13 March 2017

The Lyn Gardner effect

Try not to think of press coverage as ripples in a pond, think of it more like an earthquake: an unpredictable shock that can reshape the world, something that affects 'Small' and 'Large' in different ways and that becomes more likely after it has occurred once. What follows is a quick look at how a very minor quake affected (and continues to affect) a small piece of theatre at the Edinburgh Fringe (I had some involvement in this specific show but it was minimal: largely bookkeeping advice).

The company behind this particular piece had taken a show to Edinburgh in 2015. For 2016, a lot of relationships were carried over: same creatives involved, same accommodation, same venue & same PR. Whilst some activity occurred between the two festivals, nothing happened that significantly grew their audience. Despite some national press coverage pre-Edinburgh, the first week of the festival was unfolding in a very similar way to 2016 with 44% attendance after 6 shows (3 previews included).

Lyn Gardner came to see the show in that first week and wrote a few positive lines about it on the Guardian blog. Not a review, not a feature: a few positive lines in a blog post. The show sold out the day that happened and the immediate quake lasted 10 days. Not every day sold out but there were several sell out days and the numbers were consistently higher than had been forecast. The show finished a full run at the Fringe with 65% attendance.

I believe the show would have finished up ~50% attendance without Lyn's coverage, probably adding ~£1,500 to the show's income for the festival. However, industry figures were a bit easier to attract and this opened the door for further national and international touring. It acted as a seal of approval that gave other festival programmers the confidence to book the show for some dates immediately. It proved an asset that could be leveraged by the show (and artists involved) to demonstrate that they are able to create artistic work of high quality (useful for GFTA applications and approaching potential new collaborators). It gave people involved the sense that they were on the right track.

Whilst a lot of the above is intangible, this isn't the sort of blog to shirk away from putting numbers on things:

GFTA application: maybe it moves the 33% success rate to 50%. Assume 17% of a £15k application that you only get half the time: £1,275
Sense of confidence for those involved: equivalent to a £1k grant for being awesome
Marketing asset: Similar to a trailer or decent poster design. Say £1k.
Percentage of future income: Say 10% finders fee and of course income would be equal to related GFTA app (£15k) so £1,500
That gives a total of ~£5k
+ £1,500 from Fringe income
= ~£6,500 (or around half what it costs to keep Lyn blogging for a year based on The Guardian's fees page)

That's an awful lot of value from a few lines in a blog (admittedly, since it was a small-scale show, the effect is amplified).

Keep in mind that nobody else can have this impact because they don't have the same audience and authority; a different platform won't have the same readership (otherwise you'd be more than welcome here Lyn - I'm sure we could find the money) and there is no equivalent voice.

Lyn does this for hundreds of artists every year through her blog on The Guardian (not reviews & not features). The blog is a tool that sits outside the limitations of star ratings: it allows for balance, nuance and a nurturing approach to artists. The Guardian might be saving £13,500 but it's an immediate 7 figure loss to UK theatre.

A shared sense of responsibility

In a recent editorial, the sports journalist Jonathan Wilson talked about discussing the Hillsborough disaster at a panel event. He stated optimistically that he felt a cover-up on such a scale could not occur in an age of citizen journalism because important questions would be asked far earlier in the age of social media. Wilson saw the weakening of the mainstream media as ‘broadly positive’.

That optimism appears misplaced. In 2017, notions of authority and truth have been eroded: we now inhabit a world where one ‘truth’ is as valid as another, all opinions have equal weight and experts are always wrong.

Wilson argues that expertise and authority matter because all opinions are not equal. Whilst experts should be questioned (and do get it wrong), they are more likely to be right than someone half-remembering a conversation in a pub and applying it to their personal views.

The mainstream media should stand against this but resource is an issue; proper scrutiny becomes impossible. Instead, writers and editors spend their limited time searching for lines, wrenching quotes out of context, trying to trip people up, sensationalising and generating clickbait. Skew may be unavoidable, but distortions, untruths and recklessly inflammatory headlines undermine the concepts of authority and truth. The mainstream press should stand as arbiters & their formal structure used to ensure a measure of balance

Individuals should challenge journalists and, when errors are made, errors should be acknowledged. However, comments sections prove that people often cannot differentiate ‘errors’ from their own differing opinion.

The core problem with citizen journalism is that it lacks the authority that mainstream press used to have: what biases does an individual blogger have and what agenda are they pushing?

There is a need, now more than ever, for a sense of responsibility from writers and editors because truth is a virtue in need of being upheld.


I wrote the above yesterday evening. A lot of hawks writing never sees the light of day; I'm only letting this out to sit alongside this morning's news that Lyn Gardner's contract to write 150 blogs annually for The Guardian will not be renewed.

According to The Guardian's fee page, a blog entry for them pays £90.00 (as an expert, Lyn's rate may differ), totalling £13,500.

Whilst The Guardian may be able to get better value for that £13,500 of spend, the loss to the sector is astronomically higher.

I had the pleasure of being involved in a show that went to Edinburgh last year (in a financial advisory capacity, don't get excited). The show featured in a minor way in some of Lyn's festival coverage. The effect was immediate: sold out shows for the next week and strong attendance for the rest of the run. The interest generated has consequently allowed the show to have a life after the fringe, to the benefit everyone who gets to see it and everyone involved in making it.

Lyn allows for audiences to find hundreds of shows and artists over the course of the year. Nobody else does this such care, balance, with the best interests of the artists in mind and in a mainstream publication. A huge loss that must be rectified: please let me know if I can help.

For the record, I blame the bloggers.*


27 October 2016

Aside: This light is your light...

In his post-Emma Rice response, David Jubb suggested "we also need to ask ourselves whether we are descending in to a world that looks more like the Premier league? In which lofty Boards hire and fire team managers with impunity."

This is surprising to read because... well... surely that's exactly where we are?

A Premier League board is beholden to shareholders. Shareholders elect the board to run the club, vote at the AGM and ultimately have final say in the running of the organisation. This works in theory but falls down in practice because there is normally a single majority shareholder. Consequently an AGM vote consists of  the majority shareholder saying "I am voting for this, I control x%, this is happening." Hence the appearance of hiring & firing with impunity.

However, the board of a charitable company (limited by guarantee) can effectively hire and fire with impunity (lovely and supportive though they may be).

The main reason for this is because charitable companies (limited by guarantee) do not have wider members. They have trustees (who act as directors in a legal sense) who are normally recruited by the trustees themselves. This board of trustees may establish an executive board, who are also recruited by the trustees and maybe by other members of the executive board. Then they will have some committees, who will be set up by the board and will report to the board. In The Globe's case they also have a 'Shakespeare Council' (former trustees and board members) who preserve the ethos of The Globe (which is brilliant, even if you dislike the ethos they are preserving). The board will then recruit a CEO/AD/ED or whatever positions they deem suitable and those appointments will take care of running the organisation. It's very insular and (funding bodies aside) there's nobody holding the trustees to account.

This is all best demonstrated by the example of firing a popular Artistic Director. In an organisation with shareholders, if the shareholders dislike the board's action they can vote to remove a board member (or even the whole board). However, in the typical charity structure there is no recourse. At best, a board member could propose a motion to remove another board member but there is no wider body than the trustees with the power to influence the organisation.

There is a charity structure that allows for members to vote on important decisions: the Charitable Incorporated Organisation (CIO). Not widely used by established charities because it was only available from 2013 and is expensive and complicated to convert to, the CIO is not technically a company (no registration with Companies House required) but offers legal entity for the organisation and limited liability for trustees. It also allows for wider members to influence issues such as where money is spent, how the organisation is run and how trustees are appointed. The charity must not exist purely for the benefit of members (so needs to welcome anyone to join) or membership must be linked to charitable purpose (for example, an amateur sports team requiring membership to participate).

For the purposes of this blog at least, Emma Rice stepping down reveals an ethos/structure problem with arts organisations: audiences are increasingly encouraged (rightly) to feel a sense of ownership over organisations (particularly those in receipt of public funds) but ultimately have no influence in how the organisation is run.

Perhaps the question we should ask is 'when will an abundance of audience owned spaces oust 'our' lofty boards'?

* Without wishing to sound like another theatre blog, things are better in Germany: football clubs must be at least 51% fan owned to compete at the top level. 

24 October 2016

Theatre Royal Winchester 2015

A generous estimate of the correlation between an excellent CEO and excellent organisational performance is a coefficient of about 0.3 (a figure taken from Daniel Kahneman's work on the subject), meaning a good CEO enjoys good performance just 60% of the time.

Business writing normally consists of rise and fall narratives or comparison of individuals/companies to try and uncover a recipe for success; the importance of leadership is exaggerated consistently across both approaches. In part, this is due to the halo effect: aware of the success a business may recently have enjoyed, writers create illusory certainty by assigning success to the CEO. Alternatively, aware that a business is struggling, the writer condemns the CEO. The assumed causal relationship is that the CEO drives the business' success but the inverse is more often true: the business' performance causes a CEO to become revered or vilified.

Luck plays a vital role in the performance of any organisation. Observing success does not necessarily mean we are bearing witness to incredible leadership; the qualities of leaders cannot be accurately inferred from results. Even with perfect knowledge of a leader's ability, the performance of an organisation cannot be predicted with much more accuracy than a coin toss.

Rise and fall narratives offer simple causality and ignore luck.

"These stories induce and maintain an illusion of understanding, imparting lessons of little enduring value to readers who are all too eager to believe them." Daniel Kahneman.

* * * * *

Theatre Royal Winchester is one of several Grade II listed patent theatres in the UK but the last remaining example of a cine-variety space. It celebrated its centenary in 2014 and, according to the theatre's own website, is considered one of the most beautiful theatres in the south of England due to its Edwardian-style auditorium (capacity: 400, the smaller end of cine-variety spaces, some seating upwards of 3000). Cine-variety was an awkward moment in UK theatre history, involving film double bills, projection screens that could be lowered/raised, multiple variety acts, organs and sometimes entire orchestras. Admission cost about 50p (if that) to attend and many of those spaces ended up being bought out by cinema chains with the advent of 'talkies' because their overhead was too high: they ran themselves into the ground.

With Chief Executive Mark Courtice recently announcing his decision to step down at the end of 2016, it seems pertinent to examine what sort of impact his 5 year tenure has had on Winchester's Theatre Royal. The theatre itself is owned by Winchester Theatre Trust, who in turn lease the building to the operating company (The Live Theatre Winchester Trust). Where the following analysis mentions the 'Theatre Royal Winchester' (or TRW), it refers solely to the operating company unless explicitly mentioned.

Courtice's appointment as Chief Executive in 2011 was likely due, in part at least, to his experience of similar roles in similar theatres in similar parts of England, notably Chief Executive of Portsmouth's Theatre Royal (along with Administrative Director at Southampton's Nuffield Theatre). The first financial year for which Courtice was present at TRW was 2012 and the table below provides some key figures from his time in Winchester:

Top line analysis initially seems favourable, with income increasing ~40% over the period in question. Unfortunately, expenditure kept pace (increasing 34%) and TRW reported a deficit in three of the four financial years in question. Activity increased dramatically (performances up nearly 80%) but audiences less dramatically (16%), conveniently highlighting that there is no guaranteed causal relationship between increased activity and an expanded audience.

The erosion of cash on hand is an area of immediate concern and the effect of this steady decline on the organisation's liquidity is charted by the diminishing quick ratio. As a reminder, the quick ratio is a simple liquidity measure: a test of how likely an organisation is to be able to meet short-term liabilities using 'quick' assets (IE assets that are cash or close to being cash, trade debtors included). A ratio of 1:1 implies that an organisation has £1 in quick assets for every £1 in liabilities, a reasonable place to be for an arts organisation. TRW's 2015 quick ratio is 0.53, implying only £0.53 for every £1 in liabilities. An organisation can still operate with a poor quick ratio because the timings of cash flows are not taken into account but a ratio that consistently declines over time is a bad sign.

The number of staff employed at Theatre Royal Winchester is also worth flagging. Given the dramatic increase in activity, it is peculiar to see staff levels only increase by 1 over the 4 financial periods, whilst volunteer numbers practically double. The classic conundrum is that the sole trader (the most efficient model for any organisation) is not able to double their output by taking on an additional member of staff because increased complexity erodes output. Put another way, an arts organisation with 19 members of staff that increases their output by 80% would theoretically need to increase their staff numbers by more than that 80% (unless huge productivity gains have been made or economies of scope were previously being ignored). Rather than recruiting full-time members of staff, TRW appear to have taken up some slack by doubling the number of volunteers (valued at £45,624 in the accounts; additional staff would have likely cost 10 times that). It is worth considering that if staff turnover were particularly high, TRW would struggle to recruit quickly enough to increase the numbers of full-time staff appropriately. Whatever's happening, I suspect TRW has not been a pleasant arts organisation to work for over the past few years.

Before accusing Courtice of driving the car into the lake (and then climbing out the sunroof, jumping back to dry land without a splash on him and jauntily walking away to a life of consultancy), it's probably worth looking at some numbers from Theatre Royal Portsmouth during his tenure (performance and audience data was not available):

2005 was an exceptional year for the New Theatre Royal, largely due to ongoing capital works, hence large amounts of restricted funds were received in this period (this was prior to their 'back lot' project which was documented in more detail here). Note that once again we see a steady decline in cash and the subsequent erosion of the quick ratio as the organisation's liquidity dries up. By the time Courtice left the New Theatre Royal, the organisation had only £0.21 of quick assets per £1 liabilities. The quick ratio is not without flaw: it is based on the balance sheet (which is a snapshot in time) and it ignores cash flows. With this in mind, it's certainly worth examining TRW's most recent set of accounts to see exactly what sort of health Courtice will be leaving the organisation in.

Despite having a capacity of 400, an income of £1.7m and an audience of over 50,000, TRW does not operate a separate company for trading activities, meaning they are legally constrained to ancillary trading. The figures show the effect of this, with ~£150k of income derived from bar/catering/FOH, meaning an audience member spends, on average, an additional ~£3 per visit. There can certainly be good arguments for limiting operational complexity and Leicester Curve rejecting capital funding for a brasserie springs to mind. However, that decision was rooted in a stable organisation looking to add value elsewhere. Whilst I'm sure there's no need to link to yet another article about how some theatres are now more bar than theatre, it's also galling to look at a theatre the size of TRW and not see any immediate evidence that the organisation considers itself a destination. For a very loose comparison, Theatre by the Lake (Cumbria Theatre Trust) also has a 400 seat main house (and 100 seat studio), 70 employees, 237 volunteers but a turnover of roughly double TRW's. Theatre by the Lake operates a subsidiary trading company (TBTL Services) with a turnover of ~£650k. Stated audience numbers were 70,000, meaning TBTL has an additional spend per audience member of ~£9, triple that of Theatre Royal Winchester (note, Theatre by the Lake was picked for comparison purely because it has a 400 seat main house, it may be over/under performing itself but that's another post).

The makeup of TRW's 2015 income was 27% Voluntary, 9 % Commercial and 64% Operating. The growth in operating income accounts for the largest year-over-year change and this was largely due to increased ticket sales (audiences creeping up to ~51,000 from ~43,000 and 40 additional performances). Unfortunately, the increased activity was matched by increased operating costs, with production costs growing by nearly £200k. Box office costs also increased as the result of the year's increased activity (up to £15k from 6.5k), as did things like printing/postage/stationary (up to £19k from £7k - that's a lot of printing).

One of the most significant contributors to TRW's financial pain appears to be Hat Fair, the annual street art festival held in Winchester. In 2015, Hat Fair's production costs were £246k and Hat Fair income was stated as £132k for a total deficit of £114k. The previous year, Hat Fair lost £121k, so 2015 was an improvement of sorts. Hat Fair used to be a standalone NPO with a ~£140k annual grant (and standalone financial troubles) but joined with Theatre Royal Winchester in 2013 to alleviate their funding concerns (or preserve their artistic output, depending on how you look at it). The grant from ACE followed Hat Fair and the scale of the event seems to have been preserved for the time being. Hat Fair's annual results as a standalone organisation were actually fairly robust:

2013: -£19,073
2012: £30,344
2011: £39,611
2010: -£2,866
2009: -£34,935

Hat Fair relied upon a series of funds from regular supporters (ACE, local authority, stall holders etc.) and income was consistently around £300,000 prior to 2014's festival (the first in conjunction with TRW). It seems Hat Fair's reported income halved as the result of a move posited as securing the future of the festival. The most likely cause is that the festival's income was not actually reduced but the NPO grant (which of course comes in as unrestricted funds despite being initially awarded to Hat Fair) is now accounted for elsewhere by TRW. A highly cynical reading would be that the merging of Hat Fair and TRW was actually a move by TRW to secure unrestricted NPO funding, show Hat Fair as a loss-making exercise and then phase it out but retain the funding.

Those still paying attention may have noticed that TRW's balance sheet throws up a couple of points of interest. Firstly, it doesn't include any restricted funds.This is unusual in a NPO organisation, particularly one where the ACE grant makes up only about 8% of total income. This either means TRW are not pursuing any grants related to specific projects or are not following the principles of fund accounting. The former is alarming at a period in time where local authority funding is dwindling (TRW receives a combined £275,050 from Winchester and Hampshire County Council) and the wider funding environment continues to contract. However, the latter would contravene the Charity Commissions SORP and 'alarming' would be something of an understatement. TRW was a successful applicant for a weather damage grant in the 2016 accounting period we should expect the £5,000 awarded to show up as restricted funds in the next set of accounts.

Sadly, it appears there is further evidence of poor financial practice. The University of Winchester have a relationship with ZEPA (European Zone Artistic Projects) which supports exchanges between universities, allowing students to participate in artistic events throughout Europe. TRW have collaborated with the University of Winchester as part of ZEPA but it appears that the university identified a 'shortfall of income against expenditure'. At the time of the accounts being published, discussions were ongoing but TRW's maximum liability is listed as £23,000 (not included as part of the balance sheet as far as I can establish). Without knowing more about the project, it's difficult be specific but one must assume that either disputed expenditure was listed by TRW under the ZEPA project or restricted ZEPA income was reallocated by TRW.

TRW's previously discussed liquidity problems are emphasised on the balance sheet by the presence of increasingly negative unrestricted funds. Whilst an organisation can operate with a negative fund balance, it's an extremely precarious position to be in. The only way it works is if the organisation knows that funds will soon be received to carry the balance back to black. The problem is that the funding streams TRW is relying on are not reliable and it likely won't take a great deal to bring down the house of cards. Without a cash flow statement (larger charities will finally have to compile cash flow statements for 2016+ accounts) it's difficult to see exactly how close TRW are to the edge of that lake. The 2016 accounts will give us more of an idea but...

My guess is close.

And not because Mark Courtice has been unlucky.

5 September 2016

Aside: The cash-to-cash cycle

The cash-to-cash cycle is completely irrelevant to theatre.

It refers to the time between cash being spent and cash coming back in and it's normally analysed by businesses that make a physical product and who buy/sell on credit.

Let's say that you run a business making tiny raincoats for cats. First, you have to buy a bunch of raw materials (fabric, trim, thread, packaging). Those raw materials get made into the final product and then your inventory will sit in a warehouse until it gets sold to pet shops.

The cash is tied up in three areas:

Suppliers - You have to buy raw materials and pay for production up front because you're a new business. Also, you're niche and low volume so you have no buying power.

Inventory - It takes your factory 30 days to actually produce and ship the finished goods. It then takes you 30 days to sell through all your inventory.

Customers - You sell to shops and they all have credit terms of 30 days. All of them exceed this and you don't harass them for payment because you don't want to damage the relationships.

The cash-to-cash cycle above is ~90 days. Cash is spent immediately but inventory takes 30 days to arrive. Inventory then sits in the warehouse for 30 days. Customers take at least 30 days to pay, so it takes ~90 days to turn cash back into cash. This makes life difficult because you have operating costs and need cash to pay them.

All of that cash you spent at the start of the 3 months isn't really doing anything for your business. Maybe you're OK with that because it's going into stock and "speculate to accumulate" but you shouldn't be OK with it. You should be outraged and screaming at the above example.

Cash is absolutely the most vital non-breathing resource an organisation has and it needs to be used in the most efficient way at all times. Note, this is nothing to do with profit motive: it's about being smart with your resource allocation and using cash to keep adding value to the organisation's purpose (which, admittedly, may be the generation of profits).

So, how to improve things?

Suppliers - You negotiate payment terms, meaning you will have 30 days to pay for the product (which, conveniently, means you end up paying for the product as it arrives).

Inventory - You halve your production orders. Your margin takes a hit due to the lower volumes but your inventory now takes only 15 days to sell through.

Customers - You focus on collecting sums due in 30 days, and start adding late payment fees and interest. The relationships don't break down but shops pay on time (after a bit of grumbling).

You just halved the cash-to-cash cycle. Cash goes out, 15 days for inventory sell-through and 30 days for payment. 45 days.

How about a complete shift?

Suppliers - You keep your 30 days payment terms.

Inventory - You keep your production order the same size.

Customers - You start selling online, direct to customers. Turns out the internet loves cats, who knew? You decide to cut out the shops and just focus on selling direct because MARGIN! Web customers pay up front, so it takes zero days to collect payment.

You just cut the cash-to-cash cycle to the 15 days it takes you to turn the inventory, which means you have cash to tie up in development of that cat papoose you've been thinking about.


Probably irrelevant to theatre.


Looking through some recent hawks analysis and doing some rough calculations; Paines Plough appear to take about 90 days to pay and collect whilst Underbelly take 80 days to collect but 120 days to pay. That seems like useful information to have.

Let's say you're an 'emerging' company making your own work.

You put your cash into development of a production. Perhaps your development time is 90 days.

You don't really have inventory, which is great: nothing to add here. Except that your tour will take time. So, maybe this should be the amount of time you're spending on tour. Let's say 30 days because bad routing happened (this assumes you got a tour without showing the work somewhere else and without more time passing between - we could add a year here if you've yet to start booking it).

Some of the theatres taking your work say payment will be made within 60 days because they're changing over their box office software or undergoing a refurb or are too busy to do it sooner. No problem, you're going on TOUR and you don't want to rock the boat.

That would be a cash-to-cash cycle of 6 months in a fairly optimistic example.

What about one of the venues on the tour?

Well, we know from the example above that they are taking 60 days to pay their suppliers (that's you).

They don't have inventory (ignore merchandise and the bar).

Their customers (your audience) pay cash up front so they don't have to chase them for payment (although they might have to chase some corporate or rental customers).

So, the venue's cash-to-cash cycle is actually negative: they have cash coming in before they spend it. Amazon's cash-to-cash cycle is famously negative as they take longer to pay suppliers for inventory than they do to turn inventory (a huge competitive advantage over bricks and mortar retailers). The insidious thing about negative cash-to-cash cycles is that if they're too negative then they imply an organisation is just using other people's money to fund their operating costs (a little bit like a pyramid scheme).

You could theoretically improve your cash-to-cash cycle by:

1) Shortening your development time (no - out of principle)
2) Shortening your tour (no - need to amortise those development costs)
3) Pushing venues for payment (ok)

The venue only really have one option to improve their cycle: delay payments.

Both parties cannot improve their cash-to-cash cycle at the same time.

Since the cash-to-cash cycle isn't applicable to theatre, this entirely conceptual conflict of interest probably isn't worth spending too much time thinking about.

Unless, of course, you think that cash generation is essential to running an organisation and can see that the dichotomy sketched out above is not sustainable for either party long-term. Perhaps it seems a classic game theory problem: operating independently, the venue stretches the artist to breaking point but then has no artist. Repeat until supply of artists is exhausted. Collaborating with cash-to-cash cycles in mind, venues would have to shoulder a worse cycle time (and may need to adjust models to suit) but the long term picture would be much better for the sector.

26 August 2016

hawks at the fringe: Summerhall 2013

Acquired by "eccentric millionaire" Robert McDowell for £4m in 2011, the sprawl of Summerhall has become a seasonal base for some of the most exciting theatre to be found at the Fringe. McDowell has frequently extolled the virtues of messy, large, flexible arts buildings and one can only hope that the irresistible rise of Summerhall has been noted by those providing funding to the current generation of large capital projects, which will no doubt be new, shiny, glass, 'coloured-light-at-night' buildings.

McDowell's background is perhaps not what you might expect. A Cambridge educated applied economist and banking consultant (specialising in BASEL II requirements: liquidity tests and systemic risk). He worked at Reuters for a decade, was a subject matter expert for Ernst & Young and a consultant for a Luxembourg based consultancy. On paper, he does not have the sort of CV that suggests he would be setting up an arts organisation anytime soon (although, given arts organisation's predilection for stipulating arts backgrounds on job descriptions, he likely didn't have much choice but to set up his own). His blog gives a taste of his background and makes for interesting reading if banking and economics are of interest (IE, it's even drier than the brouhaha found on these pages).

Given McDowell's background, the acquisition of the old veterinary college cannot purely be the stuff of whimsical fancy. In addition to the £4m upfront cost, my estimate is that a further £2m has been invested into Summerhall. Not small numbers for an organisation with ~45 permanent members of staff and that receives no funding from Creative Scotland. *

Summerhall are not a charity and McDowell is now the sole shareholder. Since Summerhall qualify as a small company, they are entitled to file abbreviated accounts (balance sheet + notes). The most recent set of accounts available covers the 2013 period and Summerhall Management Ltd. are well overdue on their last set of accounts (meaning a £1,500 fine and that the 2015 accounts due in September will also have to cover 2014). This means that there is a lot of speculation in what follows (even more than usual).

First thing to note is the value of the fixed assets. Although acquired for £4 million, the land and buildings will have been accounted for at 'cost' rather than 'market' value. Summerhall are the first organisation looked at on this blog that include any Intangible Assets (patents, trademarks or, less objectively, brand value and intellectual property).

There has been significant movement in the stock value. Normally, arts organisations have very little stock but this is likely related to The Royal Dick pub, the Cafe and the Summerhall Shop not being separate trading entities. Note that Pickering's Gin and Barney's Beer are both separate companies.

The Debtors number has increased to ~£450k which rings some alarm bells. We have to assume Summerhall operate 90 day payment terms (because 30 day terms would be incredibly worrying given that number), that would mean that Summerhall have monthly receivables of ~£150k (or annual receivables of £1.8m). Cash flow is dependent on actually receiving advisable. Summerhall likely have some bad debts included in the debtors number that will need to be written off at some point in the future.

Assuming 60 day payment terms for any debts that Summerhall actually owe (note that good businesses should be paying and collecting within 30 day terms for both debtors and creditors), the creditors number implies that Sumerhall's operating cost is also in the region of £1.8m. The change in the P/L account is fairly minimal (an increase of £30k) so similarity in operating cost and receivables seems likely.

This can also be worked backwards. If, for example, Summerhall actually took 120 days to pay creditors, that would imply an operating cost of ~£900,000 (half what was estimated above), which would mean that the debtors number implied 180 day credit terms being offered to Summerhall's debtors (artists, for example).

This is all speculation of course. McDowell put forward that August income in 2013 was in the region of  £750,000. Having never experienced Summerhall outside of the Fringe, it's difficult to estimate what percentage of revenue the Fringe would bring in but being an ardent fan of the power curve, it's tempting to assume an 80/20 relationship. This would make the £900k figure above a possibility.

Putting speculation about the past aside, McDowell's investment is clearly paying off artistically as Summerhall shows dominate this year's awards lists. The questions for the next accounts (when they actually arrive) will be all about cash. As a new business, Summerhall really needs to collect on those debtors and keep the cash rolling in: good cash flow management is imperative and if not done well it is the artists who will suffer. McDowell has clearly invested in Summerhall (as sole shareholder) because of the large audience the Fringe brings in and the lack of new, suitable venues in Edinburgh: very savvy commercial reasons. The artistic success is no doubt  helping commercially as Summerhall broke 2015 attendance records in the first two weeks of the 2016 Fringe but can McDowell actually build something that doesn't require more financial intervention from himself and that sustains itself in the long-term?

If not, he seems the sort of person who will have a plan B.

* Please note, these figures are not completely reliable. They are mostly taken from interviews or presentations given by McDowell but some of them are old and out of date (in some cases by a few years). However, this does mean that the numbers should be roughly correct for the accounting period being analysed. If not then, as always, I am happy to be corrected.

24 August 2016

hawks at the fringe: Critics

The 'Critics' panel at Summerhall.

Tough watching; an awkward, slow-motion collision|collision.

The internet has allowed for plenty of theatrical noise but demand for signal is strong.

The individual critic [as creator], perhaps, stands on the brink of something momentous?

The long tail.

1000 fans.