11/17/2014 09:25 am ET Updated Jan 17, 2015

A Tale of Two Cities

Seattle lost a vital theater company when the Balagan Theatre announced on September 24 that it was permanently suspending operations. The Balagan Theatre produced well-received musicals and plays -- from August: Osage County to Hedwig and the Angry Inch -- on small budgets. As the theater grew more visible, it began to rent larger venues for its shows. This resulted in larger production budgets, though not every show was a box office success.

What the theatre company did not do, apparently, was keep accurate books. According to an article in the Seattle Times, its board president said that "he and fellow trustees did not have enough information to know the extent of the nonprofit company's indebtedness to individuals and organizations." It now appears that this indebtedness amounted to some $340,000, a sizeable sum for this modestly-sized organization.

When both the executive and artistic directors left the organization this summer, it immediately became apparent just how sick the organization really was. According to the former executive director, "We always made money on our shows and never really pushed the fundraising. We needed to do that but unfortunately it didn't happen." He apparently considered taking a year off from producing shows to devote to building a donor base, but didn't do it.

There are many lessons to be learned here:

• Boards must demand clear and precise financial reports.
• Building a strong development effort is critical -- one "always makes money on one's shows" until one doesn't.
• Do not move to larger facilities until one has the financial foundation to withstand periods of poor ticket sales.
• When deficits are incurred, there must be a clear and precise plan for erasing them. They do not go away by themselves.

A far larger institution -- the Rome Opera -- did just implement a clear and precise plan for erasing its deficit, though its plan cannot lead to artistic success, and financial success is unlikely as well.

The same company that housed the world premieres of Tosca and Cavelleria Rusticana announced, on the same day that the full extent of the Balagan Theatre's situation was reported in the Seattle press, that it was firing its entire orchestra and chorus to be replaced by outsourced artists!

This was the third stunning announcement from the Rome Opera in recent months. First we learned that the institution had lost almost 13 million euros last year. Then its great music director Riccardo Muti resigned abruptly. He said that the financial and labor problems at the Rome Opera created an environment that was not conducive to great work.

And now, management has said that the only alternative to firing the orchestra and chorus--the very heart of an opera company--was closing down altogether.

From Seattle to Rome, theater companies to opera companies, small-budget organizations to large institutions, not-for-profit arts organizations are struggling to find stability. Some are responding by closing; others are gutting the heart of the artistic product.

In too many instances, organizations are not responding appropriately (by building on artistic strengths to create a larger family of supporters) or quickly enough. The consequences can be severe.