The Business of Arts Organisations

Should all arts organisations earn money from diverse activities within the private sector in addition to their prime function?

Whether your organisation is large or small, state-funded or entirely voluntary, there's scope to learn from what's being happening in the last three years to organisations which receive public funding.

Sir Peter Bazalgette

Sir Peter Bazelgette - currently Chair of Arts Council England (and the man responsible for bringing 'Big Brother' to the UK plus 'Ready Steady Cook' and 'Changing Rooms')  and who is about to become Chair of ITV in early 2017 - spoke recently at an event - Sir Peter Bazalgette on the Business of the Arts - organised by the Creative Industries Federation

The businessman with a passion for the sector will examine questions including what makes successful arts organisations and creative businesses tick.

He expressed his personal views last week on why and how arts organisations can earn money privately - in addition to getting grants from public funding and raising funds through primary activities (eg selling tickets).

Apparently following cuts in funding arts organisations have had to become entrepreneurs.

arts organisations had revealed their “entrepreneurial flair” as he announced figures showing that supplementary income for the largest 600 organisations it funds — revenue generated by activities such as café and restaurant sales and merchandising — had risen by three-quarters between 2012-13 and 2015-16. Financial Times

This is the speech he made (pdf) I've summarised its important key points below and added in my own comments in places.

These are the articles by the proper journalists. Guess which one skimmed the release of the speech.

• Galleries and theatres should run B&Bs to earn money, Arts Council chairman suggests | The Telegraph
• Arts counter cuts with creative ways of generating cash | Financial Times
• Arts Council Chair celebrates sector’s entrepreneurial flair | Arts Professional

FUNDING

Context: Historical Funding Model

One of the Arts Councils strategic goals was that

Arts organisations and museums have increased the share of their income that comes from a wider range of contributed or earned income sources

The context was

• mixed funding model - public investment, earned income and charitable donations using the analogy of a three-legged stool. You need all three legs, or you fall over.

[There's a YouTube video about the Arts Council Funding Ecology - although it is rather more about how it distributes the funds it gets rather than how it actually creates a strategy which reflects the robustness of assumptions made about all sources of income over time.]

Three Key Objectives for each source of funding

• PUBLIC investment - stabilise funding levels by articulating value of investment
• CONTRIBUTIONS of charitable donations - increase giving by raising the charitable profile of arts organisations
• EARNED income - broaden and boost their earned income, beyond ticket sales to include educational activity and ‘supplementary’ income from commercial activities and other revenue streams – cafes, restaurants, car parks, merchandise, services and skills.

I stressed how critical it was to diversify revenues.

Real Changes in Funding

• Between 2012/13 and 2015/16, TOTAL overall income of the National Portfolio (600 larger, publicly funded arts organisations) rose more than 20% to £1.75 Billion.
• In percentage terms: 
• PUBLIC funding distributed by the Arts Council via Grant in Aid and Lottery funds remained largely the same, at 22%. Local Authority funding has declined to just over 6% 
• CONTRIBUTIONS - personal giving plus gifts from trusts and foundations have increased their share of overall income up by 1.5%. 
• EARNED income has grown from just over three quarters of a billon to more than £1 billion - up by more than 25%. 

Earned Income - The Story to Date

• Earned income is ticket sales, hospitality, merchandising and other commercial revenues.
• Commercial income now accounts for more than 50% of the total funding
• Income from ticket sales and educational activity has declined slightly
• income from supplementary activity has grown by 75%.
• the trends are not uniform across the country as rural areas pose challenges for businesses of all sorts. In the rural South West supplementary income actually declined by 60% over 4 years but was offset by ticket sales and other core activities increasing by just over 50%.
• Examples of ventures earning commercial income include:
• major improvements to catering operations
• making space available for hire
• charity shops in places where there are tourists
• sale of branded goods by those with strong visual brands
• bed and breakfast or hostel spaces run as part of the arts space
• ticketing in car parks
• promotion of venues and localities for film locations
• recording music for commercial ventures

It shows that arts organisations are increasingly run by business-minded leaders who understand that when you run a great business, it’s a lot easier to make great art.

It's a good story - but what does this have to do with the Arts Council?

Have they been providing coaching and enabling these projects to happen - or are they just claiming the kudos of this 'good news' without having made any of the effort?

The speech makes clear that going forward the Arts Council is investing in various programmes intended to help build resilience and leadership to continue the trend.

However it's completely silent on whether or not it was doing this in the past - and whether the projects have emerged as a direct consequences of their investment. My own thinking given the timing is that it might very well be unlikely - although it has now been clearly recognised that business skills and competence development at every level is now vital.

For my part (and given my background it would be surprising if I were to say otherwise) the development of a portfolio of business competences is absolutely vital to the continued well-being of any arts organisation in the current climate of uncertainty and cuts

However that would be greatly helped if the Arts Council made a much bigger effort to make learning more accessible and available online so that there could be much more investment in the development of skills and competences right across the arts sector - and not just in those organisations funded by the Arts Council. (I'm thinking along the lines of what the Charities Commission does for charities.)

That to my way of thinking would be a real strategic investment - and one which would help grow business skills and competences for the future.

Contributions - the story so far

Third element is contributed income a.ka. gifts, donations, or philanthropy.

• Contributed income in art and culture is beginning to grow from a low base
• In 2014-15, it was worth was £480 million
• <20% came from business, 
• c.30% came from trusts and foundations
• more than half came from generous individuals. 

A relatively small number of large private donations – around 50 – went to a relatively small number of arts organisations, many of them in London.

• need much better skills to support contributed income 

...in general arts organisations across the country need more support to develop fund-raising skills, so that we can make people aware of their charitable status, and so we can make better use of shared data and integrate sales, marketing and fund-raising.

• recently commissioned research to look at the state of giving in the arts and culture sector as a whole over the last three years - report due soon.
• Programmes of support include:
•  Arts Fundraising and Philanthropy programme of skills development and training
• Catalyst: Evolve - targeting organisations that are new to private giving.
• Catalyst Small Grants programmes. 
• 70-80% of investment will be awarded outside London 

Interestingly the word 'sponsorship' comes up twice in the entire speech - and one of the uses is to state that The Arts Council does not dictate policy in sponsorship!

New funding streams

Arts organisations can now access new funding streams

• tax credits for the theatre, for dance and opera orchestras and museums and galleries
• parallel credits for film, television and video games
• social investment funds - (e.g. The Arts Impact Fund) making loans rather than grants to arts and culture organisations across England for projects that show a social, artistic and financial return.

The Arts Impact Fund brings together public, private and philanthropic funds from the Bank of America Merrill Lynch, the Esmee Fairbairn Foundation, Nesta, the Arts Council and the Calouste Gulbenkian Foundation.

Leadership and Board Membership

Each board member should bring a relevant competency and, these days, after several high profile car crashes in the charity world, there’s no excuse for boards and trustees to be ignorant of their responsibilities.

•  There should be a strategic plan for appointments to the board - to ensure both diversity AND the right skills set
• Boards need to have a clear and consistent policy around ethical sponsorship
• Sponsorship practice needs to be demonstrate clarity, consistency and transparency

arts and cultural organisations need to be effective businesses which are also well-run, fundraising charities

So how does this all fit with the Arts Council Strategy?

The odd thing is I don't get many of the messages from the speech when looking at the Arts Council website. Maybe they're for internal consumption only?

I also looked at Great art and culture for everyone, the Arts Council's 2010-2020 strategy, which outlines their five goals in more detail.

It has lots of words but absolutely no numbers.

• It doesn't contain any assumptions about either income or expenditure over the strategic period. 
• There are no imperatives about ratios between the three legged funding stool might change over time.
• There is very little focus on the potential for earned income.
• There is no emphasis on the competence and skills needed for generating more income from commercial activities donations and sponsorship.

HOWEVER

• it does say - in a vague sort of way - that it will 
• Provide support to arts and cultural organisations to capture and use data to improve resilience, build new markets and explore new sources of income 
• Support arts and cultural organisations to explore alternative sources of non-grant income
• BUT it contains absolutely nothing business specific in the goals relating to making sure that the leadership and governance of organisations are diverse and appropriately skilled!

In financial terms (and I used to inspect and assess these on behalf of the government), it's one of the least effective strategic documents I've ever seen. For me it's a purely aspirational framework document which does not stack up because of the lack of any supporting analysis or assessment of whether goals are feasible within the funding stream. It suggest we should we take all of it on trust!

So bottom line (as we ex-finance people are often apt to say) - reducing the vulnerability of arts organisations to the vagaries of public funding while increasing the overall level of funding is a good thing.

However I think the credit for what has been achieved to date might well go almost entirely to those managing the arts organisations around the country who got their act together when their backs were to the wall!

For my part, I'd have thought models of how funding works - and whether they work well - from other countries might also provide more a very valuable education - in terms of what works and what's a waste of effort?

Maybe this is where the leaders of the various arts organisations around the country actually got their ideas from?