An Inconvenient Truth

As dissatisfied as many spectators are with the mingling of money and fine art in the industry’s commercial sectors, the dissatisfaction tends to ramp into outrage even quicker when the conversation shifts to money and museums.

Two recent news stories–one at the Delaware Art Museum, the other at the Museum of Fine Arts, Boston–have reinforced this idea yet again. But despite the Xenon floodlights aimed at the surface issues, some crucial context has largely remained in the shadows. Teasing it out, as usual, reveals both situations to be somewhat more complex and uncomfortable than they first appear. 

Let’s start in Delaware. Other than the embattled Detroit Institute of Arts, whose constant presence on the press radar owes entirely to the city’s problems rather than its own, the Delaware Art Museum inarguably qualifies as this year’s most controversy-coated US museum.

The thick layer of slime emanates from the museum’s decision to try covering $19.8M in construction debt for a pricey architectural expansion by deaccessioning some of the most highly regarded pieces in its permanent collection. As reported most recently by Deborah Salomon of the NYT, the strategy began with William Holman Hunt’s Isabella and the Pot of Basil, auctioned at Christie’s in June, and will continue with Winslow Homer's Milking Time and Alexander Calder's Black Crescent. 

The brain trust’s willingness to press the ‘deaccession’ button has brought actual consequences outside of just analysts’ venom. The Association of Art Museum Directors banished the Delaware from its ranks shortly after the sale of the Holman Hunt painting, essentially turning the museum into an institutional untouchable.

Until the sanctions are lifted, other AAMD member organizations are under orders to refuse any and all cooperation with the Delaware on artwork loans or programming assistance, lest they face penalties of their own. 

And considering that the Delaware’s board of directors and its almost satirically tone-deaf CEO–who literally tells Salomon at one point in the piece “I know nothing about art”–are keeping a death grip on their plan to sell more works to satisfy their creditors, the museum is likely to remain trapped in the outbreak tent for some time. 

While the Museum of Fine Arts Boston hasn’t yet been officially sanctioned in any way (and may never be), it recently became a target for a similar brand of scorn thanks to a different monetization strategy. Sebastian Smee of The Boston Globe recently reported that the MFAB has been feverishly renting some of its most prized works, including Renoir's Dance at Bougival, to other institutions across the globe in exchange for stacks of cash. 

How much cash? Sources on the museum’s board tell Smee that fee-based loans have amassed “earnings approximating $5M this year." 

The MFAB scandal is as much about physics as economics: The same object can’t occupy two different spaces at the same time. If the most revered treasures of the museum’s collection are in France or Japan, then obviously they’re not in Boston–meaning the MFAB’s paying visitors are pickpocketed of the opportunity to see its signature acquisitions. 

The Delaware Art Museum’s deaccessioning controversy turns on a similar conflict–one in which business allegedly bullies the visitor experience into degradation. Critics ask a simple question: What good is a gleaming new expansion if the most valued art it could have exhibited had to be sacrificed to pay for the building? 

Hence the molotov cocktails sailing into the museums’ C suites from the AAMD and livid pundits. 

But here’s the inconvenient truth lurking in the shadows: Both museums are acting exactly as the incentives suggest they should.

As museum aficionado Tyler Green reported in a piece late last year, "with the exception of tourism-fueled museums in New York and San Francisco, American museums typically earn only 2 to 4 percent of their operating revenue from general admissions charges.” That data makes the average paying customer an extremely minor contributor to a museum’s financial well-being.

Where’s the rest of the revenue coming from then? The pie chart breaks down differently for every museum. But in general, other significant sources of institutional revenue include the annual interest harvested from the endowment fund, charitable donations, government funding, membership fees, and special programming revenue. 

Don’t overestimate the value of government funding in that mixture, either. It’s not uncommon for even major museums to have minor public sector safety nets, transforming nearly every museum job–save for probably a few exceptions like security, maintenance, and IT–into a fundraising job. 

The MFAB is a case in point. Smee mentions in his piece that less than 1 percent of the museum’s annual revenue comes from government vaults, while 60 percent is self-generated.

So how much do general admissions and fee-based loans contribute to the MFAB’s earned income pot? The museum's 2009-2013 operating results show that, for the fiscal year ending in June 2013, its general admissions revenue totaled just under $6M, or about 6 percent, of roughly $102M in “total [charitable] support and revenue.”

That figure may make the MFAB a high-end exception to Green’s general rule about the relative value of admissions fees, but 6 percent is still only 6 percent.

Now, it’s not clear to me from the phrasing if the $5M taken in by the MFAB’s fee-based loan program “this year” means “for the entirety of its most recent fiscal year” (which, again, ends annually on June 30th according to the operating results) or just “for the period of January through July of the 2013 calendar year.”

If it’s the former, then the loans generated slightly less revenue than MFAB’s 5-year general admissions average ($5.8M), and about 5 percent of the museum’s total support and revenue. 

But if it’s the latter, and the $5M earned from fee-based loans through July 2013 continues apace through the rest of the calendar year, the program would net about $8.6M–or +$2.8M above the 5-year general admissions average, as well as almost 9 percent of 2013’s total revenue and support.

Pierre-Auguste Renoir, detail from “Dance at Bougival” (1883). Image credit: Tatiana Alensky.

In either case, the point is that the MFAB’s fee-based loans net either just about as much or somewhat more revenue than general admissions. So from a strict financial perspective, why should the people on the business side of the organization reject the idea of loaning out a few signature pieces in order to preference local visitors? 

The presence or absence of these artworks makes, at most, only a marginal difference in either general admissions revenue or the overall quality of the visitor experience. My guess is that few museum-goers would abort their plans to visit an institution as well-regarded and comprehensive as the MFAB if they found out one or five or even ten pieces would be AWOL from the building on a given day. 

Smee essentially admits as much in his piece, writing that without the loaned artworks “what should have been an overwhelming experience [at the MFAB] might turn out to be merely very good.” Which, to me, conjures the old adage about the dangers of allowing the perfect to be the enemy of the good. 

Especially because of this fact: The business side of any museum has a prime directive to keep the doors open and the lights on. Enraged as certain sectors of the public may be about the loans, how much more livid would they be if the museum goes bankrupt, potentially endangering the whole collection, as we’re seeing in Detroit?

The counter-argument would be that even an aggressive fee-based loan program like MFAB’s does not generate enormously more revenue than general admissions. But the problem is that every dollar still counts, especially in the current climate.

The art world’s trend towards ever-larger scale and spectacle–which I dubbed the menace of the “more” machine–is just as pronounced in the museum sector as in the gallery and auction sectors. Arguably the two most powerful publicity magnets are hyper-expensive blockbuster exhibitions and sweeping architectural renovations–the latter being exactly what put the Delaware Art Museum in its current financial straits.

Smee and Salomon both nod to this uncomfortable reality in their respective pieces. Smee quotes J. Paul Getty Trust president and chief executive James Cuno’s lamenting the costs of mounting “increasingly expensive exhibitions,” while Salomon observes that “renovating and enlarging art museums…has become so popular you might think size was the goal of art." 

But optics are critical in the current museum incentive structure. Since, as I’ve argued before, philanthropy is often a form of branding, wealthy donors are more likely to give to a thriving museum than a struggling one. That quirk of human nature pressures even smaller institutions to forge big, ambitious–and therefore inherently expensive–plans like the Delaware Art Museum’s multi-million dollar expansion.

And as the Delaware case demonstrates, big, ambitious plans carry tremendous risk for smaller institutions. Smee acknowledges as much in his piece when he notes that the MFAB’s endowment is a Double D-cup $584M but that "many US museums are in more precarious circumstances." 

The Delaware Art Museum qualifies for that designation. According to Delaware Online, the troubled institution maintains an endowment of only $25M. And since only the interest from that fund is technically available for actual use, typically at about a 5 percent rate, it means the museum may only have at best $1.25M in endowment funds available for its annual budget. 

And I say "at best” because Salomon reports that the Delaware’s original goal in deaccessioning works was not only to repay their construction debt but to replenish their depleted endowment. (Her piece did not include figures on just how depleted it is.) 

Given the disappointing auction results for the museum’s first lamb to slaughter–the Holman Hunt hammered down for only $4.25M despite a Christie’s estimate of $8.4 - $13.4M–that original goal, like the renovation itself, now looks over-ambitious. Which of course plunges the Delaware right back into the same desperate mentality as any business with creditors sharpening their knives outside the front entrance.

And despite the MFAB’s significantly healthier endowment and philanthropic prospects, they’re still sprinting on the same hamster wheel. The stakes may be grander, yet perversely, the identities of the threats are just as mundane as construction costs. Smee reports that the $5M generated by the fee-based loan program was earmarked not for grand institutional projects or blockbuster exhibitions, but at least in part for bland business necessities like paying down debt and balancing the budget. 

All of which serves as an uncomfortable reminder that, as much as we would all prefer to think of museums as sacred cultural sanctuaries, they are still in many ways businesses, subject to the same pressures and incentives as any other. So perhaps we should all be a little less shocked when they behave like it.

And while I don’t mean to absolve either institution–especially the Delaware, which sounds like a management and budgeting clown show–perhaps more of the outrage should be directed at the arts climate compelling them to act in this way than at the institutions’ rational, if regrettable, responses to it.