Next move: mortgage banking

The Atlanta Symphony is getting into the venue business, according to the Atlanta Journal Constitution:

Just four months from opening, the newest performance space to compete for audiences and dollars in Atlanta’s northern suburbs is on course to realign the Atlanta Symphony Orchestra’s often-tenuous finances, according to ASO executives.

If all goes according to plan, say the ASO’s leaders, the Southeast’s largest performing arts organization will catapult into the ranks of the nation’s biggest-budget orchestras.

The 12,000-seat Verizon Wireless Amphitheatre at Encore Park is still under construction, on 45 acres across Ga. 400 from North Point Mall in Alpharetta. Opening festivities, scheduled for May 10, include ASO music director Robert Spano conducting Beethoven’s Ninth Symphony.

After that mighty roar, the venue will get on with its primary business: bringing in cash for the cash-strapped ASO.

The ASO, which will operate the new amphitheater, and the Woodruff Arts Center, the ASO’S parent organization and the new facility’s owner, plan to announce the inaugural season in early February. The park will host a variety of events, from big-name pop acts and touring Broadway shows to community affairs such as high school band and graduation ceremonies.

The ASO itself is penciled in for about 10 dates in summer, often playing backup for a headlining pops act.

ASO chief financial officer Don Fox calls Encore Park "a revenue-generating exercise."

With an accumulated debt of $4.5 million and attendance numbers for its classical concerts mostly stagnant over recent seasons, Fox says, "the ASO continues to look for ways to expand revenue, including expanding the ASO and Woodruff [Arts Center’s] footprint into north Fulton, where the population growth is going.

Encore Park will cost $35 million to build. It’s being funded by a mixture of bonds issued by Alpharetta’s development authority, internal loans from the Woodruff Arts Center and several smaller grants. The bonds will be repaid by amphitheater revenue.

The ASO’s annual budget, currently hovering near $30 million, will grow to about $50 million by the 2009 fiscal year, Fox says.

But with growth comes some risk.

In a credit report issued last week, Moody’s Investors Services assigned an Aa3 rating to the bonds, with a negative outlook —- a good rating, albeit on the lower end of the scale, and warning of a possibility of a downturn in the coming 12 to 18 months. It’s the same rating the Woodruff Arts Center has had since 2002.

Dennis M. Gephardt, the analyst who prepared Moody’s latest report, said that while Encore Park will increase the ASO’s revenue, the flip side is that it creates more business to manage, with heightened exposure to market fluctuations.

"Our bond rating speaks to a high level of confidence in their business acumen," he said, reached at his office in New York. At the same time, he cautioned that Encore Park’s "earned-income orientation —- from tickets, parking and concessions —- is a challenge relative to the more stable donor-driven support that they’re used to, that most nonprofit arts groups are comfortable with."

Still, Gephardt emphasized that the bond issue received "a very strong rating." Fitch Ratings, another New York firm that offers advice to investors, also gave the Encore Park bonds high marks and voiced similar concerns.

ASO president Allison Vulgamore said the ASO will become the first orchestra in America to operate three venues, with Encore Park as "inventory" added to the 6,000-seat Chastain Park Amphitheatre in Buckhead and the 1,750-seat Symphony Hall in Midtown.

To maximize the nonclassical end of its business, including Chastain and Encore events, the ASO earlier this year hired Live-360, an Indianapolis booking agent.

"Arts groups are searching for new models, and the message is that you have to embrace an entrepreneurial spirit," Vulgamore said. "We’re not going outside our area of competence."

The last line is the key. Running three venues would be "outside [the] area of competence" of most orchestra managements. Most finding running one hard enough, and do it only because the alternative – not having control over their home venue – is even worse. Building a venue primarily to rent it out is a very risky strategy. Not only does it have the potential to fail to provide a financial boost to the orchestra, but it is guaranteed to distract orchestra management from their primary function.

Their model appears to be the Riverbend Music Center in Cincinnati, which is owned by the Cincinnati Symphony. Whether or not it was a good model for Atlanta will be seen.

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