ENDOWMENT, ENDOWMENT, AND ENDOWMENT: THE BALTIMORE OPERA COMPANY

DATELINE: December 10, 2008, Chicago

Tim Smith of the Baltimore Sun reported on December 8, 20008 that the 58-year old Baltimore Opera Company planned to file for Chapter 11 bankruptcy.  Baltimore Opera Co. To File For Bankruptcy, Cancel Remainder of Season.  It has now filed a petition.  Smith attributes the filing to “dwindling ticket sales and contributions."  That’s the immediate cause.  The real cause was...

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lack of endowment.

What looks to be the worst economic downturn since the Great Depression holds a long-term lesson for arts groups:  Endowment, endowment, endowment.  The board of any arts organization without a sizable endowment should be making a significant effort to develop one.  And we aren’t talking about looking to the board for contributions.  We are talking about financial stewardship that systematically looks beyond the board for endowment funds. 

The numbers from the Baltimore Opera Company’s 2007 Form 990 speak volumes.  Part III of the return reports the annual expense of putting on operas and outreach programs came to $4,305,765.  Income from tickets amounted to $2,497,902.  That means those enjoying the operas were only covering 58% of the performance costs.  But the Baltimore Opera Company had more expenses.  To be precise, $1,432,025 in management and general administration and $340,104 in fundraising expenses.  The company took in $3,553,714 in contributions, which more than covered the management and fundraising expenses.  Those contributions just barely covered the remaining portion of the program service costs.  At the end of the year, the Baltimore Opera Company reported a $6,096 surplus. 

All of that was for the fiscal year ending June 30, 2007.  Unfortunately, a lot has happened in the ensuing 18 months.  Specifically, the stock market dropped from what were record hights, seeing leading averages cut almost in half.  Unemployment has begun to rise and we are in the middle of a credit crunch.  Real estate developers are filing bankruptcy, hedge funds are closing, and the Detroit is in big trouble.  It shouldn’t come as a surprise that people cutback on opera tickets and contributions.  We love the arts, but when push comes to shove, we suspect people will cut contributions to arts organizations.  Our bet is that those who are still giving to charity are giving to social service agencies.

Now to Part IV of the Baltimore Opera Company’s 2007 Form 990.  Here the true reason for the bankrutpcy becomes clear.  The company reported $267,533 of cash on hand, $4,595 in accounts receivable, $551,050 in pledges, building, land and equipment of $2,088,289, and only $10,875 of investment assets (characterized as other investment assets).  On a supplemental schedule it reported $120,582 in a net restricted remainder trust and $830,392 in a perpetual trust.  That says it all.  What might be described as endowment amounted to about $950,000.

GuideStar shows a number of other entities associated with the Baltimore Opera Company, including the Baltimore Opera Guild, which reported $82,970 in total revenue and $6,165 in total assets on its 2007 Form 990.  There is also the Baltimore Opera Company Foundation, but its last Form 990 on GuideStar is for 2003.  It reports no assets as of the end of that year.

At the end of the day, no sizable endowment, no opera season for the remainder of what would have been the 2008-09 opera season.  As the Baltimore Opera Company seeks to reorganize itself, we believe the focus must be on building endowment. 

We will be watching the reorganization to see whether Maryland’s attorney general intervenes in the bankruptcy proceeding, as Section 1221(d) of the Bankruptcy Code permits.  This section provides:

The parties who may appear and be heard in a proceeding under this section include the attorney general of the State in which the debtor is incorporated, was formed, or does business.

The section in question is Section 541(f), which permits the transfer of property to a new corporation if the debtor is a Section 501(c)(3) entity, but only under the same conditions as would apply if the debtor had not filed a case under the Bankruptcy Code.  The questions facing the Maryland Attorney General appears to be whether the restricted gifts will retain their restrictions and how any cy pres proceedings will interact with the bankruptcy proceedings.  We will be watching this and other bankruptcy proceedings to see how this all plays out. 

We are opera fans and we do wish Baltimore opera fans and the Baltimore Opera Company good luck in righting the ship.

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