SoundingBoard – Grant funding: reaping what you sow

A number of high profile grant-funded arts organisations have failed commercially. Ian Walker looks at some of the reasons behind this and suggests that it is the system that is to blame.

Recently, the Gaia Energy Centre in Cornwall, the Botanical Gardens in Carmarthen, and the Brecon Jazz Festival along with several other organisations launched with the support of grant funding have failed commercially. In each case, as the causes of failure were investigated, it became apparent that the criteria under which these facilities were set up, funded and operated had not only put them under pressure from the outset, but also more or less prevented them from adapting to circumstances in the ways necessary for success.

Part of the process

Consider the funding process, starting with the bid. The complexity and detail required by the funding councils in too many cases results in bids that are primarily designed to secure the funding, including a business plan that may well pay more attention to social and demographic criteria than it does to the mechanisms necessary for the project to succeed commercially ? even though these, too, are part of the criteria. The result can be an insufficiently capitalised project with no spare capacity for coping with the negative influences that will afflict every venture at some time or other.

The problem is compounded by the very people who are attracted to public sector, arts and leisure projects in the first place. They may well have considerable artistic talent. They will be driven by a wonderful sense of altruism and public service, will be deeply involved in their community, and be totally committed to the idea that they are trying to turn into a reality. They may even have some experience of applying for grants ? but the Board may not include anyone with the right degree of commercial and professional experience and flair to manage a project in a harsh commercial world. An effective Board will need vision, drive, patience, attention to detail, practical experience, financial skills, contacts, political skill, and, significantly, an ability to question its own work in a constructively critical way. The most successful projects have these qualities in abundance; many of those that fail have a noticeable lack of them.

Even worse, the level of accountability required for publicly funded projects results in a process of committees operating with a very long and indirect financial chain, completely at odds with the need for flexibility and lightning reactions necessary for a quick and effective response to changes in circumstances. Terrorism and outbreaks of Foot and Mouth Disease have both served in recent years to reduce visitor numbers suddenly and catastrophically in various parts of the country, but although the actual events could not have been predicted, few Boards had alternative plans or strategies in place. When decisions were finally taken, it was often too little, too late. And of course these schemes are not in control of their own capital raising ? and neither for that matter are the funders, all being subject in varying degrees to the Treasury. So the re-financing options open to a commercial organisation are either not available, or are subject to an exhaustive scrutiny that takes far too long.

Selling a story

One very common factor is a basic failure of marketing and PR. If a project is to be situated where it is culturally, socially or environmentally desirable, rather than where it is likely to be most commercially successful, selling is everything. It will need more than ordinary imagination and flair to generate the visitor numbers necessary to maintain or increase revenue. Any gallery or museum in a small town will have to fight competition from bigger urban centres, and environmental schemes that are situated off the beaten track will have to provide something really special to lure visitors at all.

Government at all levels will pay thousands to consultants for feasibility studies, public consultation exercises and the like before a project is launched ? but are unwilling to invest in expertise afterwards. Projects become bound in a spiral of ?self-sufficiency? all in the name of ?good housekeeping? and ?proper use of public money?. Disaster! As with other commercial organisations, if a necessary skill set is not available on the Board, it must be bought in.

Commercial activity is in great part a process of risk recognition, risk assessment and risk management. Arts and leisure management (though, significantly, not programming) is, by its nature, fundamentally cautious and risk-averse, and the systems and regulations within which it works only encourage that attitude.

The most obvious risk is trading; not every trading enterprise makes a profit, and those that do so sometimes make less than they think. But trading is not the only risk. Property prices, interest rates, equity values, foreign currency and other markets move all the time in the publicly funded environment, as in any other.

Commerce counts

Freed of the public-funding straitjacket, and strengthened with managers from outside the public sector, arts and leisure facilities can recover, cease to be a drain on the public purse and become commercially successful. When insolvency specialists, Begbies Traynor, were called in to examine the position of the Gaia Energy Centre in Cornwall, we were able to implement alternative revenue-generating attractions, outside the funding criteria, and were able to sell it as a going concern to a company who are now in the process of investing in it as a business.

If we accept that public funding is necessary for the financing of public arts and leisure facilities ? which it may not be ? then the ?powers that be? must recognise that to operate successfully in a commercial environment, the whole system has to be driven by commercial criteria. This means having the right people, with the right skills and the right training and experience; the right systems, both management and financial, with authority to go with the responsibility; and the freedom to act and react to market conditions with proper financial and market-based decisions.

At the moment, the parameters of public funding and commercial operation are diametrically opposed, even though the system demands that they work together. Unless things change, we will continue to witness worthy projects failing, often when that failure could have been prevented.

Ian Walker is a partner of Begbies Traynor, Corporate Recovery and Insolvency specialists. w: http://www.begbies.com