San Francisco Opera's Economic Situation

San Francisco Opera and the arts in general are in a very complex economic time. We call this “The Tale of Two Realities.”

Reality #1: Strong Audience and Donor Trends
The first reality is marked by the exciting and positive revenue trends we are seeing at San Francisco Opera, with well-sold houses, a 13% increase in full subscriptions this season, annual fundraising of almost $50M, and a $300M+ endowment.

Reality #2: A Long-Term Unsustainable Model
The second reality is marked by an unsustainable structural imbalance (the difference between our sustainable revenue and our expenses). For decades, costs have increased at a faster rate than revenues, a reality faced by arts companies all over the world, and explained by an economic theory called the Baumol Effect. Baumol predicted this growing gap between expenses and revenues in industries where productivity cannot easily increase like the arts, healthcare, and education.  

While we are seeing strong revenue trends, this growing divide between revenue and inflation-driven expenses needs to be structurally reset. 

Despite strong revenue, San Francisco Opera had to take $15M of unsustainable endowment funds last year on top of a 5% draw.

San Francisco Opera sells tickets at a very high level, raises money at a level not seen in other arts companies outside New York, and has an excellent endowment, but this is not enough to prevent the inexorably rising gap between expenses and revenues. Even with very strong revenues, San Francisco Opera has a structural deficit of some $15M each year. This is the difference in annual budgets between revenue (donations, ticket sales, and sustainable draws from the endowment) and our expenses.

We are currently covering this deficit by an extra, unsustainable draw on our endowment. Last year we drew $30M out of the endowment (10% of the endowment value) comprised of:

• A prudent 5% draw of $15M – the generally accepted standard for all nonprofits.
  
  
• An additional $15M special draw including a draw on unrestricted endowment funds (these are a limited portion of our endowment, and not sustainable).

We must keep adjusting the financial structure of the Company such that we can bring the endowment closer to a prudent 5% draw each year. We are working to reduce that $15M structural imbalance through sustainable revenue growth, managing expenses, and looking to new strategic opportunities for the Company. 

As with so many arts companies, San Francisco Opera is constantly working to adjust costs to reflect changing economic realities.

Administrative headcount is 15% less than it was a decade ago, despite increased revenue pressures. In just the last two years, reductions in administrative headcount have realized annual savings of $1.5M.

We have also reduced annual expenses by reducing the cost of health insurance for orchestra and staff, without a diminution of benefits.  This has resulted in annual savings of $1.5M, realized with the partnership of the Orchestra.

Most of the artists, artisans, and technicians who work at San Francisco Opera are paid for the time that they work, and do not have compensation guarantees, like the Orchestra. These groups have seen very difficult reductions in compensation over the decades as the volume of available work has diminished. This includes the most recent reduction from eight operas to six operas in 2024.

We appreciate the challenges inherent in these reductions and are deeply grateful to all those in the Company who have made changes over the decades to respond to the changing economic realities of the arts.  

San Francisco Opera raises money at a level not seen outside New York, raising $49.5M last year.

82% of San Francisco Opera’s revenue is donor supported, between annual donations of $49.5M last year and draws from the Company’s endowment, which is almost all donor-funded. San Francisco Opera’s 6,500 donors already provide an extraordinary level of support at a level not seen in other arts organizations outside New York. San Francisco Opera anticipates continuing to raise at this extraordinary level, but it is neither realistic nor prudent to expect added contributed revenue to close the gap. We still require significant expense reductions to resolve this structural gap.  Not only is this critical for the health of the Company, but our donors are requiring that we address this issue.

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