Moving Toward a New Funding Paradigm for the Arts
By Andrew Hetherington
Since 2007, the economic climate in Ireland has had significant impact on Ireland’s cultural infrastructure. The slow erosion of Public Funding each year created enormous and ongoing cumulative challenges over time, damaging programming, outreach, employment levels and perhaps most significantly, the National Collection, with little capital investment or ongoing resources for conservation, preservation or purchasing. Many organisations worked hard in this time to maximise Private Investment to support this work.
The impact of these challenges will become clearer with time. What is clear, however, is that over the period 2016 – 2025, a new funding paradigm for cultural organisations in Ireland will have to develop and embed.
Government subsidy is expected to be maintained around current levels or have only modest increments over the coming period, as resources to services such as Health and Education are recovered first, along with pressing social issues such as homelessness and migration.
Continued diversification of revenue streams will be a consistent focus for the Boards and Executives of Cultural Institutions, in parallel with Government objectives. Overcoming human resource challenges, identifying new opportunities, piloting initiatives and further building of sustainable revenue streams from existing/new assets, processes and networks will add to direct Government subsidy.
Establishing Initial Benchmarks
As a starting reference/benchmark for a new funding paradigm, in 2009 the typical Income/Turnover of Non-Arts Council Funded Arts/Cultural Organisations identified by The Arts Council/Indecon Economic Consultants suggested the following breakdown of revenue:
- 47% Ticket/Entry Sales/Box Office/Publication Sales
- 23% State/Local Authority Subsidy
- 8% Corporate/Private Sponsorship
- 6% other non-classified income (eg. including donations, misc income)
- 5% Bar/Restaurant Sales
- 4% Other sales/promotions
- 4% Membership
- 1% Venue Rental/Hire
- 1% Royalties
While the percentage of income in each bracket does not represent every cultural organisation, the categorisation of income is a useful starting point for analysing current and future revenue by source.
Understanding the Environment
Research undertaken by Business to Arts identifies that there are a number of factors that impede Cultural Organisations and how they develop new income streams. Mapping and recognising these (through an organisational audit) is a vital first stage in successfully overcoming them. Common factors which hold-back revenue diversification plans in similar organisations, include:
- Lack of time and human resources to develop and implement new plans
- Structural/legal/strategic changes that put a halt to revenue diversification or slow efforts considerably
- Having a large-scale sponsorship relationship with a single corporate/private sector entity
- Lost knowledge (eg. assets, processes and networks) as a result of staff turnover
- Insufficient budget to market/promote offering to widest possible audience
Developing Commercial Revenue
One of the main drivers behind the growth of the cultural and creative industries is the increase in demand for its goods and services. As discussed in a recent policy toolkit produced by the National University of Ireland Galway, rising income levels combined with technological advances have enabled increased access to cultural produce. This has placed upward pressure on demand. These factors have also put downward pressure on prices. Price indices for many of the entry points to cultural produce consumption (ie. music, games, literature, film), have shown how the last ten years underline that their price has dropped significantly, thus fuelling cultural produce consumption.
The internet has been the most transformative innovation with regard to accessing this produce. Consumers across the globe increasingly use the internet and digital media to expand their cultural experiences, enhance their academic pursuits and view objects, collections and performances that were previously cost prohibitive to access. This is not, however, often the case with the live experience, as costs of delivery continue to rise across music, theatre and other performance artforms. Identifying compelling price points and incrementally building additional revenue (eg. philanthropy, advertising, sponsorship etc) around these activities is a vital part of revenue diversification and growth.
Encouraging Individual Giving
While Section 1003 of the Taxes Consolidation Act 1997 encourages donation of historic artefacts to National Cultural Institutions, in the wider non-profit sector, fundraising from individuals has witnessed a change in how Section 848a of the Taxes Consolidation Act 1997 is used. During Budget 2013, amendments to the Tax Relief Scheme on Charitable Donations were implemented. These changes can be summarised as follows:
- From 01/01/2013 all donations from individuals (PAYE and Self-Assessed) to be treated the same, with the tax relief in all cases being repaid to the charity.
- Tax relief on donations from taxpayers to be applied at a blended rate of 31%, regardless of the individual’s marginal rate. All donations to be grossed up as was previously the case with PAYE donations.
- The charitable donations scheme has been removed from the scope of the higher earners’ restriction of Section 485 (C). This ‘decoupling’ recognises the key difference between tax relief to private philanthropy to promote the public good and private investment to promote private gain.
- An annual limit of €1m was introduced per individual, for which tax relief can be claimed under the scheme.
Encouraging Corporate Donations
In 2008, Business to Arts commissioned a Deloitte survey to examine the extent of private investment in culture. Among respondents, 76% had some form of private investment, such as from businesses and private donations. Businesses were the largest contributor and sponsorship was the most dominant form of investment in the cultural sector in Ireland. At the time a series of observations were made in relation to fundraising in the cultural sector:
- the instability of private investment
- cultural organisations needed to build relationships with private investors
- organisations need to further develop fundraising skills to make this type of investment more sustainable
Recent ‘Arts, Festival and Music Sponsorship’ research published by Allianz and Business to Arts (2015), looks at sponsorship objectives that differentiate the arts, festivals and music. Key observations include:
- 80% of sponsors would choose an arts sponsorship over another type of sponsorship because it creates unique events and experiences for their stakeholders
- 68% state that arts sponsorship provides more engagement with customers than other types of sponsorship
- The most popular forms of activating sponsorships in the arts, festivals and music include creating bespoke events for clients and staff (75%); branded signage, PR and printed literature (73%) and staff engagement programmes (58%)
- Sponsors surveyed report that in 2016, 35% will increase their spend
Building More Private Investment in 2016
Business to Arts will continue to work with our Affiliated arts organisations in 2016 to support their engagements with the corporate community to help access that anticipated increased spend for the cultural sector in Ireland, as well as working with their development teams to create Membership Programmes that leverage the interest of individuals in their organisations.
Leveraging our continued work with the DeVos Institute of Arts Management at the University of Maryland, much of that focus will include:
- growing audiences and creating greater engagement
- helping Boards work with their Executive to create opportunities to engage with the corporate community and other potential investors
- longer-term planning of their programme and ideas on how to create excitement around sharing it
- aggressively marketing their institutions and its assets, including their strategy, vision and programme; celebrating their achievements and anniversaries and creating opportunities for conversation
- resourcing and supporting the Development function within cultural organisations.
Business to Arts will also continue to work across the corporate community to mediate and support their engagements and investments in the arts sector, whether through sponsorship, events, purchasing, commissioning, CSR programmes, or bringing artists into the workplace to engage their staff. We will also continue to measure and evaluate this work so as to ensure it evolves where the need is greatest.