How could this have happened?

Posted on 02. Jul, 2013 by in Philanthropy, Social Enterprise

A deeper look into the circumstances of the Nashville Symphony’s recent financial straits

Last week, the Nashville Symphony got itself out of a financial pickle just in the nick of time. Just days before creditors were set to have a foreclosure auction on the Schermerhorn Symphony Center, Martha Ingram, one of the city’s most generous philanthropists, stepped up to pay the balance of a $102 million bond issued in 2006 to pay for construction of the facility. For more depth on the story, read this concise write-up from the Foundation Center and the sources cited therein.

As a Nashville native myself—someone who remembers the Schermerhorn construction and has attended events in the gorgeous facility—I just kept wondering as I read that write-up: how could this have happened? I have not lived in Nashville for several years, and usually only follow the local news through articles my parents periodically pass on to me. So I was shocked to learn from the Philanthropy News Daily alert that this Nashville cultural icon could have ended up in such a terrible spot. Surely a reputable organization with the name of every bigwig philanthropist on its donor and board lists could manage its finances better than this! There was, from my vantage point, a healthy mix of traditional fundraising and business income, both related and unrelated to the mission. Ticket sales, music sales, venue rentals, café and bookstore sales, combined with traditional fundraising from individual and organizational donors have all been in the Symphony’s fundraising mix.

I decided to do some digging into the root of the problem (nonprofit geek that I am).

In March, the President & CEO and Board Chair of the Symphony issued a statement to alert constituents about the urgent financial situation. Here is the most pertinent segment of that letter:

A number of factors have led to the need to restructure our finances. Though the Symphony continues to win critical accolades and plays to a full, appreciative house on most nights, difficult macroeconomic conditions over the last few years have impacted revenues, donation levels and the value of our investments. In addition, the devastating Nashville flood in May 2010 generated unforeseen costs and cash outlays that also impacted our bottom line. In essence, the burden of substantial interest and principal payments on our debt, combined with annual operating shortfalls and the lingering financial impact of the flood, require that we act decisively and quickly to address our financial challenges. 

So, the sub-context emerges. The bond in question was issued in 2006—just a short while before the Great Recession hit us with full force in late 2007. Unfortunate timing. Then, one weekend in May 2010, just shy of four years after construction was completed, the Cumberland River flooded a large swath of Downtown Nashville—the Schermerhorn is located at a fairly low point in the downtown footprint. Again, unfortunate timing. Two historic turns of events blindsided a fairly precariously positioned nonprofit, and left it reeling for three years until the board and management made tough choices and an angel donor stepped up to help.

There is one primary lesson I take away from this story to apply to Impact Strategies Group’s work helping large or complex nonprofits and social enterprises become financially sustainable entities. While diversification of revenue through earned income is important, and holding the “proper” amount of reserves is also important, philanthropy is and will always be one of the nonprofit sector’s most crucial assets. Philanthropy, in its most literal sense, means love of fellow humans. Martha Ingram and other philanthropists like her, feel love for their fellow people to a point that they are willing to give their hard-earned private resources to support nonprofit organizations that the market will not. Market-driven business concepts and skills earn philanthropists their wealth, but the nonprofits of a community fill gaps caused by market failures. Their services—like the beautiful music, architecture, and cultural events housed at the Schermerhorn—give life meaning, give people pleasure. So, while I am a firm proponent of employing social enterprise solutions to create earned-income streams for nonprofits, I also believe there will always be a role in the sector for the relationships with people that lead to philanthropy—no matter how large or small the dollar contribution turns out to be. Where and to whom we give our money is an expression of our values. Martha Ingram values ensuring that the entire Nashville community can experience the sublime beauty of the Schermerhorn Center and the Nashville Symphony.  

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