Thursday, July 22, 2004

Symphony must weigh finances and fine art

Contract talks with musicians begin

By Janelle Gelfand
and Cliff Peale
Enquirer staff writers

Erich Kunzel conducts the Cincinnati Pops in a concert July 16 at Riverbend. The symphony and musicians are just beginning contract talks.
Photos by MEGGAN BOOKER/The Enquirer
Even as the Cincinnati Symphony Orchestra starts negotiations with its 99 musicians this month, the cost-cutting to close a budget gap is not over.

Despite a $1.8 million gift that will wipe out two years of deficits, Cincinnati's largest and richest arts group is still trying to balance its budget while avoiding erosion of its artistic quality. "Great art doesn't come cheap," board chairman Dan Hoffheimer said.

Possible cuts under review include:

• Home for the Holidays: Symphony president Steven Monder said the holiday revue is "in jeopardy" after losing a sponsor, Thriftway.

• Jammin' on Main: After losing about $200,000 on the Over-the-Rhine music street festival the past two years, symphony leaders won't commit to staging it again in 2005.

• The program handbook for the season will not be printed. It will be offered only online.

The moves follow decisions last year to eliminate the Bach & Beyond summer concert series and raise ticket prices an average of 25 percent. The symphony will study another price increase in 2005, Hoffheimer said.

2002-03 AUDIT
Orchestra officials recently received an audit of the 2002-03 fiscal year. A review shows the tight financial situation.

• Recording contracts. A recording deal with Telarc International has been a strong suit, making the symphony one of only a handful nationally with such a contract. That's important in attracting and keeping conductor Paavo Jarvi and other musicians. But recording barely breaks even. The 2002-03 audit shows a loss of about $60,000, although symphony president Steven Monder said royalties yield a small profit.

• Management costs. Administrative, sales and marketing expenses jumped about half a million dollars from 2001 to 2003, accounting for about $4.9 million in the latest fiscal year. The orchestra has no plans to cut staff and probably will increase administrative expenses in the long term, Hoffheimer said.

• Trips. The symphony "made a little money" on its Japan tour last fall. Monder and Hoffheimer said the trips were important to market the orchestra. The organization tries to cover tour costs with performance fees and sponsors.

• Annual giving. Next season, the symphony will receive $3,029,081 from the Fine Arts Fund. But annual giving - smaller donations from average concertgoers - makes up just 8 percent of its budget.

The cuts have not yet touched the features that place the orchestra in the nation's top tier: a 52-week season and the full complement of musicians, the kind of features that helped attract conductor Paavo Jarvi.

It's clear that although symphony leaders prefer to keep that prestige intact, they are considering every option to improve the financial picture.

The decisions will come as the symphony starts writing the musicians' contract, which is roughly half the symphony's $31.9 million budget. The contract expires Sept. 4.

The orchestra is trying to close an operating deficit that ballooned to about $1.45 million this year. Yet many arts groups would envy its $66 million endowment fund and no operating loans or bank debt.

"I'm very optimistic," Hoffheimer said. "Honestly, when you take all the different constituent parts, I'm not sure it's ever been in better shape."

However, an analysis of the symphony's audits for 2001-2003 shows some key indicators:

• Revenue and contributions in 2003 totaled $34.5 million, almost flat from 2001.

• Expenses were up almost $500,000 during the same period.

• And the symphony went from a surplus of $24,000 in 2001 to a deficit of more than $441,000 in 2003.

A wider impact

Along with its sister, the Cincinnati Pops, the symphony is one of the region's top drawing cards, boasting a longtime recording contract with Telarc International Corp. and overseas touring.

Those qualities attract top musicians and conductors. For example, the symphony will embark in October on its first European tour with the Estonian-born Jarvi, including its Paris debut and stops in Vienna, Cologne and Madrid.

Here at home, city leaders are pinning their hopes of revitalizing Over-the-Rhine on the arts and the symphony's home, Music Hall. That makes its prosperity important to a much wider audience than the average crowd of 1,935 that attended concerts last season.

In the past two years, the symphony's financial results have been sliding. This year's loss will be the third in a row, accompanied by losses on investments and the need to draw money out of its endowment to cover operating expenses.

The $1.8 million anonymous gift, announced in May, will erase that problem this year. But CSO officials acknowledge that they'll have to raise "bridge funding" to stay in the black the next couple of years.

They'll also seek to take less from the endowment, which was hurt badly by stock-market performance after peaking at about $94 million in 1999.Traditionally, the orchestra had used about 6 percent of the endowment annually. But just as the endowment's value sank, the orchestra started taking a bigger percentage. This year it will draw down 8.7 percent, or about $6.3 million.

If the draw had stayed at 6 percent, the operating deficit would have been $2 million to $3 million higher this year, Monder said.

Negotiations just starting

Even with the $1.8 million gift, the symphony says it faces pressure to break even on operations. It's been unable to write a financial plan for 2004-05 because of the talks with musicians, which started earlier this month. No offer is on the table yet.

"We had the financial picture presented to us," said Eugene Frey, president of the Musicians Union, Cincinnati Local No. 1. "It seems as though every major orchestra, bigger and smaller, is in the same position, arguing about pension, health care and the fact that they don't have enough money."

Although management has not hinted at cuts, health care is a major issue, Frey says.

Similar problems have plagued orchestras nationwide. More than half face operating deficits, according to the American Symphony Orchestra League. Many are seeking financial concessions from musicians, although Hoffheimer and Monder would not say whether the Cincinnati orchestra is doing so.

"Most orchestras have already looked for every revenue-enhancement opportunity they can," said Jack McAuliffe, vice president of the symphony orchestra league.

Several Cincinnati musicians, who did not want to be quoted because of the negotiations, are concerned that they will be asked to make concessions, as they did in a financial crisis in the early 1990s when the orchestra was faced with an $8.4 million accumulated deficit.

The most recent two-year contract included a wage freeze. Currently, musicians earn $1,725 a week, or $89,050 annually. About half, including high-profile principal chairs, negotiate higher salaries. The highest is the concertmaster, the first-chair violinist Timothy Lees, who in 2003 earned $178,520.

Monder made $363,810 in 2002-03, putting him in the top tier of symphony executives across the country, and music director Jarvi made $472,000, according to the symphony's tax filings.

Sales down; revenue up

It isn't expected that higher ticket sales alone will solve the money problem. Revenue from symphony and Pops operations in 2002-03 was slightly more than $6 millionor $300,000 less than two years ago.

While symphony attendance for the just-completed 2004 season increased 2 percent, average attendance for the Pops season fell 9 percent. With a new season seven weeks away, subscription sales are down from last year, although ticket revenue is up because of the price increase, the symphony says.

The fall season kicks off Sept. 10 with Pops concerts and recording sessions. Jarvi will open the symphony series Sept. 17, with the Estonian National Male Choir performing Sibelius.

Jarvi, 41, declined to discuss the orchestra's financial health but spoke to its artistic health instead.

"I'm extremely optimistic," he says. "I would think the orchestra has never sounded better than they sound now."

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