Tuesday, July 24, 2012

So thats where the money is.

A friend of mine informed me of two new Arts Council inititiatives recently. Both were built around donations. The smaller one offers to add 50% of the value of what you raise and the bigger one, called Raise,  offers mentorship to large organisations to help them implement an effective fundraising campaign. This focus on alternative sources of income is to be welcomed.

We all know how hard it is to raise a donor base and sponsorship in this country, so have they got the strategy right? Will theses schemes make it easier for organisations to raise money? Of course they won't.

Why?

Because the incentive is in the wrong place. We don't have a culture of giving because the giver is not encouraged or supported in the giving: there are no tax breaks for charitable donations that can compare with international best practice or that can compete with the available business investment opportunities.

I remember sitting down with a very qualified prospect a couple of years ago while trying to build a donor base for GĂșna Nua. The guy owned a successful, medium sized business in management training, was a friend of the family, and loved theatre. I'd finished my training with Tom Suddes and I made a good presentation and a clear ask. He considered and said "I spend about a €1000 a year on tickets. So does my wife. I pay a lot of tax, some of which makes its way to the arts. And you want me to give you more money? Why? I think what you do is great, but why?"

The mad thing is that if I was looking for money to start a business then the answer to his question would be that even if the business flops you'll get most of your money back within three years in tax breaks. If I'd been able to make that answer then I'm pretty sure I'd have walked out of his office with a cheque in my hand.

If you'll excuse a small digression I want to quote from an Arts Council Newsletter introducing the Raise programme: "Income from fundraising by arts organisations in Ireland is less than 3 percent of total income.  This is a much lower ratio than in other countries such as Britain or Australia, where arts organisations secure up to a third of their revenue from fundraising". It's probably just me but the tone of this seems to suggest that the arts organisations in Ireland have been very bold, and haven't been working as hard as they should, but now that the council knows what is going on in the UK and Australia we wont be allowed to get away with it any more. I don't think this tone is deliberate or conscious. I just think that there is a cultural tendency to blame somebody (usually the wrong person, and usually the person at the bottom of the decision making ladder), rather than admit that the system is flawed or broken or whatever.  At no point in the Arts Council news letter on fundraising does it mention the fact that the tax regime in both the UK and Australia - and particularly in the US supports and encourages donations.  It also doesn't mention that both the UK and Australia have larger populations and significantly larger GDPs - essentially they are bigger (and incentivised) markets. If a comparison is to be meaningful then we need to compare like with like.

The Arts Council newsletter does not acknowledge that most Arts Organisations have been working extremely hard for many years with various levels of success to raise sponsorship and donations, and that those organisations are fully aware of the obstacles to successful fundraising. It is worth bearing in mind that in the three years, 2005 -2008, The Abbey Theatre - one of the largest cultural institutions in the country with a highly skilled and experienced staff raised a total of €189,768 (about €63,000 per year on average). This is not an indictment of the Abbey's fundraising abilities, but a very clear indication of the level of interest in donating to the arts.

It doesn't matter how many schemes are run to improve the sales techniques of the donation hunters, unless the tax regulations are changed to support and incentivise charitable giving, these schemes will have minimum impact. Its basic sales: do not try to sell something to somebody who is not predisposed at a number of key levels to buy.

All I'm saying is that these schemes are great, but without changes in the tax environment they incentivise the seller and not the buyer. The net result of theses schemes will probably be a number of already overworked arts managers making massive, well planned efforts to score money that actually isn't available, and probably being penalised by the Arts Council for failing.

But c'mon, John, there's no way the tax regulations are going to change. Really? Why not? Why can't the arts avail of the same kind of tax incentives as film or small businesses? Well, we don't want a lot of people avoiding tax by hiding their money in the arts. But isn't that exactly what they do in business and film? Ah, yes, but, investment in business and film results in net employment and a significant tax take. Okay, but aren't the arts one of the most labour intensive activities available and - given their current VAT status - wont they produce a bigger tax yield?

I haven't heard an argument against changing the tax regulations governing charitable donations that was not based on ideology, prejudice or fear.  There is no real reason for the Arts in Ireland not to have the same kind of tax incentives supporting charitable donations as prevail in other countries. Put the incentives in place and the money will start to move.

But it will just take too long! And this is a serious problem. There will be more Arts Cuts in the next budget, and in terms of theatre, that tiny constellation of companies orbiting the big five will start to burn out. When you watch the bullish Michael Colgan unable to defend Arts Funding in the face of the visceral "do we save a life or do we watch a play" argument you realise that the big five will be in danger eventually as well. What's important to remember is that these cuts are mostly driven by ideology, not by economics or accounting.

So what to do. OK, here's a rediculous idea. Start a theatre investment fund.  Raise say, €5 million  from some people with real money. Put that money into a medium risk fund yielding 4% per annum. (which is about what these investors would get  if they sheltered the money offshore). In three years that fund is worth €5, 624,320. The investor's money is safe and they get it back with a small profit if they want it back at the end of the three year period. They might not want it back because its performing as well there as anywhere else in the current climate.

Now, what this fund does is,  it goes to a bank and in year one it borrows €1,000,000 and invests it in theatre production. The loan is guaranteed by the fund. There is one stipulation, and that is that whatever number of shows the fund invests in it must make its money back and show a small overall profit. Let's be optimistic and say that it makes a 20% profit on the year. It pays back the bank €1,040,000 and puts the remaining profit, €160,000 into the fund. It repeats this for all three years and the fund is worth €6,123,776.

You can increase the size of the original fund depending on the required final yield.

But surely this is pure fantasy? is it any more fantastical than expecting the Abbey to raise over  €3million a year in donations and sponsorships when they couldn't raise €200k over three years outside of a recession? Is it any more fantastical than expecting the arts industry to replace the lost millions with a potential donor base coping with higher taxes, lower incomes and negative equity?

Do we really think that there are enough people in the country earning in excess of €200,000 a year able and willing to donate to the arts in such a quantity as to support the whole industry?

Of course there isn't, and Oh gosh look, rather than focusing our attention on changing the context in which we work so that a stable sustainable industry can be built, we're back fighting each other again for limited resources. 

I look forward to your thoughts.









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