Financial Analysis Project, Part 7

A trombone on  a stand in front of music stand holding sheet music and a pair of glasses

Benchmark and Subsector Analysis of the Louisiana Philharmonic Orchestra

Joi Chadwick

Case Western Reserve University

SASS 425: Nonprofit Financial Management

Joanne Montagner-Hull

February 23, 2022

Go to Part 1-3, Part 4, Part 5, Part 6, Presentation

Individual Agency Analysis

The Louisiana Philharmonic Orchestra (LPO) is in New Orleans, Louisiana and its stated mission is “to transform people and communities through music” (Louisiana Philharmonic Orchestra, 2020, p. 1). It will be benchmarked against three orchestras in southern states: the Nashville Symphony in Nashville, Tennessee, the Houston Symphony in Houston, Texas, and the Louisville Orchestra in Louisville, Kentucky. The Nashville Symphony “inspires, entertains, educates and serves through musical performance, innovation, collaboration, and inclusion” (Nashville Symphony Association, 2021, p. 2). The mission of the Houston Symphony “is to inspire and engage a large and diverse audience in Greater Houston and beyond through exceptional orchestral performances, educational programs and community activities” (Houston Symphony Society, 2020, p. 2). Finally, the Louisville Orchestra’s mission is to change lives throughout our entire community as only The Louisville Orchestra can, by promoting a culture of music through outstanding performances and education” (The Louisville Orchestra, Inc., 2021, p. 2).

Nashville Symphony

The Nashville Symphony was formed in 1946, and “education and community engagement have been at the core of the Nashville Symphony’s mission since its founding” (Nashville Symphony, n.d.-b, par 5). Its programs fall into two categories: 1) artistic, and 2) education and community engagement. Artistic programs include more than 150 concerts of for the Middle Tennessee community each year, inviting composers to “participate in the rehearsals and performances of their works, hosting young composers “for an intensive week of activities during which they were able to develop their talents, gain hands-on experience working with the Nashville Symphony, and showcase their work for a live audience,” and recording projects (The Nashville Symphony Association, 2021, p. 2). Through its educational and community engagement programs, the Nashville Symphony “proudly serves thousands of children and families each year from the 41-county Middle Tennessee region, both at Schermerhorn Symphony Center and in local schools and community gathering spaces across the region” (p.2). The symphony provides “programs for children with autism and/or other sensory sensitivities,” offers the immersive Accelerando Initiative that “prepares gifted young students of diverse ethnic backgrounds to pursue music at the collegiate level and beyond,” and provides free community performances that “reached more than 4,000 people in the 2019/20 season” (p. 2).

As of the end of the 2020 fiscal year, the Nashville Symphony had $15,947,022 in income with three streams that drew most of its revenue: direct public support (58.55%), program services (38.97%), and other (7.84%). These figures added up to $16,802, 316, more than the symphony’s total income, due to three other streams drawing negative revenue to a total of $1,264,231. Contributions, gifts, grants, and similar amounts not classified as federated campaigns, membership dues, fundraising events, related organizations, or government grants represented 87% of direct public support – or a little over $8.1 million. The organization promoted multiple ways to give – among them corporate partnerships, planned giving, and one-time and recurring direct giving – and touted on their website “more than 5,000 people each year choose to make a gift to the Nashville Symphony” (Nashville Symphony, n.d.-a, par 2). These reveal the Nashville Symphony’s revenue was well-diversified, and its income would not suffer too greatly if the organization lost one revenue source. Nashville Symphony spent 82.75% (or $19,537,841), on program services in fiscal year 2020 while it spent 12.02% ($2,836,923) on administration and 5.24% ($1,236,142) on fundraising for a total of $23,610,906 in expenses. Overall, the organization reported a net loss of $7,663,884 in 2020. Net income compared to expenses was -32.46% which indicates the organization showed poor budgeting, financial planning, and ability to operate within its means.

Assets for the Nashville Symphony totaled more than $92 million, 78.24% ($72,387,534) of which was tied up in fixed assets. This included $3.5 million in land and $62,556,420 in buildings. This was due to the organization owning its venue, the Schermerhorn Symphony Center, which cost $123.5 million to construct and opened in 2006. The Nashville Symphony also owns $11,756,514 (12.71%) in investments and $5,260,404 (5.69%) in cash assets. Overall, the majority of the Nashville Symphony’s assets are illiquid with cash and equivalents amounting to 22.8%, or about 2.6 months’ worth, of its expenses. Net income compared to expenses was well outside breakeven for a substantial loss that is not sustainable in the long term. Further challenging sustainability, Nashville Symphony had $29,345,428 in liabilities ($20 million as loans from insiders) and was moderately leveraged at 31.72% which, coupled with revenue losses meant the organization did not have a significant amount of room to tolerate added debt.

Because net assets are a measure of an organization’s financial worth (gross assets minus liabilities), this figure can help illustrate how well the organization’s finances were overall. For fiscal year 2020, Nashville Symphony had $63,178,429 in net assets that were 68.28% of its total assets. This means the organization owned a little over two-thirds of its assets outright. However, 88% of that figure ($55,916,225) was unrestricted assets while fixed assets surpassed that amount by more than $16 million. Due to changes in forms and reporting for the 2020 tax year, the balance sheet did not indicate how much (if any) of net assets was permanently restricted (endowment) assets. However, investments of $11,756,514 exceeded all donor-restricted assets ($7,262,204), meaning the Nashville Symphony fully invested its endowment to create investment income. The high value of fixed assets and the endowment made the Nashville Symphony financially constrained with fewer (liquid) resources to use toward general operating.

Houston Symphony

 The Houston Symphony (filing as the Houston Symphony Society), founded in 1931, “is now one of America’s oldest performing arts organizations and the largest performing arts organization in Houston” and has a vision to be “America’s most relevant and accessible top-ten orchestra” (Houston Symphony, n.d.-b, par 1; n.d.-c, par. 4). Its programs fall into two categories: 1) artistic endeavors, and 2) education and community. Artistic endeavors include almost 170 concerts and “more than 900 community-based performances” in the Greater Houston area by “musicians of the orchestra and the Symphony’s four Community-Embedded Musicians” each year (n.d.-b, par. 2). Education and community activities include programs that serve over 200,000 people of diverse ages and backgrounds in nearly 1,000 interactions “both inside Jones Hall and in community venues throughout the Greater Houston area” including schools, hospitals, community centers, and more (Houston Symphony Society, 2021, p. 2). The Houston Symphony is a permanent resident at Jones Hall for the Performing Arts, a venue owned by the City of Houston.

The two main types of income for the Houston Symphony were direct public support which brought in $19,299,660 (62.59%) and program services which brought in $10,718,207 (34.76%). All other contributions, gifts, and grants (not revenue from federated campaigns, membership dues, fundraising events, related organizations, or government grants) represented 69% of direct public support for a total of $13,284,580 (69% of DPS). These contributions came through the organization’s several channels of donation including one-time and recurring individual giving, planned giving, corporate giving, and major gifts. Corporate giving alone has more than 80 partners listed on the organization’s website, and ticket sales (an area of program service revenue) for 2020 drew $7,428,968 in revenue while “education, other” programs drew $3,289,239 which suggests many patrons/participants. Thus, Houston Symphony’s revenue seems well-diversified within the two broader streams. The organization spent $28,353,273 (82.96%) on program services, $2,307,053 (6.75%) on administration, and $3,517,285 (10.29%) on fundraising, for a total of $34,177,611 in expenses. Overall, the Houston Symphony reported a loss with a net income of -$3,344,932 in 2020 which indicates poor control of expenses and financial management.

Grants and pledges receivables accounted for $5,938,194 which was 79.98% of total assets ($7,424,701) for the Houston Symphony in fiscal year 2020. Cash and Equivalents as a percentage of annual expenses was 0.37% or about one to two days covered by cash on hand. This figure only rose to four to five days of expenses covered if cash on hand was added to accounts receivable, and net income was 9.79% less than expenses, so the organization was highly illiquid with very little cash it could access to keep operating if income slowed. The Houston Symphony reported $33,474,197 in liabilities which included “other” (federal taxes) at $15,189,859 (45.38%) and mortgages and notes at $13,040,452 (38.96%). Liabilities were 450.85% of total asset value, indicating the Houston Symphony had a high level of debt and low ability to pay those debts. Net assets (which measure the organization’s financial worth) were -$26,049,496 which was -350.85% of total asset value. Overall, the Houston Symphony was very highly leveraged with liabilities outstripping assets 4.5 to one and a negative financial worth. Donor-restricted assets were valued at $3,339,514. Due to changes in forms and reporting for the 2020 tax year, the balance sheet did not indicate how much (if any) of this amount was permanently restricted (endowment) assets. However, the organization reported $0 in investments (indicating no investment in endowment by the Houston Symphony Society), and the Houston Symphony Endowment is a separate entity with a “sole purpose […] to support the operations of the Houston Symphony Society” which showed net assets at $75,471,987 for fiscal year 2020 (Houston Symphony Endowment, 2021, p. 1). Still, 99% of these assets were illiquid with $74,780,324 in permanently restricted net assets, severely limiting how much the endowment could grant to the already financially troubled Houston Symphony Society within endowment guidelines.

Louisville Orchestra

The Louisville Orchestra was founded in 1931 and “has long been recognized as the cornerstone of the Louisville performing arts community” (Louisville Orchestra, n.d-c, par. 1). Through its performance programs, the organization “offers a wide variety of concert series to the community, including classical programs featuring world-renowned guest artists, lighter classical and pops performances, concerts with engaging themes in neighborhood locations throughout the city and education and family offerings” along with being the “resident performing group for Louisville Ballet and Kentucky Opera” (par. 6). Through its educational programs throughout Kentucky and Southern Indiana, the Louisville Orchestra partners “with area schools, community organizations, and the general public to educate, inspire, and foster long-lasting relationships with the arts, specifically the diverse and cross-genre world of orchestra music” (Louisville Orchestra, n.d.-d, par. 1). The Louisville Orchestra’s family and community engagement programs include partnering with “a variety of community, health, and education organizations to bring the joy of music into the lives of people throughout Kentuckiana” and “providing musical experiences for all ages” via performances ranging from small ensembles to full orchestra concerts (Louisville Orchestra, n.d.-a, par. 2; Louisville Orchestra, n.d.-b, par. 1). The orchestra is one of several tenants at the Kentucky Center for the Performing Arts.

For fiscal year 2020, the Louisville Orchestra’s total revenue was $7,823,510 mostly drawn from direct public support and program service revenue. Direct public support accounted for $4,529,507 (57.9%) while program service revenue was $2,327,534 (29.75%). The orchestra’s website offers individual giving, corporate sponsorships, and tribute gifts as methods of contributing and lists more than 50 corporate sponsors at multiple levels indicating a diverse mix of revenue contributors in that stream. Within program service revenue, $1,520,914 was from concert revenue which presumably indicates a respectable number of patrons contributing to this revenue stream. Total expenses for the orchestra were $7,805,962 with $6,558,179 (84.02%) going toward program services, $844,408 (10.82%) going toward administration, and $403,375 (5.17%) going toward fundraising. The orchestra drew a small profit of $17,548. This shows the organization drew enough income to cover its expenses with a small amount left over, operated within its means, and was financially sound.

Louisville Orchestra’s total assets were valued at $4,932,799 with most of this being in three classifications: cash and equivalents at $2,246,528 (45.54%), investments at $1,442,427 (29.24%), and contributions, gifts, grants, and similar amounts at $1,095,249 (22.2%). The orchestra had 28.78% of its annual expenses available as cash on hand which would cover 105 days or approximately 3.5 months, which showed good liquidity. The orchestra held $1,516,653 in liabilities – nearly two thirds of which was due to income taxes – and was moderately leveraged at 30.75% which could create a moderate amount of doubt in their ability to pay their debts. Net assets, or the organization’s financial worth (if all assets were liquidated and liabilities covered), for Louisville Orchestra were $3,416,146 which was 69.35% of total asset value. This means the organization owned almost 70% of its assets outright, a positive sign for the orchestra’s financial health and an indicator the Louisville Orchestra had a fair amount of financial flexibility. Due to changes in forms and reporting for the 2020 tax year, the balance sheet did not indicate how much (if any) of restricted net assets was considered permanently restricted (endowment) assets. The Louisville Orchestra reported $1,442,427 in investment assets, however, and schedule D showed this full amount was the year-end balance for endowment funds – $547,160 (37.24%) permanently restricted and $905,267 (62.76%) temporarily restricted. This indicates the endowment was fully invested to create income and given the size and age of Louisville Orchestra, this was a moderate endowment size.

Agency Comparison Analysis

The Louisiana Philharmonic Orchestra and all three benchmark organizations generally divided programs into the two broad categories of performance/artistic endeavors and education/community engagement. All organizations derived income mainly from direct public support and program services driven by a well-diversified collection of individual donors, corporate sponsors, planned gifts, and concert/performance patrons. This seems attributable to all organizations offering their own set of benefits for different donor levels and donor programs, perhaps 100-200 performances in a regular season, and regular work to show commitment to their geographic communities. Each orchestra also allocated the most funds to program service expenses which exceeded 80% of total expenses across the board. Given the necessity of a large number of personnel (artists/musicians and support staff) to carry out several dozen performances and educational/community interactions across a 30 to 40-week season coupled with the fact these salaries are categorized as program service expenses, this makes sense for the subsector.

Though the Louisiana Philharmonic Orchestra drew a profit of $101,133 in 2017, it operated at a loss in 2018, and all the organizations except for Louisville Orchestra recorded losses in 2019 and/or 2020. For the LPO, 2019 losses may have been attributable to continuing the fall in net revenue from 2018. Losses for the Nashville Symphony and Houston Symphony may have been attributed to a similar trend in the overall subsector and/or effects of the COVID-19 pandemic due to canceling performances and donors/patrons being more cautious with their contributions due to economic concerns. Meanwhile, the Louisville Orchestra fared better than its peers amidst the first year of the pandemic and posted a modest profit that was about enough to cover three-fourths of a day’s expenses. All the orchestras were at least moderately leveraged with the Louisiana Philharmonic Orchestra being highly leveraged in 2019 and the Houston Symphony being extremely highly leveraged in 2020 to the point where the organization had more than 450% of its debt to pay back. It may be the case that at the time the subsector overall engaged in strategic financial practices of “building it so they will come” – using funding sources to which they were liable for repayment to carry out activities and programs to fulfill their mission and attract other sources of funds and assets they would not have to repay.

 The Nashville and Louisville organizations had the closest percentages of net assets over total assets at 68.28% and 69.25% respectively. Trailing somewhat was the Louisiana Philharmonic at 47.41% in 2019 which was a decline from around 60% two years prior. The outlier of the orchestras was again the Houston Symphony reporting net assets over total assets at -350.85%. Overall, the organizations’ financial worths (net assets) were about half to two-thirds of their total assets. The Nashville Symphony’s assets stood out in the subsector with over $72 million in fixed assets due to its ownership of a relatively new and expensive concert hall while the other orchestras were residents/tenants of venues owned by other parties. This left most of Nashville’s assets being illiquid, which was similar to Louisiana and Houston, though the dollar amounts for the latter two were far lower. The Louisville Orchestra again stood above its peers in the subsector in this regard with a large amount of cash on hand and decent liquidity. Regarding sustainability, the Louisville Orchestra also stood out by having enough cash to cover three to four months while its closest peer, the Nashville Symphony, had about two three months of expenses in cash, and the other two orchestras had less than two days of cash on hand. These results could have been due to poor management of expenses, lack of planning to draw in unrestricted net assets, or emergency spending due to the pandemic causing cancellations/rearrangements of orchestra seasons.

Financial Benchmark Analysis Conclusion

These four organizations’ latest financial figures indicate the symphony orchestra subsector (at least in the Southern region) experienced strong financial troubles in recent years. Most orchestras had between less than 1% and slightly above 11% in fixed assets because they used buildings/properties they did not own as performance venues which helped some with liquidity. (The one orchestra that did own its venue had more than three-fourths of its assets tied up in that property.) However, they struggled to attract enough cash and equivalents plus receivables to achieve liquidity that would allow them to sustain operations and contribute to profit generation. They were moderately to very highly leveraged, which casts moderate to very high degrees of doubt on their ability to repay debts. Most of the orchestras – save the Houston Symphony which appeared to be the most in dire straits of organizations compared and had an extremely negative financial worth – had respectable net assets valued at 47-70% of total assets.

The Louisville Orchestra seems to provide some hope and perhaps clues for survival in the subsector during this time. It had the lowest leverage value at 30.75%, the highest percentage of cash and equivalents (45.54% of total assets), the greatest ability to cover annual expenses with cash on hand (105 days), the lowest percentage of fixed assets (0.84%), the lowest percentage of liabilities as a percentage of annual expenses (19.43%), the second-highest percentage of unrestricted net assets over net assets (40.68%), and the highest financial worth with net assets representing 69.25% of total assets – all while weathering the first year of the pandemic with a small profit. Similar organizations can follow their example by continuing to pay debts and abstaining from accruing more debt that would further leverage their organizations and challenge their ability to pay existing debts. Orchestras should be intentional about cultivating income and maintaining assets with special attention to making sure unrestricted net assets exceed fixed assets to allow the organization liquid assets it can use for operating expenses or any purpose necessary. This intentionality also requires limiting their percentage of fixed assets, which may mean (for those who do not already own land/property) avoiding building or purchasing land or physical property and opting to lease or contract residency at existing facilities instead. They should continue to lean into their heavy revenue streams in direct public support and program services and education/community engagement while innovating (strategically) to meet their communities where they are in the context of current societal challenges. This may mean deepening cultivation of donor relationships, offering more digital performances, or adjusting their programs and presentation to better fit community interests and needs. Executive directors, boards, and chief financial officers within the subsector should collaborate within (and potentially across) their organizations to develop financial plans that account for all these factors and build on these recommendations.


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