SAN DIEGO — Last week, The Times took a look at arts institutions and how they have managed to get out of debt. Today, we take a look at others that remain in debt, and how they manage to survive. The first season at the new Hahn Cosmopolitan Theatre went almost exactly as planned.
With plays such as Somerset Maugham's "The Circle," Shelagh Delaney's "A Taste of Honey" and Larry Shue's "The Foreigner," the Hahn's parent Gaslamp Quarter Theatre was able to hold the line on expenses and meet its revenue projections.
That was 1987.
Then came Season II--and boom! A second-year slump and a shocking $110,000 deficit.
Unfortunately, debt in the 1980s is as much a part of San Diego's performing arts community as are high-quality productions.
The Gaslamp Quarter Theatre is dealing with a $165,000 obligation. San Diego Performances, which brings top-rated dance troupes to town, has in two years run up a debt of about $400,000. The critically hailed La Jolla Playhouse faces a hefty $703,000 deficit.
For the Gaslamp, the challenge is to find a way to become "properly capitalized," according to managing producer Kit Goldman, "because we're going to have years when plays are not popular, years when the stock market is down and you don't have the donations you predicted."
The Gaslamp, which was formed in 1980, incurred its debt after opening a second theater in 1987. Goldman explained how the debt occured after the Hahn's opening:
"The first year, everybody (in the public) is curious. There's momentum and money designated for the opening year. The second year is traditionally a tough one if you don't have a cushion (that allows you) to go into debt."
"We don't like debt," Goldman said. "The goal is to stay out of debt. We are learning to think bigger in what we're looking for donation-wise. When we're putting out a lot of energy, it's got to create a lot of zeros on the end."
Goldman also said that the theater is "annualizing" fund-raising events to "create income streams annually rather than on a one-time basis."
To eliminate its red ink, the Gaslamp will take "an extremely aggressive stance" in marketing to the waterfront visitor trade, she said, adding that the theater will be the chief beneficiary of the first black-tie gala at the new convention center.
The most rewarding deal may be the planned sale of the entire block on which the Hahn sits. Because of a clause in the Gaslamp's lease for the Hahn, the Gaslamp stands to receive "a substantial lump sum" upon either the sale or refinancing of the property, said Goldman, whose theater pays $10,000 a month in rent.
Other major expenses for theaters in general include wages, cost of sets and costumes, music, advertising and rights.
Key sources of funding are tickets, fund-raisers, benefactors, grants, loans and, for some of the bigger concerns, endowments.
In the Gaslamp's case--although a number of factors, including the two-year delayed opening of the new convention center, contributed to the deficit--the real problem is undercapitalization, Goldman said. In developing cash reserves, the Gaslamp is aided "tremendously by a supportive, understanding board of directors and staff, and a banker with a heart," she said. "The president of our board is a risk entrepreneur. He understands growth."
To finance its deficit, the theater has a $250,000 line of credit with the Bank of San Diego, which Goldman says has "been like a rock."
The bank provided the Gaslamp a line of credit for several reasons, said Paul Coy, a vice president and loan officer with the bank.
Not the least of those reasons is the federal Reinvestment Act that requires banks to report annually "lending activities for worthwhile activities--what does it do to reinvest in the community itself," Coy said.
While making a "prudent banking decision and exercising due diligence," the bank, in making its decision, also took a look at the organization and its board of directors, Coy said.
"We look at who is involved in the particular organization. The Gaslamp, for example, is kind of a 'Who's Who' in the city. It never hurts to show support that way. It enhances the bank's image in those people's eyes and, frankly, we experience some spinoff business from that."
Finally, working with a theater and the creative types who produce theater "is fun, if that's not being too light about it," Coy said.
Like the Gaslamp Quarter Theatre, the La Jolla Playhouse depends in part on a bank line of credit while dealing with its accumulated deficit.
"We have $300,000 of our deficit covered by a line of credit and another $100,000 financed," said playhouse managing director Alan Levey. "I think the banks in this community recognize that institutions are assets, not burdens."
Despite staging popular musicals such as "Big River" and "80 Days," the playhouse has incurred a deficit each year since it reopened in 1983.