Arts Organizations Don't (Necessarily) Need to Be Non-Profit

One year ago, I co-founded a new non-profit classical music series in Seattle called Emerald City Music. Through the process, I went on a fury of meetings to recruit new board members, and attended an event hosted by Seattle Works (which trains volunteers into board roles, then matches them with non-profits seeking new board members). Over the course of the evening, I found myself competing with other non-profits to recruit these super-talented volunteers: outdoor elementary schools, housing projects in Africa, homeless shelters, etc. Needless to say, I was unsuccessful in selling the performing arts, especially to millennial generation trainees.

This led me to start thinking, “Why are performing arts institutions even organized as non-profits?”

As Emerald City Music then applied for 501(c)3 status with the IRS, this question came up again. There’s technically no IRS classification for performing arts organization s— they fall under the Education category.

And as we began approaching donors and raising funds, still this question persisted for me: it doesn’t make sense for performing arts organizations to be non-profits.

Here’s why:

The source of revenue in the performing arts comes from the same people that the performing arts organization serves.

Put more simply, performing arts organizations take money from their patrons (ticket buyers, donors, etc.), and deliver programming back to those same people. There’s a very clear transaction occurring.

Most other non-profits fundraise from one source, and deliver to another community. Homeless shelters don’t get their funding from the homeless families they service.

The traditional non-profit structure is such that the community collectively owns the non-profit corporation. Much like a for-profit board of directors, they advise the organization and legally own how it operates, etc. And with a homeless shelter, that system makes sense: the non-profit board is a representation of the community that “owns” the shelter, and advises its every step.

But in the performing arts, the non-profit board faces a lot more red tape. Healthy non-profit arts organizations do not typically have the board (or donors & ticket buyers) involved in artistic decisions?—?i.e. the crux of the organization’s programming. For instance, it would be a misstep for a board member to advise the artistic directors to put on an all-Beethoven concert season.

Even structurally?—?without looking at revenue flow?—?performing arts organizations’ board governance doesn’t behave like the rest of the non-profit sector.

Furthermore, the common justification for performing arts taking the form of non-profit is to promote financial sustainability. Most performing arts organizations can’t survive on ticket sales alone, and rely heavily on individual and corporate donors to keep their doors open.

That’s totally understandable.

However, for-profit arts institutions (touring bands, festivals, etc.) offer performance tickets at 3–4x the price of an orchestra performance. Even second or third rate pop acts can command a minimum ticket price of $100+. We don’t often consider the potential of our $20 to $30 orchestra ticket?—?though promoting accessibility?—?actually devaluing the art.

The typical arts organization has a funding model of 50% ticket sales, 50% fundraising, with some variation on either side for sponsorships and a small amount of advertising revenue. Couldn’t we double or triple ticket prices and promote a higher value for the art?

To play devil’s advocate, I know that performing arts organizations can’t just jack up their ticket prices from $30 to $100 overnight. Obviously they would lose most of their loyal audience, and create some significant barriers for accessibility to underprivileged communities. In no way am I suggesting that any organization take that approach.

I am, however, suggesting this:

A more sensible institutional structure would be a hybrid for-profit and non-profit organization.

Here’s how this works:

The for-profit wing of the performing arts institution is what we currently consider their “main offerings”. This is the concert season plus any secondary series of concerts?—?or as my old boss would say, your “meat and potatoes”. It would sustain on tickets and advertising revenues, and would be priced more similarly to pop touring acts.

Without operating in the non-profit structure, this for-profit entity can command higher unrelated business revenues: concessions, merchandise, recordings, advertising revenue, etc. Maybe they could even venture into launching a paid iPhone app that introduces people to each other at performances?—?now I’m just spitballing ideas.

The for-profit wing promotes the true value of the performing arts, creating high quality performances and matching them with a dedicated fan-base.

Meanwhile, the non-profit wing is the community engagement, accessibility, and mission-based entity. Relying on sponsorships from the for-profit wing, alongside ongoing individual and corporate fundraising efforts, the funding for this work doesn’t come from the community the entity serves. Rather, the funding comes from people who are truly passionate about the organization’s cause, and want to see more people encounter the arts.

The non-profit wing is the “start here” entry point to the organization. It’s the part of the organization that’s bringing musicians into public schools, or maybe offering deeply discounted concert tickets to underserved communities.

The non-profit wing becomes the soul of the organization’s mission, promoting relationship over transaction.

And these two entities work in partnership, with two very different goals. Neither is autonomous or truly separates itself from the organization’s core mission, and both work jointly to best serve the art form.

Obviously, these are big structural changes, and I’m not proposing that every organization rush to adopt this idea. What I’m suggesting is that performing arts institutions— especially new organizations in the field?—?should critically and skeptically evaluate their organizational structure. Arts organizations should never assume that non-profit or fiscal sponsorship is the only viable road to success or ongoing sustainability.

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Andrew Goldstein is the co-founding Executive Director of Emerald City Music, a nonprofit inspiring Seattleites to discover classical music. He holds a BM in Music Management from The Hartt School and a graduate certificate in Nonprofit Management from Northeastern University, and makes his home in Seattle with his wife, Eryn, and daugther, Hazel. On Twitter at @DailyClassical