Arts & Entertainment, etc. and Arts Funding and Arts/Culture and Indianapolis Symphony Orchestra and Fundraising and Philanthropy

Economic slump causes ISO leaders to delay capital campaign

December 1, 2008
The Indianapolis Symphony Orchestra pulled off an impressive financial performance in its latest fiscal year, overcoming economic uncertainty to increase ticket sales and donations.

But the orchestra's small operating loss — $293,000 on $26.8 million in revenue — belies a much larger challenge: Symphony officials acknowledge their endowment is nowhere near large enough to support the city's largest performing arts organization in the long term.

"I don't think we're ever going to get to the stage where we can sustain ourselves on ticket sales and contributions," ISO CEO Simon Crookall said. "The ultimate answer is, we need much more money in our endowment."

That was true even before stocks swooned over the past year, which helped drag down the value of the endowment from $127 million to $111 million in the fiscal year that ended Aug. 31. The endowment's value has since slumped below $100 million.

Crookall said the symphony has a long-term goal of boosting the endowment to $200 million. He had planned to launch a fund-raising drive this fall but put it on hold when the economy soured.

So, for now, symphony officials acknowledge they have no choice but to remain overly reliant on their endowment. Many arts organizations tap about 5 percent of endowment assets a year. The symphony, in contrast, drew a hefty $10.7 million, or 8.9 percent, of the endowment's average value over the past 36 months.

"Drawing at this high rate is unsustainable in the long term," said Fred Ruebeck, chairman of the Indianapolis Symphony Orchestra Foundation Inc., which oversees the endowment. He told members of the Indiana Symphony Society at their annual meeting on Nov. 17 that foundation trustees want to lower the draw rate, eventually, to 5 percent.

Growing base

Strengthening the ISO's financial base stands as one of the primary challenges for Crookall, 48, who joined the symphony four years ago from the Royal Scottish National Orchestra.

Brian Payne, president of the Central Indiana Community Foundation, said endowment-building is one of the toughest sells in the not-forprofit world.

"It's very logical. It's very important. It's all true. But it doesn't wow people's emotions sometimes," Payne said.

Crookall also faces the challenge of setting the symphony apart from the Indianapolis Museum of Art and The Children's Museum of Indianapolis, which are known for their sizeable endowments, Payne said.

"One of its challenges is, a lot of people perceive it as this big, wealthy organization that doesn't need help," he said. "If you're drawing over 6 percent of your endowment, you need help."

Under Crookall, the ISO has racked up steady gains in revenue. In 2007, attendance for its annual Yuletide Celebration was a record 48,000. Attendance also was strong for last summer's Symphony on the Prairie series at Conner Prairie, which drew 96,000.

Hiring prominent European conductor Mario Venzago as music director in 2002 burnished the ISO's already strong reputation, said Bruce Ridge, chairman of the International Conference of Symphony and Opera Musicians.

"It was considered a real score when Indianapolis brought him there," he said.

Mike Borschel, a clarinet player and a member of the ISO musicians' contract committee, said Venzago and Jack Everly, who became principal pops conductor in 2002, have set high standards.

"The artistic side of the house is really striving," he said. "We're probably playing better than ever — really."

Crookall has been trying to get the word out to a wider audience. He said Indianapolis can expect a research-driven marketing effort in 2009.

"We're working very hard to categorize them in demographic terms," he said of the ISO's concert-goers. "Then find more people like them, and sell like crazy."

Indianapolis is one of only 17 52-week-a-year orchestras in the nation. Many full-time orchestras are finding that ticket sales and other earned income cover a smaller and smaller portion of their expenses, said Judith Kurnick, strategic communications director for the League of American Orchestras.

"It's primarily the salaries and benefits that have really gone up, as they have in all fields," Kurnick said.

The Indianapolis musicians received better pay and benefits under a three-year contract struck in September 2006. The contract called for pay to increase 12.6 percent over the three years, reaching a minimum of $79,040 in the final year.

Borschel noted that negotiations will begin again this summer. He said it's too soon to tell whether economic woes and ISO's finances will force major concessions.

Financial conduct

Like any performing arts organization, the ISO is vulnerable to the recession on three fronts: Weak financial markets depress the value of its endowment at the same time patrons feel less able to buy tickets and make contributions.

The endowment's market loss over the fiscal year was $5.5 million, or 4.7 percent. The percentage decline was far smaller than the overall market's, as measured by the S&P 500. It fell 13 percent in that span.

Robert Kaspar, chairman of the board, said the loss might have been greater without the advice of Minneapolis-based financial manager Jeffrey Slocum, whom the ISO Foundation board hired in July 2007.

"We're on the right track in terms of allocation," Kaspar said.

For his part, Slocum warned symphony directors at their Nov. 17 meeting that the nation is in a "dire pickle." He was not optimistic about a quick economic recovery.

The recent budget shortfall — the first since 2003 — stemmed from an unexpected 22-percent jump in health insurance costs, said Chief Financial Officer Jane Shriner.

To help relieve the pressure, the ISO is introducing cheaper health insurance options. Crookall also has eliminated five staff positions by leaving vacancies unfilled.

Despite the economic obstacles, Crookall said he hopes to achieve a balanced budget of $29.5 million in 2009.

"All I can tell you is, the current situation is [that] our ticket sales are behaving according to plan. Donations are coming in according to our estimates," he said. "We are not seeing any significant downturn, yet."

The endowment might have to provide an "extraordinary" rate of support in 2009, Crookall said.

"We have 87 musicians. You can't just cut by 10 percent just because the market's down," he said.

Mixed bag elsewhere

A few cities, such as Columbus, Ohio, are struggling to maintain orchestras, while others seem insulated from financial pain.

Philadelphia recently ended a five-year campaign to raise $125 million for its endowment, topping its goal by $5 million.

Pittsburgh, a city whose full-time orchestra is more comparable to Indianapolis', is in the midst of an $80 million drive for the endowment and to repair Heinz Hall. The orchestra announced Nov. 19 that it had raised $48 million.

In 2007, the ISO was on track to reduce its endowment draw. The symphony funneled $757,000 back to its foundation, but Crookall said that contribution was quickly lost to the bear market.

When the ISO's endowment was established in 1989, Crookall said, symphony leaders were prepared for the orchestra to take a larger portion of the investment returns because Indianapolis is a relatively small market for supporting classical music.

After the market slump of the early 2000s, foundation trustees agreed to keep giving the orchestra at least $7.9 million a year, regardless of how far that meant dipping into principal, Crookall said.

"The 10-year return for the foundation has been in the region of 10 percent a year, so a draw of 7.5 [percent] to 8 percent is not cataclysmic," Crookall said. "Then the market collapses, and it's anybody's guess what happens."
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