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By
Christopher Miller
Many, if not most, performing arts centers serve as home to one or more
resident arts organizations. The relationship
between venue and resident tenant is much like a marriage — it’s often
complicated and sometimes contentious, but when it’s good, it contributes
significantly to each party’s success, health and happiness.
While renovating the Seattle
Opera House to create McCaw Hall, its “marriage partners” — Seattle Center,
Pacific Northwest Ballet and Seattle Opera — created a new and unique
operating model that, since the Hall opened in 2003, has been very
successful for all three parties. I’ll briefly
describe it below, in the hopes that some of its elements may be useful to
other performing arts venues.
Operating Structure, Pre-Renovation
Pre-renovation, the Seattle Center (a department of the City of Seattle) and
the Opera House’s tenants ha d a fairly standard venue/tenant relationship.
The tenants paid a set per-day facility use fee, plus direct event expenses
(ushers, stage crew, etc.), and had no formal say in the facility’s
management, operations or maintenance.
The venue was operated as part of the larger Seattle Center campus, with no
separate budget and little dedicated staff; also, it competed for scarce
maintenance resources with the rest of the facilities on campus. The
executive staff of all three organizations recognized that this approach
wouldn’t allow the Center to operate and maintain the renovated facility’s
status as a world-class performance venue.
As well, the Ballet and Opera were asking their donor community to provide
the $72 million private funding of the $127 million renovation cost, and
they expected a greater say in the management of the building, as their
home, in exchange for their role in securing
these resources.
Operating Structure, Post
Renovation
To address these issues, the Center and the Opera and Ballet negotiated a
unique operating agreement to govern the venue post-renovation. Its primary
provisions are:
• A 25-year term, with two 15-year extension options.
• The Center operates McCaw Hall principally as a performing arts facility
for the
Resident Entities, and for other users as the Resident Entities’
schedules allow.
“McCaw Hall must first and foremost serve the operating
needs of the Resident
Entities.”
• The Ballet and Opera commit that McCaw Hall will be their primary venue
for
presentation of their regular season performances.
• The Center and the Resident Entities developed a new management structure
to
“enhance the
responsiveness of building management to the needs of the Resident
Entities and their
patrons, and ensure the long-term excellence of the facility.”
• The Center manages the Hall, under the oversight of a McCaw Hall Operating
Board (MOB), which consists of the executive directors of the Center, Opera
and
Ballet. The MOB approves the Hall annual operating budget, service
standards,
staffing plans, renovation projects and plans for use of any
operating surpluses.
• The Hall operates on its own budget (details below), which must balance
within
itself annually, and which is a separate sub-fund within the Seattle
Center budget.
Any revenues and operating surpluses the Hall generates
remain within its
operating fund. Any operating deficit is covered jointly
by the Center (50 percent)
and the Resident Entities (25 percent each). (We
do not present; we function
strictly as a rental venue for nonresident
tenant events).
• The City’s General Fund provides a specific amount to
the McCaw Hall annual
operating budget of approximately $500,000
per year, adjusted for inflation.
In addition, the Center provides specific
centralized services (accounting, booking,
marketing, HR, legal, etc.) at no charge to
the McCaw Hall budget. The value of
these in- kind services is around $500,000
per year.
Operating Budget & Tenant Use Fees
These provisions result in a unique budget and tenant use fee structure that
supports the Hall’s mission as the home of its two resident partner
organizations. The Hall’s 2007 budget was approximately $3,350,000. 2007
actual revenue was $3,660,000 and expenses were $3,457,000, adding $200,000
to
our accumulated surplus. Revenue consists of:
• $335K in nontenant event rent
• $1 .2 million in reimbursed labor (stagehands, admissions, etc.)
• $477K City “general fund”
contribution (per above)
• $500K miscellaneous revenue (catering percentage, sponsorship, ticket
fees, etc.)
• $1.15 million in “tenant use fees” The major expense lines are:
• $650K administrative expenses (salaries, phones, etc.)
• $1 .2 million reimbursable labor (stagehands, admissions, etc.)
• $1.5 million for facility maintenance, utilities and security.
The way we determine and allocate tenant use fees is unique. We begin by
projecting revenue from all sources other than these use fees, and expenses
based on event load, operating standards set by the Operating Board, and
historical trends for maintenance expenses, etc. The gap between these
revenues and
expenses becomes the tenant use fee for the year. This amount (usually
around
$1.1 million) is split between the two Resident Entities based on the number
of days each organization is using the Hall.
Typically, the Ballet ends up paying approximately 40 percent of the annual
use fee and the Opera pays the remaining 60 percent. Once the total use fee
amount is set for the year, it doesn’t change, although the split between
the two organizations is adjusted at the end of the year to reflect their
actual use days. Because the Operating Board (of which the Resident Entities
are two-thirds) must approve this budget and use fee, the Ballet and Opera
are protected from the Center setting an unrealistic use fee.
If we achieve an operating surplus at the end of the year (as we have every
year since the Hall opened), the Operating Board has the option of
distributing this surplus back to the three partners, or (as they’ve opted
each year) holding this surplus in a “rainy day” reserve fund for use in
future years. This accumulated surplus is currently approximately $475K.
This structure gives the Resident Entities a great deal of “ownership” of
the budget and the venue’s operations.
As importantly, it serves to incentivize them to assist us in maximizing
nonresident tenant event rental income because, in essence, every dollar of
revenue generated from other sources is one dollar less that they need to
pay in tenant use fees.
It took a while for all three organizations to make this mind-shift, but the
staff of the Ballet and Opera are now proactively helping us book auditorium
events on their “dark” days.
Advantages, Challenges, Lessons Learned
This structure has enabled the Seattle Center to be much more responsive to
the needs of the Hall’s resident tenants, to serve nonresident rental event
clients more effectively, and to address the increased maintenance
requirements of the new Hall.
At the same time, it has provided the Ballet and Opera a much greater stake
and “ownership” in the Hall as their home than they enjoyed previously,
while proving to be financially successful as well.
With nearly five years experience, I’d suggest some adjustments to this
model for anyone contemplating a similar approach.
Fixed contribution from the “governing entity.”
The cost of maintaining a
large performing arts center increases greater than the rate of inflation
over time. It would be better if the fixed contribution from the City had a
maintenance increment, over inflation, that was added to it every five years
or so.
Core team staff structure and authority. We operate on a campus where
supervision and dispatching of most staff (maintenance, admissions, etc.) is
centralized. This has contributed to ongoing challenges providing the
quality and responsiveness of service expected by our Resident tenants and
patrons. The facility’s core team of administrative staff should be expanded
to include key maintenance, booking and event staff supervisory positions.
Capital renewal/major maintenance expenses. The operating agreement noted
the parties’ “intent” to create a separate fund for long-term capital renewal and major maintenance needs, but did not define a mechanism for this.
We’re only now identifying these needs and setting up a fund to which all
three organizations will contribute.
While this will be a significant benefit in future years, the fund will
require significant annual contributions to catch up for the past five years
of building use, when no such contributions were made. Ideally, we would’ve
been able to start this fund from the first year of the building’s
operation.
I hope this has provided some food for thought for those of you
contemplating changes in your relationship with your resident tenants. Feel
free to contact me at christopher.miller@seattle.gov if you would like
copies of our operating agreement, budget, or any other information.
fm
Christopher Miller is manager of McCaw Hall at
Seattle Center.
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