Astonishingly Bad Analysis of the Minnesota Orchestra

Approximately two weeks ago, Twin Cities Business published a story about the Minnesota Orchestra that is, to be blunt, terrible. The entire purpose of the piece is to raise questions about the sustainability of the Orchestra’s future, based on suggestions that the recently-signed contracts with the musicians and Music Director Osmo Vänskä are overly extravagant.

Every aspect of this piece is bizarre—its underlying premise, its use of evidence, its timing, its assumptions, and its overall approach to non-profit management.

With respect, the only questions it truly raises are those pertaining to why it was published in the first place.

Emily Hogstad has debunked several points over on her blog, Song of the Lark, and her points are well worth reading. But the piece irritated me enough that I’m going to post a rebuttal of my own.

* * *

“In the afterglow of its high-profile trip to Cuba, the Minnesota Orchestra unveiled generous raises in contract extensions with its unionized musicians and music director Osmo Vänskä. So are the deficits and financial challenges that triggered a 15-month musicians’ lockout in the past?”

This is a curious opener, being that the lockout ended more than a year ago, the contracts were unveiled months ago, and the Orchestra’s current fiscal year won’t end for another couple of weeks. Why is this question coming up now?

I’m struck by the fact that this statement presupposes that no one involved learned anything from lockout disaster, the difficult period that preceded it, or the recovery that has happened since. I find that astonishing—an assumption that in my experience could not be further from the truth. What is the basis for it?

I would also point out that all those years of financial challenges coincided with the Great Recession. We are in a very different environment today, and the Orchestra itself is in a very different place today, making it hard to compare the two eras.

The wording here is also curious.  As written, it reads: “…the deficits and financial challenges that triggered a 15-month musicians’ lockout…” (emphasis mine). But it wasn’t “deficits” or “financial challenges” that triggered the lockout; the preponderance of evidence reveals that the lockout was triggered by ideology, along with the desire to impose a new business model on the organization, and a generalized antipathy toward unions.

Plus, a word about the “financial challenges.”  Documents from the lockout show that many of these challenges were artificially concocted. Save our Symphony Minnesota argued persuasively that revenues from classical concerts had been declining… because the Orchestra management had slashed the number of classical concerts.  Also, minutes from the Orchestra’s board meetings reveal that the deficit was manipulated to show good economic news for the State of Minnesota and the City of Minneapolis so the Orchestra could secure bonding money.  Once that money was received, however, the deficit was again manipulated to show bad economic news going into contract negotiations with the musicians. This is why the State of Minnesota and the City of Minneapolis were so outraged—they felt deceived.

I hate to rehash all this, as this is all in the past… but all these points are well-documented. And clearly remembered.

And as Emily notes, there’s another problem with how this sentence is constructed; it implies that even though things look okay right now… they are really not. This is a familiar technique… hinting rather than stating, so that the author maintains a level of deniability.

Wow… all that, and we’re only through the first two sentences.

“No, says Charles “Mel” Gray, a professor of business economics at the University of St. Thomas, who has been tracking the Minnesota Orchestra’s finances since the early 1990s.”

He has?

I have no wish or need to disparage a person I’ve never met… or for that matter, heard of. But that’s somewhat the point. Like Emily, I’m curious that this person is pulled out as an expert witness now. To my knowledge he never came forward during the lockout, or in the year and a half since it ended. Given that so many people spoke out in so many ways across so many platforms, this is surprising. At the very least, I wish Twin Cities Business would give more of an indicator of his background and/or connection to the topic.

But another thing. It’s most curious that except for an obligatory rebuttal from Orchestra personnel, Mr. Gray is the only person quoted. That doesn’t bolster the central argument here, making it seem like a pet theory than a general consensus. Isn’t there someone—perhaps someone who’s better placed—who can support Mr. Gray’s case? This makes it look like he’s simply an outlier with an axe to grind.  Or worse, that Twin Cities Business is being lazy and quoting the first (and only) person it came across.

“The problem is not solved; the problem is just postponed,” Gray explains. “A one-time gift can tide us over. But we are buying time and that time is going to expire, and we are right back in the thick of things.”

Well, yes… there is an element of truth here. Reliance on an “angel investor” (or in this case, “angel donor”) isn’t a healthy strategy.  Of course it is better to cultivate a broad base of support so that you don’t have to pray that someone will ride to your rescue.

But a couple of words.

First, Mr. Gray’s statement reminds me of one of my biggest pet peeves with the various labor disputes that have afflicted arts organizations as of late: too many managements seem to have lost sight of the fact that their organizations are non-profit organizations. Specifically, they are 501 (c) (3) non-profits as determined by the IRS. As such, they are always going to fundraise as part of their business model. Year-in, year-out. That is why they are non-profits. Yes, non-profits shouldn’t become overly dependent on one or two big donors, but big donors—and donors generally—are still a fact of life.

And this isn’t just me saying this.  According to Giving USA, more and more organizations from across the non-profit sector are seeing this trend, such as educational institutions.  They’re reporting that their fundraising is increasingly dependent on a smaller number of large grants, instead of a large number of small grants. Is this trend being driven by changes in tax laws? Concentration of wealth? The fact that non-profits are using different fundraising techniques? Better data management? Changing social norms? All of the above? We don’t know… but the trend is definitely there.

So to Mr. Gray’s point. Sure, reliance on large, one-time gifts is a strategy that carries risks. But I’m not sure things are as ominous as he makes them out to be. Or that the Orchestra is somehow unaware of what’s going on.

“Kevin Smith, president and CEO, says the new agreements provide tangible ‘stability’ that allows the nonprofit to more effectively raise money, sell tickets and make touring commitments.”

And here, Kevin Smith provides the perfect rejoinder. He explains precisely the purpose of the new labor contracts and the large gifts that are being used to support them: they are being used to help stabilize the present situation and give the Orchestra time to get back on its feet so it can get back to doing what it needs to do.

To be clear, the purpose of the Minnesota Orchestra is not to provide a high rate of return for investors, but to present world-class music for the community. I do not mean to imply that finances are unimportant, but no one will support the Orchestra through ticket sales or donations if it is not fulfilling this mission of presenting great music. Stabilizing the artistic product has to happen to attract ticket sales and donations, and these in turn will stabilize the organization’s finances. Kevin Smith gets this.

So again, there is nothing mysterious, irresponsible, or nefarious about what’s happening.  The musicians’ contracts are designed to achieve long-term stability, and large gifts are being used in the short term to support these contracts while the Orchestra works toward long-term solutions. The long-term solutions the Orchestra is working on correctly prioritize the Orchestra’s artistic product, in recognition that that’s the most effective way to build support for the organization.

Since Mr. Smith’s statement provides a perfect, logical answer to Mr. Gray’s indistinct fear—a fear that seems to be the heart of this article—I’m somewhat at a loss as to why the article doesn’t just end here.  Or to be honest, why it was published in the first place.

“Currently, 54 percent of the orchestra’s revenue comes from contributions, 15 percent from endowment drawdowns and 31 percent from earned revenue, including ticket sales.”

I am intrigued that these numbers are offered without comment. All non-profits have different ratios of earned, donated, and investment income… and while there are some broad guidelines for which ratios are preferred, there is no absolute, universal ratio that’s true for every organization. There are benefits and drawbacks no matter how the ratios work out. Why does Mr. Gray, or the author herself, believe that this particular ratio is worrisome, or is indicative of deeper problems? Make the case. Again, the fact that a 501 (c) (3) non-profit arts organization engages in fundraising is not in and of itself a problem—it is simply an indicator that it is indeed a non-profit organization.

“The orchestra continues to struggle to attract patrons. ‘People are not committing the way they used to, for multiple dates,’ Smith says. During the renovations/lockout, the orchestra lost 34 percent of its subscriber households (similar to season tickets). It has reduced the decline to 21 percent, says spokeswoman Gwen Pappas.”

What a fascinating group of sentences these are. The author essentially takes a couple of fairly neutral facts and spins them into ominous statements that cast the Orchestra in the worst possible light.

To begin with, Mr. Smith rightly points out that multi-package subscriptions are down… a completely uncontroversial trend that has been true since the 1990s, and has affected every performing arts organization in the country.  But author Liz Fedor plays around with his meaning.  From Mr. Smith’s comments on subscriptions the author extrapolates to argue that “the orchestra continues to struggle to attract patrons”… generally.  But this isn’t what he said.  Subscription packages and general ticket sales are two different things.

More intriguing, the second sentence boldly states that during the lockout there was a big decline in subscription packages—a whopping 34%. Big! But only as an afterthought does the author mention that a substantial number of those subscription buyers actually came back. So what could have been presented as successful move to get its subscribers back into the fold is presented in a way to highlight a sense of a failure and decline.

And again, I find it odd that author Liz Fedor spoke to both Kevin Smith and Gwen Pappas but didn’t ask about overall ticket sales, but only about subscription sales… which are in a general decline all around the country.

“St. Thomas’ Gray insists the orchestra ‘still has problems on the cost side. Somewhere down the road there will have to be an adjustment. We do have a group of absolutely top-notch musicians. They deserve to be compensated appropriately. The question is what is appropriate. It’s not clear an unfettered market would yield these salaries.’ ”

What problems? I’m not saying that there aren’t any (or that there couldn’t be any), but this statement is bizarre. The basic questions are: what problems does he see, and what evidence does he have that they are problems? And going back to an earlier point, how is Mr. Gray getting his information? The Orchestra’s fiscal year hasn’t even ended, I don’t believe its IRS financial documents (the 990 forms) from last year are public, and I don’t know what his connection to the organization is. As Mr. Gray is the only journalistic source for these “problems,” I think it’s beholden for him to actually present them.

And the odd statement about an unfettered market. I’m not sure what he means—the musicians’ salaries are based on competitive rates from around the country and around the world. They are based on the market rate of the Twin Cities metropolitan area. They are based on the self-analyses and projections the Minnesota Orchestra conducted to determine what it can afford.

Just like every other negotiated salary.

I’m curious about what criteria Mr. Gray envisions using to determine if the salaries are “appropriate” or not.

Sure, it’s possible that one or more of the parties involved in the contract negotiations has rose-colored glasses… but since the Orchestra went through an epic labor dispute that lasted over a year, I have a hard time thinking anyone approached this round of negotiations with wide-eyed innocence.

“[Mr. Gray’s] warning to musicians: ‘Don’t buy a huge house. Be cautious.’ ”

Right. Of all the advice he could have provided—or insight he could have provided—he chooses to warn against buying a “huge house.” That’s only slightly less gratuitous than advising, “Don’t buy too many Fabergé Eggs.  Be cautious.”

* * *

And there it is. I find this article to be nothing but a badly timed, badly sourced, badly presented hit piece.

And for me, at least, it has backfired spectacularly. Although the Orchestra’s Kevin Smith and Gwen Pappas are given a fraction of the space Mel Gray receives, and their statements are given less prominent positions than those of Mr. Gray, it is clear that they have the better grasp of what’s going on.

Ironically enough, after reading this piece I’m coming away with an even stronger conviction that Kevin Smith is indeed the right person to run the Minnesota Orchestra.

* * *

[Edit: This article was reprinted on August 17 by MinnPost in partnership with Twin Cities Business. I’m including the link to the MinnPost version here.]

Xochipilli

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9 thoughts on “Astonishingly Bad Analysis of the Minnesota Orchestra

  1. Here is the CV for Charles Gray from the University of of St. Thomas website:

    http://www.stthomas.edu/business/faculty/directory/Gray-Charles.html

    The only listing that is remotely connected to the Minnesota Orchestra is a presentation (unpublished) at an obscure conference in 2014:

    “Governance and architecture in arts organizations: A case study of the Minnesota Orchestra” Social Theory, Politics, and the Arts Conference, Ottawa, Canada, October 01, 2014

    Liked by 1 person

  2. Scott, as always, an excellent post in response to the article in Twin Cities Business. I tend to agree with you on most of the points, with a little softer reaction to the first paragraph. Frankly, I’ve been wondering about the long-term debt that the MOA is carrying and how that is or will be addressed. Perhaps that will be a topic for this year’s Annual Report and Annual Meeting, I don’t know. The MOA didn’t talk about the long-term debt during the lockout very much, if at all (as I recall), contrasted with operating deficit, and I suspect that it’s still there and they’re still not talking about it. I agree that Kevin Smith gets it and he’s the guy to run the MOA. I hope that he will be forthcoming about all the MOA’s debt and how it’s being addressed.

    Non-profits, even more than for-profit, organizations, need to present a positive face to the community overall and to their patrons and donors especially. I know that what the MOA people have stated in press releases and interviews about the orchestra’s condition and financial state is true. This has been an outstanding year for the organization, and I hope that the 2016 fiscal year will be equally if not more so. Having said that, I think there is a generalized fear in the community, despite the recent contract extensions, that the MOA’s financial challenges have just been put on the back burner to be addressed at some point in the far future. In the meantime, what are we to believe? There is a need for the MOA to be forthcoming about the fear, acknowledge it I think, and address the financial concerns. Looking at Gray’s comments in the article, as well as the article itself, in that light, it makes sense to me that these questions and concerns would be raised just before the MOA’s fiscal year ends on Aug. 31 and it prepares for its annual meeting, usually in December. It’s like it’s giving them notice.

    In my opinion….

    Like

    • Hi Gina and thanks for the thoughtful comment. I agree with you that for some in the community, there are those who have a lingering nervousness or broad fear that the Orchestra’s deeper financial challenges have been shoved aside. I don’t believe that the challenges have been bushed aside, but I agree that there is a residual mistrust in some quarters, and some people are concerned. For me, that’s one of the larger issues with this article—the author (and in my opinion, Mr. Gray) are simply trading off that vague fear. This piece essentially raises concerns without making actual, verifiable points… there are simply allusions to “problems” without any determination of what they are and why they’re important. Without these concrete fact, my fear is this article will simply serve to scare off potential donors and other supporters, and in effect become a self-fulfilling prophecy.

      But again, thanks for the comment!

      Liked by 1 person

  3. Hi Scott,

    I enjoyed your analysis of this piece. While probably biased, I think I can still make a few objective comments since I have, in fact, been studying this and many orchestra’s finances for some time.

    To begin, I would slightly disagree with your comment that these recent gifts support short term support while seeking long term solutions. I would argue that 5 years in an arts organization is much more than short term, maybe something like “medium term.” (this may be my bias speaking) Five years of stability is a substantial amount of time to plan and execute projects that will help the orchestra increase its profile, broaden its donor base, expand audiences, explore new revenue sources, etc. And the current management team has already demonstrated it’s ability (Cuba) to form and execute such plans, as well as to capitalize upon the excitement that they create.

    If this cycle of growth (and sustainability) sounds familiar, then you have probably read Michael Kaiser’s ” Art of the Turnaround”, or been lucky enough to hear him speak. This is exactly what he has done countless times to turn some of the worlds most troubled arts organizations into some of the most successful. And he never had the luxury of five years of stability in which to execute this plan.

    With regards to professor Gray’s comments, I do think there was a bit of an unfortunate spin put on them. To say musicians shouldn’t buy a huge house or expect continued large raises seems more like common sense than a dire prediction. Economies are cyclical and the likelihood of a recession of some size during the next five years is pretty good. Any economist would know that. I have read his book “The Economics of Art and Culture”, and it is simply my Econ 101 textbook applied to arts organizations. Lots of supply and demand curves to optimize earned revenue, etc. And this makes sense, Gray is an economics professor. I think his book is of value to explain many aspects of the business or ” revenue” side of an arts organization, but it isn’t very relevant to address the large scale, long term approaches necessary to grow (and therefore sustain according to Baumol) a large arts organization. With no offense intended, I believe Professor Gray may miss the forest for the trees a bit with regard to the topic of long term sustainability of an arts organization.

    This article would have been much more balanced and informative had it compared the MOA’s current strategy to those of other successful arts organizations, particularly those who faced large deficits at the time of the market crash due to a large dependence on endowment draws. I think the author would have found that the most successful strategy was a balanced approach of some cost side adjustments combined with a mid term strategy to slowly erase deficits without too much artistic sacrifice. (Bridge funding was used in many cases) This in turn positioned these organizations for long term donor based growth (annual and endowment).

    At best, this article is a glass half empty view of an organization that is undeniably far healthier than it was just two years ago. Much of the recent growth in donations stems from a growing confidence in the organization’s current strategy. Of course, it is those very donations that will make that strategy a success. On the flip side, negative articles such as this could give pause to key future donors in our business community who do not know who to trust as a legitimate source with regards to successfully running an arts organization. Hopefully, Kevin Smith’s outstanding track record of success in this community (through many recessions) will hold more credibility with those business leaders than a well meaning economics professor with a narrower view of the industry, and no experience working in it. I am disheartened by Twin Cities Business choice to publish such an article whether it be out of ignorance or something far worse.

    Just my opinion…

    Liked by 1 person

    • Similar to my comment above, thanks for posting this, Kevin… I always appreciate the discussion.

      To your first point, I can see that “medium-term” might work better to describe these particular donations, as they are multi-year pledges that will be paid out over five years. These are far different from the “Oh-for-the-love-of-God” gifts that come in the last days of an organization’s fiscal year, as part of an attempt to end the year strongly (or at least to stave off embarrassment). You are absolutely correct that this five-year window gives much more breathing room.

      I’d also agree that Mel Gray’s analysis strikes me as simplistic. And worse, it seems that he is trying to graft a for-profit economic model onto a non-profit organization. For non-profits, “revenue” is a complicated issue; by definition, non-profits will always turn to fundraising as part of their business plan, which is a revenue stream that for-profits cannot utilize. This, in turn, will always distort the “fundamental” economic rules of supply and demand for a non-profit organization.

      And as I mentioned to Gina above, I fully agree that this piece can serve as a self-fulfilling prophecy. Or to use some of the popular lingo of the day, that Mr. Gray comes off as nothing more than a “concern troll”—a person who posts on a blog thread, in the guise of “concern,” to disrupt dialogue or undermine morale with insincere suggestions that posters and/or the site may be heading into trouble.

      I’ve been working on a piece about the concept of “sustainability” in an arts organization or other non-profit, which might speak to many of your points.

      Thanks again!

      Liked by 1 person

  4. Pingback: Minnesota Media Chided for Coverage of MN Orchestra Musicians’ Raises | Nonprofit Quarterly

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