The Arts Council of Martin County, Stuart, FL. Photo by Thomas Winter. The Arts Council of Martin County, Stuart, FL. Photo by Thomas Winter.
Posted Mar 10, 2022
For many years, SMU DataArts has studied various financial and operating aspects of the national nonprofit arts and culture sector. We’ve released in-depth reports on topics such as working capital, bottom line, and many others. To start 2022, we have restructured how we disseminate this work to create more focused analysis of individual outcomes which we will be releasing every other week to inform the sector and respond to current trends and topics in the field. We will begin this exploration focusing on unrestricted contributed revenue.
The COVID-19 pandemic has turned the arts and culture sector upside down in many ways. With widescale closures beginning in March 2020, organizations saw steep drops in earned revenue from ticket and admissions sales loss but found some relief from government funding programs and adjusted grant terms that allowed for some restriction removal or reallocation of funds to general operating needs.
But how did these revenue model shifts play out, and were they enough for organizations in the sector to meet their needs to at least break even financially? Let’s dive in to explore the unrestricted contributed revenue side of the story.
Leading up to the onset of COVID-19, arts and cultural organizations covered roughly 50% of their annual expenses with unrestricted contributed revenue on average, as shown in Figure 1. In aggregate, additional modeling of the sector by SMU DataArts has found that contributed revenue totaled over $11 billion in 2020.
Data from 2020 showed a relative increase in unrestricted contributed revenue compared to total expenses (before depreciation), which reversed two years of slow declines. This shift in 2020 over 2019 was driven by an inflation-adjusted increase in unrestricted contributed funds of 3% coupled with a decrease in total expenses of 11%, which is shown in Table 1 below.
|2017||2018||2019||2020||Nominal change 2017 - 20||Inflation Change 2017 - 20 (6%)||Inflation Change 2019 - 20 (2%)|
|Unrestricted Contributed Revenue as % of Expenses||51%||49%||48%||55%||4%|
|Ave. Unrestricted Contributed Revenue/||$1,624,430||$1,667,458||$1,735,580||$1,786,988||10%||4%||3%|
|Ave. Total Expenses (before depreciation)||$3,167,763||$3,431,214||$3,643,630||$3,250,216||3%||-3%||-11%|
It is important to note these values reflect organizational finances tied to their given fiscal years, not calendar years. As such, organizations’ fiscal years ending in 2020 ranged from pre-pandemic time (January 2020) through December 2020. On average, the data shown here captures financial positions through August 2020, or 5 months into the pandemic.
While the overall average values are helpful in understanding the sector as a whole, examining differences by budget size or mission focus can shed light on differences experienced within the sector.
We examine budget sizes by separating organizations into three groups; small, medium, and large based on their operating characteristics within specific disciplines such as dance, art museums, community-based organizations, and others. This aligns with the idea that a small dance company has a different average budget than a small art museum. You can find a full breakdown of what constitutes small, medium, and large organizations here.
Figure 2 shows the percent of expenses that are covered by unrestricted contributed revenue by budget grouping.
All years of the trend period showed that smaller organizations relied more heavily on unrestricted contributed revenue to cover expenses than did larger organizations. 2020 was the only year where large organizations covered more than 50% of expenses with these funds. The change in 2020 was most dramatic for small organizations, where 15% more of expenses were supported by unrestricted contributions than in years past.
The changes from 2019 to 2020 were driven by the same situation described above: expense reduction and contributed revenue growth. Small organizations recognized 10% contributed revenue growth and 11% expense reduction whereas medium and large organizations recognized 8% contributed growth and 5% and 8% expense reduction, respectively. This shows perhaps more nimbleness among smaller organizations, which also had lower reliance on earned revenue streams to cover expenses.
The Cultural Data Profile, SMU DataArts’ data collection instrument from which these insights were gleaned, invites organizations to note if their missions are rooted in a specific demographic voice. For this analysis, we are also going to explore those organizations whose missions focus on a particular racial or ethnic group.
Figure 3 shows that organizations whose missions are rooted in a particular racial or ethnic voice tend to cover more of their expenses with unrestricted contributions than do other organizations.
Both groups saw just over 10% expense reduction from 2019 into 2020, but organizations with missions rooted in a particular voice saw slightly more contributed revenue growth than others.
Returning to one of our primary questions, when looking at these changes to unrestricted contributed revenue and total expenses, were the changes enough to offset earned revenue losses and end the year at a break-even level?
Overall, yes, the average fiscal year bottom line figure for unrestricted funds relative to expenses showed a 2% surplus. Smaller organizations saw the largest average surpluses at 16% while large organizations broke even in 2020. Those with missions rooted in a specific racial or ethnic voice had unrestricted surpluses of 13%. We will further detail bottom line figures for these types of organizations in future posts to explore differences in how bottom lines might be approached or conceptualized within the sector, including looking only at operating funds or by including depreciation expenses.
It is important to remember that this analysis only captures an early portion of the pandemic. SMU DataArts will continue to update this information to more fully explore COVID-19’s impact on the sector over time.
In our next post, we will further explore the sources of contributed income to better understand where these funds came from and how the various sources shifted heading into the pandemic.