Covid-19 and Nuffield Theatre - looking at the numbers

Today saw the announcement that Nuffield Southampton Theatres (NST) have been placed into administration, following its closure due to the Covid-19 pandemic and the financial pressure this has put on venues across the globe.

Understandably this has provoked an outpouring of grief and sympathy, but also nervousness - is this one of the first of many? (NB - this is not the first, as Square Chapel Arts Centre went into administration back in March). This made me curious; what was the background to this situation? We’ve not yet had a raft of venues going into administration, so what made NST one of the first - and was there anything we as a sector could take note of?

I did some digging and posted a few findings on my Twitter account, but thought I’d go into a bit more detail in a blog.

First, a disclaimer - I have no inside knowledge about NST’s operations, and all information I’ve got is public record. The background info I have comes from their Annual Accounts filed with Companies House for 2018/19 - which means a) information does not account for anything since April 2019, and b) by using only this public record there are a number of factors which may not be accounted for. This is not intended to be a forensic investigation into what happened - merely some observations.

So, onto the key points I picked up on…

Opening a second space recently used almost all their unrestricted reserves

This is what I would consider to be the biggest factor in the administration process - when moving into the new City Centre venue in 2018/19, NST recorded losses of over £500k. These losses were covered by their unrestricted reserves - leaving them almost entirely drained, and with much less security than was clearly needed in light of Covid-19.

Now, we need to put this into some context. Firstly, charities are generally advised not to have reserves at too high a level as that can make funders question whether investment is necessary; however, reserves too low pose serious questions if an organisation can be a going concern. For 2018/19 the salaries bill for NST was £1.7m (including Tax & NI) - even if you generously suggested they could have a reserves policy which covered three months’ operating costs (where it would be advisable to have six months), that would still require £425k for salaries alone. Obviously I don’t know where their reserves stand as of today, but I would suspect they weren’t anywhere near this - hence the administration.

Despite all of this, it’s not as simple as saying they shouldn’t have spent the reserves in the move. Clearly the move was designed to increase their income potential - and the report suggest this was the case - so dipping into the reserves for a project with that end result makes sense in a lot of ways. It would be easy to sit here now and say we all should operate with secure reserves now we have the benefit of hindsight, but then we are effectively saying the arts should be risk-averse - which is contradictory to a lot of people’s beliefs.

There have been significant funding cuts in recent times

Adding to the financial challenges NST have faced has been cuts to their funding. A funding agreement with University of Southampton saw NST receive £170 a year, but this was on the basis of them running a venue on campus - and with them due to vacate that venue in April 2020, this income would disappear. I should point out that I don’t know exactly what the overheads were specific to that venue, so it could be that the loss of the £170k was offset by reduced overheads of running two venues - but still, in the books losing that much money seems painful.

In addition to this, funding from Southampton City Council was due to reduce year-on-year. This is not a surprise, as local authority funding is always in line for cuts in times of austerity - funding arts venues is generally not considered a vote winner, and when balancing budgets this money isn’t securely ring-fenced in council chambers.

(An extra note here - in the narrative of the report it is stated some core funding comes from Hampshire County Council, but I couldn’t find any mention of this in the accounts. If anyone knows about this funding do flag it up!)

Arts Council NPO funding is secure (for now), and there Covid-19 Emergency Funding being offered to NPOs - but presumably the level of funding available, the time-frame to turn a bid around and/or the challenges if unsuccessful made this a path not worth exploring. ACE generally don’t like seeing organisations in the NPO portfolio go to the wall, so will help where they can - but these uniquely challenging circumstances no doubt limited what they could offer in terms of support and investment.

Visitor spend was significant - and this lost income will have hurt

Part of the appeal for any venue looking at a capital project - whether a refurbishment or a relocation - is the ability to increase visitor/secondary spend. Look at most large venues and they turn over huge amounts of money at their bars, or through merchandise sales - not to mention how much can be generated through ticket sales. In 2018/19 NST recouped £250k from these areas of income, and this figure no doubt would have increased with the new space opening - a City Centre venue is always going to see increased visitor footfall (and having been to the NST campus venue, it’s not exactly in an ideal location!) and venues benefit from this.

This requires the venue to be open, though - and with the lockdown, there’s no income in these areas. Even after theatres can reopen, who’s to say what the numbers will look like - will people want to go to theatres to see shows, and how long until we get back to ‘normal’ levels? We have to assume most venues will see significant drops in audience numbers during the next 12 months at least, so a reduction in visitors means a reduction in income - and with the expected increased income NST would have budgeted for, this could have been the fatal blow.

Touring of own and co-productions can’t happen (but this may not be a bad thing)

This is something I didn’t mention in my Twitter thread, but I think it’s worth picking up on. One of NST’s most notable successes in recent years - and particularly artistically - has been the development of their own work and co-productions with other partners. In 2018/19 this work recouped around £750k in income - the benefits of producing work without overheads of running your venue can be good, if the tours are successful. I can’t pick apart the numbers fully here, but the overall figure looks good.

However, for the same period direct production costs were £1.3m. Obviously that’s significantly more than the income received from Box Office, so were these productions loss-leaders? Truthfully, I don’t know - much of the production costs could have been covered by funding (as well as ACE NPO, NST received other bits of funding) so the net figure isn’t clear. They could have been making an overall profit from producing work - which would mean another loss overall - but I can’t find the detail here.

What can we conclude from all of this?

Firstly, it’s important to emphasise that there is no suggestion anyone did anything wrong at NST. These circumstances are completely unique and were entirely unpredictable; even six months later and things could have been very different. My intention looking at this isn’t to look to apportion blame, and in fact is more driven by a desire to be sympathetic to the combination of factors which led us to where we are today - NST were actually doing the type of work which most of us in the sector are desperate to see, and if things remained as ‘normal’ then no doubt their reputation would continue to grow.

Realistically, very few venues should find themselves in a similar situation to NST; the opening of the new venue and the pressure it put on their finances are unique to them. Capital projects always put pressure on reserves as they never go to plan, and committing to them is always about trying to measure risk - plenty of venues will have gotten away with much bigger risks in recent years, purely due to the world being less volatile.

What we can assume is that it is not the impact of Covid-19 alone which has led to the venue being put into administration - which may reassure some people worried about other venues close to their hearts. It is sadly likely that other venues may find themselves in similar positions should times continue to be tough, and we have to brace ourselves for future announcements - but all people in venues tasked with keeping the doors open will be working long and hard to avoid that measure of last resort being enacted.

It is worth highlighting that going into administration doesn’t mean NST will close for certain. In recent times a number of venues have gone down the same route, and have not only returned but have arguably gone on to greater things since; the likes of Exeter Northcott, Derby Playhouse (now Derby Theatres), Taunton Brewhouse and Queen’s Theatre Hornchurch have gone from administration to being open once more. Naturally these are different times, but we can hold onto a bit of hope that NST will have a similar experience - and with their City Centre space being so new, there is an appeal to an operator willing to take up the reigns.

I’d like to close by taking a moment to move away from the numbers and to mention the people. NST employs 80 people, all of whom now find their jobs at risk during stressful times for all of us. What happens to those people next - from the executive level down to the casual staff - concerns me greatly, and I can only hope their jobs are saved and they are able to return to work ready to turn this ship around. It saddens me that, individually and collectively, we in the sector can’t do more to help them now - circumstances beyond their control have put them in a precarious position, and none of them deserve this. Spare a thought for them tonight.