patrons as a board member of the company. You are a steward of a community service organization.

 

Here is the truth behind the board making a heartbreaking decision two weeks ago.

We are about world-class grand opera. For 49 years, the San Diego Opera delivered increasingly acclaimed world-class grand opera with internationally renowned singers. That is what our subscribers enjoyed and what our philanthropists supported. Neither audience was particularly in the market for alternative or radically new programming.

 

How do you know this to be true? It seems that the company has not really tried to serve it’s community with a mix of younger (less expensive) singers and chamber opera, etc.. I’d be willing to bet that with the right mix of shows, casting, and experimentation, you could actually serve a greater variety of people while reducing cost.

 

What is world-class grand opera? It is up to 280 people working on a production and up to $19,000 for one lead singer per performance (because of worldwide demand). Add the cost of sets and costumes, and other support. Grand opera is no small undertaking.

 

You speak the truth… Well, sort of. Truth be told, I’ve never spent $19,000 per performance on a singer. Frankly, in my first season with Opera Vista, we spent $19,000 on the season. I grant you that it’s apples and oranges, but I know for a fact that you can create critically acclaimed and audience loved opera for much much much less money. I know some great singers you can hire at $3,000 a performance, and they’ll even dance while singing opera. They’ll also sing it well. Of course, in 10-15 years, I hope they are making $19,000 per performance. They will deserve it, but right now, they’ll do an amazing job for less.

 

Let me contrast the uninformed view with the informed view that drive our decision.

The uninformed view — evident in the arguments raised by many of our critics — saw this:

 

Cool… Let’s see what we have.

 

No debt;

Hmm… Not sure whether this is informed or uninformed, but that seems to be a state of being that can be quantified. So, I guess that’s a good thing. We’ll go with no debt being good.

 

Balance sheet assets;

Also seems fairly quantifiable. Also seems like a good thing.

A well-managed organization; and

I think, unfortunately, most informed/uninformed eyes disagree with this point. Not having debt and having a healthy balance sheet might lead the uninformed to think that the company was well managed, but when you’re taking from endowments and from reserves that could have done better as part of an endowment to pay down shortfalls each year, that’s simply hiding the problem. I know at the Skylight, we give the board a snapshot of where the company is financially at each board meeting. We have a board that is actively taking part in discussions of the big picture of where we draw from for funds, etc.. It’s important that the board take a position of fiscal oversight. It seems that the general manager was hell bent on balancing the budget each season to the point of constantly drawing on a rather large donation that could probably have generated a lot more income over time as part of an endowment than as a piggy bank from with to overcome shortfalls.

 

Budgets that seemed mostly balanced, albeit relying on reserves to get there.

See above. I won’t get in to a discussion of management’s misaligned incentives that caused them to constantly make the budget seem balanced when they were simply pulling from reserves to mask the problem. Instead of allowing the board and management to band together to solve the structural problems and be creative about facing the challenges posed by a decreasing audience, it allowed everyone to keep their head in the sand.

 

So, we’ve addressed the uninformed view. Let’s address her informed view, shall we?

The informed (board view) saw this:

No debt because that would start the inevitable death spiral familiar to many not-for-profits;

Smart, and a tactic I agree with, but again – no debt because you’re killing your future by drawing down on reserves that could better be used as an endowment isn’t really “no debt.” Still, no debt is better than debt. Debt is tough to manage and tough to overcome. None of us like it. My solution to a balanced budget with Opera Vista was to cut my own salary every year.. to zero. I can say that that isn’t a solution either. Makes it tough when you’re working a job to support your conducting habit. That being said, there are better ways to solve this… especially if you’re spending $19,000 per singer per performance.

 

Assets that are not liquid — sets, costumes and our scenic studio building;

I hear you on the building. To be fair, owning a building costs money. But, let’s talk about sets and costumes. was there a thought to get some of those sets and costumes out on the rental market? How about looking into incorporating projections. Yes, it is easy to say. We’re also talking about those ideas at the Skylight. Tough to implement, but you have more resources from the very beginning, so maybe it’s a possibility given the larger staff at SDO? Just throwing it out there. I guess the question has to be asked – are you doing opera to show off how much you can spend as an exhibition of opulence, or are you trying to create great theatre? If it’s the former, no wonder people think we’re a stuffy and elitist art form. If it’s the latter, the company needs to make smarter artistic decisions.

 

A well-managed organization that allowed us to see clearly what was coming, absent major changes in the financial picture;

Are you saying you have this now? Because, I’d like to respectfully disagree. Like I said before, every arts organization in the country has seen these issues coming for the last 15 years. Please tell me this was an active part of your planning discussions, and you just bet wrong. My guess is, however, that it wasn’t. The company decided to just go forward as if business was going to pick up. Doesn’t work that way if you want to be a responsible arts manager. I’ll be honest, this isn’t an easy field. There isn’t a day where I (or my managing director, or anyone in my company, really) go home without feeling exhausted and frustrated. You know why? We see declining audiences, a tighter donor climate… Wait.. All the things you’re complaining about. We all see it. All of us. We have just chosen to buckle down, tighten our belts, and experiment. I can tell you that when I was interviewing with the board for this position, those were the questions I was asked about – how do we build new audiences, diversify, etc.. We’re all going after it with eyes open. I couldn’t be happier that what I hear from the board most often is, “I love our shows. We’re doing well. We just have to figure out how to get more support for it, but I’m proud of our shows.” They understand the challenge and are willing to be stewards of the company.

 

Operating losses backfilled in large part by Joan Kroc’s unrestricted bequest, which has now been spent down; and

Yeah… $10.5M was the donation. Let’s say we ask a conservative money manager to put that in an investment. What do you think? Conservatively a 5% return? Very conservatively after management fees? That would roll out about $525,000 annually. For some reason, the decision was made to take about $1M a year annually until it was all gone. Not the smartest financial management.

 

Steadily declining solvency.

Welcome to the arts. We’re all searching for ways to keep our companies solvent while producing a great product with less and less.

 

I am very happy to hear that SDO has a stay of execution. The assets and the infrastructure would be hard to regain after a dissolution of a company. As someone who started a company from scratch, it’s not as easy as one might think. There is a greater chance of saving a company that has assets and shrinking it than for a company to start from scratch to reach the same level. The challenges they face will be innumerable. They have to convince potential donors that they aren’t going to fold. They have to show that they can create great art and theater and target the various communities in San Diego. (I think it’s short sighted to look at a community and say that it’s so homogenous that you are targeting one populace. Houston Grand Opera is brilliant at segmenting their population and targeting opera to the various constituencies while also continuing the tradition of grand opera. Patrick Summers and Sandra Bernhard do an amazing job in Houston.)

 

I am a bit surprised that Ms. Cohn doesn’t once mention a production that she felt was definitive for San Diego. She doesn’t mention the actual shows except to say that they did really expensive grand opera. What was worth fighting for? Shouldn’t that be the story we put front and center? Even if you feel a company can’t be saved, shouldn’t the discussion have started with, “It brings us great sadness that a company that produced such amazing shows such as (fill in the blank) can no longer make it in this economy?” The art is the story we tell. It’s the story we tell donors, and it’s what gives our boards a sense of pride and ownership. Everyone wants to talk about grand opera… How about thinking about this as theater and as something that is meaningful and relevant to your community? Maybe that would help grow your audience and get donors back on board?

 

I’m pulling for them! I hope the board brings in someone like a Darren K. Woods or a Marc Scorca to give them a greater perspective of the field. We’re a family in the arts, and none of us want to see another arts organization fail. We’re all in this together building audiences for a 200+ year old art form. We just need to keep fighting the fight and doing great shows or concerts.

 

Viswa Subbaraman

Artistic Director, Skylight Music Theatre