5 Pros and Cons of Operating City-Owned Theaters

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The Highland Park Theater in Illinois. Photo: Heather Charles, Chicago Tribune.
The Highland Park Theater in Illinois. Photo: Heather Charles, Chicago Tribune.
The publicly owned Highland Park Theater in Illinois. Photo: Heather Charles, Chicago Tribune.

We have a couple of projects right now where we’re helping cities identify and contract a firm to operate their theater.

In one case it’s an historic structure being renovated to have a 425-seat hall with a couple of additional classrooms.

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The other project is a new 3,000-seat multi-purpose hall that can be converted to create a large flat-floor space for meetings, banquets and other community events.

We’ve also had several other projects recently where the municipal owner-operator of an existing theater has asked for advice as to whether they should keep operating the venue or find someone else to do it.

I’m always nervous about these assignments in that there might be some faulty logic underlying the question of who should operate the city-owned theater. Such as:

Couldn’t we lease the theater to an outside party who will pay us rent for use of the building?

Or:

Let’s just figure out what it costs to operate the building and divide that number by 365 to set a daily rent figure.

Or my favorite:

How much money could we make if we could get Phantom of the Opera in there?

Theatre for Sale!In the upside-down world of cultural facility management, we start with the problem that theaters have limited asset value, except for the land they sit on. People won’t pay a significant amount to buy a theater as a theater, given the limited income-generating potential of what goes on there. Cultural users can’t pay market rate rent, and theaters are not easily convertible for other uses. And the busier the building is, the more it costs to sustain.

Yes, there are exceptions: Broadway, Branson and Las Vegas. But when there is a larger purpose behind the building, such as supporting the cultural development of a community, operating performance is constrained.

What’s important is that there are more good options these days on who can operate a theater. Let’s review five general approaches in terms of their relative merits.

Government-Run Facilities
Government departments and agencies often operate cultural facilities, and they can be very effective as managers. Their orientation toward public service can provide significant benefits to local cultural organizations in terms of cost and scheduling, including a relative guarantee of public funding to support ongoing operations. And municipalities have various skills and resources that are necessary and beneficial to the operations of a theater.

On the other hand, there is always the risk of political interference in the operation of the facility, particularly around programming choices. Government budgeting and procurement methods may increase costs, while pay grades may limit the quality of candidates for key positions. And it is more difficult to convince the public to donate funds to a government-run facility, as they believe their tax dollars represent their contribution to operations. This is the biggest challenge, but there are ways around that, including the creation of an arm’s-length foundation that raises money and helps program the venue.

An Independent Nonprofit
In many cases, a new, independent nonprofit corporation is created specifically for the purpose of developing and operating a theater. These mission-driven organizations are oriented to public service and community impact, and because nonprofits are transparent operations, they allow for greater public accountability. There is an organizational orientation to private fundraising, which can reduce reliance on earned revenue and ensure greater curatorial flexibility. And a nonprofit can represent the region (at least the private sector) and its interests. 

But there are challenges with this model, notably that nonprofit organizations must fundraise to offset annual operating expenses and there are rarely guaranteed sources of contributed income. Such organizations often end up competing with their users for ongoing financial support. Most important, nonprofits are only as good as the boards that run them. There must be a deep pool of community leaders willing and able to contribute their time, energy and financial resources to the organization.

User-Run Facilities
In this variation on the nonprofit-run model, the principal user of the facility (often a nonprofit) is the operator. This option is worth considering when there is one organization that is a dominant or even a heavy user of a facility. That user of a theater is generally a credible local organization with the support of leaders and funders. Because that user is in the theater so often, it guarantees a high level of strong programming. And the dominant user also tends to know the venue better than anyone else, making it more effective at caring for the facility. This is a popular model for symphony halls dominated by a resident orchestra.

On the other hand, the dominant user has a conflict, being both the operator and the dominant user, which often means that other users have a hard time getting favorable dates and services. There is also a potential shortage of facility management skills, particularly around presenting and rentals.

School and College-Run Facilities

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Fei and Milton Wong Experimental Theatre at Simon Fraser University's new downtown campus.
Fei and Milton Wong Experimental Theatre at Simon Fraser University’s new downtown campus.

Schools, colleges and universities are increasingly interested in operating cultural facilities on behalf of communities. They are typically skilled at operating all sizes and shapes of facilities. Educational operators are more likely to bring in more daytime activity, such as classes and rehearsals as well as productions. And schools and colleges are generally skilled at raising money both to improve and to sustain facilities.

What’s new is that schools, colleges and universities are increasingly interested in operating facilities off the traditional school campus, where community groups and audiences are often reluctant to venture.

But even when the venue is not on campus, there is always concern as to how a school-run facility will provide proper access to community groups. And the operating policies of school-run facilities are often restrictive for community and commercial users. It has been my experience that this option only makes sense when we start with a school or college already identified as willing and interested in considering the development and operation of facilities with a community, also open to different locations.

Fee-for-Service Facility Managers
Finally, there are venues operated by professional facility management organizations. There are generally two kinds of organizations that can be contracted by cities to run theaters:

  1. For-profit facility management companies like SMG, AEG and Global Spectrum that operate theaters, arenas, stadiums and convention centers for government and schools.
  2. Nonprofit operators of existing performing arts venues in the same market area. This is a newer trend, but one that we have seen work in several regions.
The Phantom
“In sleep he sang to me…in dreams he came…”

Commercial and other nonprofit operators are experienced at programming, marketing and promoting events. At the same time, the facility can remain available to outside groups, including nonprofit cultural organizations. There are efficiencies associated with hiring an operator with a large, national network of venues, including advantages around programming and booking acts. And the process to hire an outside operator is efficient and transparent, based on a “Request for Proposal” (RFP) process. One RFP can attract both for-profit and nonprofit operators, and the city can retain the right not to hire anyone if no suitable candidates are identified.

There are also some significant problems with this approach. Third-party operators are not naturally inclined to manage access to facilities by local arts organizations, and there is often tension between nonprofit users and a commercial operator. This is becoming less of a problem as these management companies recognize the importance of working with local arts groups, but it’s still a difficult set of relationships.

The success of this approach is often a function of the quality and care put into the bid and contracting process. Cities must be very careful to have their goals and expectations translated into a positive working relationship. And pursuing this option does not necessarily reduce the city’s financial commitment to the theater, as an outside operator will demand a fee for services, as opposed to paying rent.

So why is it that when there is such a reasonable and rational set of options for operating theaters, so many cities make bad choices and end up nursing empty halls with large operating deficits? Stay tuned…

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Duncan Webb
Duncan M. Webb, President of Webb Management Services, Inc., has been a management consultant for the development and operation of performing arts facilities for 25 years. Mr. Webb entered the theatre profession as a lovesick maiden in Gilbert and Sullivan’s Patience in 1969. Since then, he has completed degrees in economics and business; worked in international banking; produced commercial, industrial and experimental theatre; and has been teaching for New York University’s graduate program in performing arts administration since 1990. He worked for Theatre Projects Consultants from 1989 to 1995 and founded Webb Management Services in 1997. That practice has completed over 300 feasibility studies, business plans and strategic plans for facilities, organizations and districts. Mr. Webb is also the author of Running Theaters: Best Practices for Managers and Leaders, published by Allworth Press in 2005. He lives in New York City with his wife and two children.