What That Deficit Really Means

Yesterday I posted a few thoughts about the Minnesota Orchestral Association’s annual meeting, but I deliberately shied away from responding to the MOA’s financial report that was presented at the meeting, which reported a $1.1 million deficit (as opposed to the $6 million deficit reported last year).

But one thing quickly.

The MOA’s Board Chairman Jon Campbell made an astonishing statement in the press, referring to the Orchestra’s financial report:  “The fact that the organization’s deficit is substantially smaller in a year without any performances indicates the degree to which this business model is out of alignment.”

This is a bizarre statement, one that led Alex Ross, the legendary classical music writer, to declare “words fail.”

I am hardly a top executive at one of our nation’s largest banks, but I’ve come up with several other things this could mean.

1. Last year’s $6 million deficit was artificially large, and that it was specifically inflated to make this year look good by comparison.  This is borne out by the MOA’s own board minutes, which indicate the board worked with a PR firm to artificially set the size of the deficit since 2009, so it could indicate financial health or financial need depending on the target audience.

2. The board could have chipped in extra money this year to make the contributed income line look better, thus making the overall financial picture look better.

3.  As the market has continued to improve, the MOA’s investments have improved in tandem, meaning it could draw down a smaller percentage of its endowment and still receive more money.

4.  From a different angle, by eliminating one of the largest sources of revenue—ticket sales—the board made it virtually impossible to avoid a deficit.

5. The MOA wildly overspent on administrative overhead over the last year—essentially spending $13 million while not doing anything.

6.  The $200,000 bonus given to President Henson in recognition of his skillful financial management was a waste of money, as he still managed to lose a million dollars last year.

7.  Ken Cutler’s stern comments that the primarily goal of the board was to protect the endowment at all costs were untrue, as the board had no problem drawing down millions of dollars from the endowment  to produce nothing.

8. The “glow effect” that made up such an important component of the MOA’s financial plan was a bust.   It was an opportunity missed because of the conscious choices of the board.

9.  The MOA’s highly aggressive campaign to maintain donors and donations has failed.

10. Despite the fact that the top leadership positions of the MOA are held by bankers, the organization continues to underperform relative to its peers.

This is just a partial, preliminary list (I’d be curious to see what other observers come up with), but I think it gives a good indication that Mr. Campbell might be a little premature in making such definitive statements about what that $1.1 million deficit really means.

I have one other final observation for Mr. Campbell.  Even if you are right that the Minnesota Orchestra desperately needs a new business model, it does not necessarily follow that the business plan you have proposed and are currently trying to implement is the right one to follow… or is quantifiably better than the plan you are so desperate to replace.

 

Mask From Teotihuacan

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2 thoughts on “What That Deficit Really Means

  1. You say that because the upper management positions are held by bankers should mean they know how to invest money. They do but they didn’t invest your endowment money the same way they would have invested money for a high dollar client or themselves for that matter. The other problem with bankers running the Orchestra, is recently, if memory serves me correctly, the taxpayers in the US bailed all the banks out because of their investment decisions. You want to know how they spent 13 million without having anything to show for it? Do a financial audit without notifying them first. Walk in with a Government auditor of your choice and not one that has worked with the MOA in the past. Audit the books and publish the finding in the NEWSPAPER or the Twin Cities Legal News. The same one Sheriff sales are posted in. I would be willing to bet, they lost that money because of their investing prowess. Also, the suspicion of under the table bonuses looms because of they way they have been doing business or the lack there of. This is just a suspicion, and not an accusation.

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  2. I find it interesting that they continued to pay staff, even after it became evident that this lockout was going to last a long time. They could have saved money by furloughing at least some of them, especially Michael Henson. He took the biggest chunk of change from them.

    Sadly, Scott, I think all of your suggestions above are probably true in one way or another. Another thing about bankers — they are not open to being challenged or questioned, and do not respond well if someone does. I don’t know why but they seem to be even more arrogant than other senior executives in other businesses. Of course, they all have outsized egos, in my opinion.

    The thing that just flummoxes me, though, is how deaf these people are to the community….

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