Funding and the Arts: A Lesson for the Nonprofit Sector?

Writing for Changing our World, Susan Raymond’s comprehensive white paper, "Creativity Takes Courage" - Henri Matisse: A Briefing on Trends in Philanthropy and the Arts explores the economic and philanthropic underpinnings of nonprofit arts organizations in America. In a blog entry in onPhilanthropy on the topic, Raymond notes that:
“Despite rumors of its death, the arts, and the philanthropy that supports them, are alive and well across the nation -- in part because the arts organizations, in comparison to other nonprofit sectors, have done a nearly unique job in developing surprisingly resilient revenue structures.”

So, what is this unique revenue structure of which she speaks? It seems that for arts organizations, “private direct and indirect contributions represent 43% of total revenue. Unlike other sectors, where the role of philanthropy can vary widely based on organization size, this 43% is fairly stable across organizational size. Whether an arts organization has $100,000 in assets or $50 million in assets, philanthropy is still the source of only about four of every 10 dollars in its revenue coffers. In turn, arts and culture organizations display surprising balance in their revenue structures, with about half of their revenues coming from earned income and about 11% from government, with the remaining philanthropic giving equally divided between foundations (corporate and independent) and individuals.”

This funding structure, roughly 40% donations, 50% earned income and 10% from government sources, gives arts organizations “some ability to adapt to the natural ebbs and flows of year-over-year philanthropic funding. Which is, of course, not to say that all is merry in the land of arts philanthropy. The arts are still number four on the priorities lists of foundations, and total giving to the arts has declined in three of the last 10 years. The revenue diversity of arts organizations is thus an important strategy for stability.”

While getting to this particular revenue mix may not be easy (in fact, Raymond suggests that arts organizations have been particularly creative and entrepreneurial in their efforts to achieve this mix), there seems to be a lesson here for other nonprofit organizations. Not unlike other investments, it appears that diversification is key. According to Raymond, arts organizations have developed, “diverse and productive strategies for combining traditional philanthropic support with new opportunities to play a role in both the commercial and community worlds.”

So is the lesson that nonprofits should diversify or die? What do you think?

Caroline Heine