Metropolitan Opera Finances

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A few years ago, a friend at a party who worked for one of our largest investment banks asked me, "Richard, do you know how to end up with a small fortune at Lazard Frères? Give us a large fortune." Such memories came to mind, inevitably, in reviewing the tax returns and accounting statements of the Metropolitan Opera for the year ending July 31, 2009, which have just been released. One has to emphasize that all these numbers constitute nothing more than a snapshot of the moment, which don’t take into account more recent developments, and are, even as presented, in summary form. But the statements show a decline of almost 20% on investments (down to $246 million), and an almost equal decline in the total asset picture (down to about $423 million) at the same time as liabilities have increased, including continuing (and not uncommon) obligations to the pension fund. It's no surprise to anyone that the Met endowment has shrunk in this economy, and it's virtually impossible to Monday-morning quarterback whether, with different management, it might have done better or worse. The drop, to merely mortal eyes, seems extreme, as does the increase in salaries (up about $6 million). Individual salaries, generally an infinitesimal part of any budget, tend to inspire interest well out of proportion to their real impact. In truth most people in the business are worth more than they are paid, and replacements are hard enough to come by, but for those interested, Peter Gelb pulled down, all told, roughly $1.5 million (as did Music Director James Levine, listed as “Phramus, Inc”, undoubtedly his corporate entity). If anyone ever tells you the chorus is as important as the orchestra, you ask them why Donald Palumbo, our excellent Chorus Master is getting less than one-third of Mr. Levine’s compensation. This is just a little more than Joseph Volpe, the former general manager, seems to be getting on a yearly basis as severance for doing nothing. Tell the truth – wouldn’t you like the be getting between $350,000 and $400,000 a year, years after you left an organization, as ‘deferred compensation”? Would you like to rethink your feelings about the House of Windsor now?

American cultural institutions have generally been far less supported by their governments than our European counterparts - although I think, at this moment, I'd probably rather be the accountant for the Met than for any opera houses in Greece or Spain or even Italy.  In America, deficits, whether they are annual or cumulative, do matter. The government won't write checks, and while American donors are historically generous to a fault, it is an axiom that while donors will fund all manner of new projects, they won't fund deficits, and certainly not past deficits. American opera companies live by the generosity, more than anything, of the Boards of Directors, and typically it is a handful of heavy hitters, who can dig into their own pockets, and into their friends’, that keep our behemoths afloat. Where that judgment is faulty (as with the New York City Opera's recent brush with death – the financials of that cultural institution, released a few weeks ago, were shocking, and yet got a pass from most of the press), the rest of the Board, which has the same fiduciary responsibility as the leaders, will typically wait for the consequences to occur.

The Metropolitan has some real challenges ahead, and it has met them in ways that aren't necessarily, in the short run, inappropriate. It is digging into the endowment (an institution's piggy bank) for operating funds, which is generally frowned upon (since you are mortgaging your future to your present). This may be justified on the basis of the hopefully short-run hard times, but raiding an endowment (which would have been cultivated in the expansionist last decade) must really hurt, since no one can really expect to make up withdrawals as easily in the foreseeable economic future. There is a bank loan of a mere $35 million due, but presumably that will be renegotiated or rolled over. The Met has been lucky in that, even if people are not, for the most part, dying to get into the opera house, they are remembering the MET in their wills (poignantly, for OB readers, including at least one UK resident), and so there will be some slight alleviation of cash flow on that account. One of the less happy features of the accountant’s report, however, is that while at the end of the prior fiscal year there was a total of almost $73 million dollars in pledged contributions waiting to be collected, at the end of this year that number was down to roughly $58 million dollars; in other words, some of the pledges have been honored, but haven’t at the moment, been replaced by ‘new’ pledges, although that will undoubtedly (and hopefully) change over time.

The more serious picture though, isn’t the single year snap shot, but the story of the last decade, in which the Metropolitan is certainly not alone. Over the course of the decade, box office income (for essentially the same number of performances) increased by roughly 20%, to a current $93 million dollars. “Other income’, which includes everything from investments to tee-shirts, roughly doubled, and now equals almost two-thirds of ticket income. But expenses increased 62% (and salaries and employee benefits increased, within that, by 55%.) Contributions rose by a laudable 84%, but still, given the whopping rise in costs, contributions only pay for 45% of the total expenses today (even with the 84% increase), as opposed to paying for 39% of expenses a decade ago. Thus, ticket sales have not only failed to keep pace with inflation (and can’t – there’s a limit to what people will pay for an evening’s entertainment, and that limit may be increasingly pressed by HD presentations), but constitute a progressively smaller share of the income ‘pie’.  This is the nature, in one way or another, of all American not-for-profits, and the healthy ones at that; in essence, for every dollar of tickets sold, someone has to go out and raise (or wisely invest) another dollar of income. When questions are asked about ‘why’ this opera house, or that one, isn’t more adventurous, the answer isn’t far away. No house can afford a serious loss of ticket sales, and more to the point, no house can really afford to alienate its contributors. The season is planned far in advance, the public decides whether it wants to buy tickets at the last moment, and contributors, often ‘after the fact’ must do the rest. You begin to see the rhyme and reason to Gelb’s apparent indifference to audience reaction; the loss of a thousand subscribers means very little to the house; the lost of twenty key contributors would be fatal.

There is indeed, only so much one can do or understand on the side of the macro-management of the house, and if union restrictions were less onerous, we might have a more viable house. The Met is committed, contractually, to a certain number of paid performances per week and per year and, worse, to a specific schedule. It’s been more than bruted about that the Met would dearly love to drop Mondays from its schedule and do Sunday matinees instead. The unions resist, for understandable reasons - this is the one day the performers can have a complete day at home with the family - but of all the unions in this country, musicians unions tend to be among the most hard-line, and typically don't relent, unless 'management' is not only taking on water, but going down for the third time. Again understandable, but the brinksmanship has contributed to the closing or truncating of a number of musical organization seasons, and the union position has generally been that it's better to sacrifice a brigade than to have the whole army give up its territory.

Less sympathetic this week was the happy talk from the Met press reports that accompanied the predictably gloomy news, and while the general economic climate certainly isn't of the Met's making, you'd be forgiven for being under the impression that the management of the Met, and its business plan, isn’t either. President Harry Truman had a sign on his desk which said, "The buck stops here" - you realize how long ago that was. What Gelb said was, "The Met has managed through difficult times in the past. Now, by increasing the public's interest in opera with our recent artistic successes and public initiatives, we are confident that we will thrive in the future as well,” Winston Churchill or Joseph Ismay?  What tells the tale with audiences is ticket sales, and tickets are today sold in many different ways: at face value to subscribers and normal walk-up customers,  at a half-price booth,  at steep discounts  to a certain number of attendees several times a week, and by all variety or student and subsidized tickets. There is one meaningful number, though we're not likely to get it: What is the average ticket price today, in 2010, and what was it over the last few years? If the Met sells more tickets, but at a lower average price, it's in trouble - not just economic trouble, but trouble with its public. There's a well respected principle in theatre that you don't offer discount sales until you really have to, because once you do, more and more people will wait for those tickets. What sells is the 'hot ticket', the ticket that everyone wants and no one can get. One has to begin to be concerned for the Met, which probably gives far too many performances a year for its own good to begin with, when more and more patrons - or is it customers? - know that if they wait long enough, they will get a bargain on what they want to see. Gelb has bet the house on increasing ticket revenue with a combination of superstars and new productions – slighting mistakenly, I believe, the revivals that form the bulk of any house -

Gelb has probably accomplished nothing better than the HD initiative. I am a great fan of what it does to make opera accessible, and it is undoubtedly at this point is his main legacy to the house. But whether the game will have been worth the candle is still an open question. HD broadcasts are said to have made a slight profit; one would like to know what 'slight' really means, and how to evaluate that statement against the heavy and presumably unrecovered investment which the Met has spent to put the system in place. Although it’s difficult, from the figures, to quite see how the HD initiative is doing, it’s not quite clear that the initiative is really breaking even at this point; the Met reports over $25 million dollars in expenses (including its radio transmissions and internet) and income of almost $22 million, although the devil (or the angels) would be in the details, which aren’t broken out in the tax reports.

But the Met is, after all, not supposed to be a profit making enterprise, and there's no doubt that even if HD isn't in the black, it is a 'good thing'. The question becomes whether, in making opera so available in this country, the Met then hurts its own ticket sales in the house. My own belief is that, while HD transmissions make eminent sense for a subsidized house, they are far more questionable for a house so dependent on ticket sales. With three or four live radio broadcasts a week, up to a dozen new HD transmissions a year, and more and more opera houses offering high quality broadcasts, remind me, Mr. Gelb, why I should spend ten times the amount of money of the HD broadcast for an equivalent seat (and that's without parking, dinner, and baby sitter)? Perhaps I will do it for a superstar, but am I really about to do for that for an indifferently cast Aida, or even for a new production that is slammed by the critics?

Me, I’m sticking with the Met for now, at least until they announce a sponsorship deal with the White Star Line.

Richard Garmise
Opera Britannia

Last Updated ( Friday, 18 June 2010 23:40 )  

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