Tracking Trends for Expenses Covered by Earned Operating Revenue
Earned Operating Revenue
How Volatile Were Arts Sectors from 2016-2018?
Most sectors experienced limited volatility from 2016 to 2018.
PACs, Symphony Orchestras, and Art Museums had more fluctuations over the span of three years compared to other sectors. One organization skews findings in each of these sectors. Without them, Art Museums’ earned operating revenue index would be 31% to 32% each of the three years, and that of Orchestras would be 37% to 38%. PACs’ index would rise from to 41% in 2016 to 46% in 2017 and end at 44% in 2018.
About half of the sectors saw their total earned revenue index rise over time, although not always in a smooth trajectory. Arts Education, Opera, PACs, Symphony Orchestras, Other Museums, and General Performing Arts all rose (albeit some very slightly), while Dance, Theatre, Community, Music, and Art Museums saw their total earned revenue index fall over time.
The variation over time in earned revenue relative to expense was less than 1% for the Arts Education, Theatre, Music, Other Museums, General Performing Arts, and Opera sectors, creating a relatively flat trend overall.
Art Museums, Other Museums, and General Performing Arts had lower earned revenue in 2018 than in 2016 after adjusting for inflation. One Art Museum accounts for more than half of that sector’s average annual earned operating revenue and expenses, skewing the averages. Without it, Art Museums’ inflation-adjusted expense and earned operating revenue 3-year growth would both be -8%.
In inflation-adjusted figures, all sectors saw a growth in total expenses except Symphony Orchestras, Art Museums, Other Museums, and General Performing Arts organizations.
Both Other Museums and General Performing Arts organizations had negative growth in earned operating revenue and total expenses in inflation adjusted figures but saw positive growth in the earned operating revenue index. This is because the decline in total expenses was greater than the decline in earned revenue.
In the Community, Dance, Music, and Theatre sectors, both expenses and revenue grew but expense growth outpaced revenue growth, which brought down the index.
Trends by Organizational Size
On an annual basis, Large organizations consistently cover more of their expenses with earned revenue than do Small and Medium organizations.
Large organizations had a spike in 2017 due to the dip in expenses that year rather than an increase in earned revenue. They actually had 3 consecutive years of decreases in earned revenue.
Medium organizations were the most stable year over year from 2016 to 2018, and the had the smallest percentage of expenses covered by revenue.
Small organizations slightly increased their overall earned operating revenue (0.1% after adjusting for inflation) but decreased their expenses (-3.5% after adjusting for inflation).
In inflation-adjusted figures, average total expenses were lower for every size organizations across all sizes in 2018 than in 2016.
In inflation adjusted figures, Small organizations experienced very slight earned revenue growth but Large and Medium organizations had lower earned operating revenue in 2018 than in 2016, both in nominal and real dollars.
The earned revenue index did not change for Medium organizations as both earned revenue and total expenses decreased at roughly the same rate.
Large organizations had a decline in both earned revenue and total expenses but the decline in expenses was greater, leading to the increased index value.
By Geography, Trends 2016 - 2018
The earned revenue index for San Francisco and New York organizations rose then fell sharply between 2016 and 2018. The volatility in both markets was not driven by one or two organizations’ unusual activity.
Organizations in Los Angeles and Small markets consistently tend to cover a much higher level of expenses with earned operating revenue than do organizations in other markets.
The average organization in all markets except New York and DC saw its earned operating revenue index rise over time, although not always in a smooth trajectory.