Is the Met "in the Money?"

In April 2016, the Metroplitan Museum of Art announced it was scaling back spending significantly after revealing a persistent $10 million operating deficit. Combined with lower admissions revenues despite a record number of visitors, an expensive plan to acquire the Breuer building from the Whitney, and a (now abandoned) scheme to renovate the "Lila Acheson Wallace" wing, and add a new modern art wing with a total price tag of $700 million, the fiscal situation was becoming strained. The museum's board and trustees implemented a plan to restructure the museum by letting go of dozens of employees, and to lobby the city of New York to start charging mandatory admissions fees to out-of-towners. The new CEO, Dan Weiss, promised the operating budget would be balanced by the end of fiscal year end 2020. So the question is, have these efforts been successful? And how will it impact the average New Yorker or tourist?

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The Situation:

Persistent operating budgetary losses of roughly $10 million per year prior to 2017.

Pre-2016 expansion and spending plans were unsustainable without massive support from endowment.

First year of Met Breuer operations took its toll.

Cost growth exceeded revenue growth, despite record attendance.

Pension and postretirement contributions was a key driver of cost increases.

Hover for the Interpretation.

The Interpretation:

Ordinarily, operating deficits among nonprofits are much more common than in for-profits.

Because so much revenue comes from endowment support and gifts, donors and trustees were unwilling to increase their commitments, so the Met was forced to cut its budget.

But, the Met was between a rock and a hard place: it cannot operate without continual support from donors, but it also can't just start charging visitors for tickets - or can it?

What are the areas that are usually cut in a restructuring? Hiring, and staff "redundancies."

"If we do nothing - if we just carry on - 18 months from now, at the beginning of fiscal year 2018, the deficit would be four times bigger. That's not OK, so we're going to take action to control that." - CEO Dan Weiss, 2016

The Situation:

The largest reduction has been in Administrative Expenses, where almost $10 million has been saved from the yearly budget.

The most variable expense is for Special Exhibitions, which obviously vary from year to year in terms of cost, but may be a worthwhile cost if they drive admissions, membership, or donations.

The addition of the building and personnel expenses related to the operations of the Met Breuer drove most of the cost increases since 2015.

Hover for the Interpretation.

The Interpretation:

According to the CFO, 70% of all costs regardless of category relate to employees.

Apart from salaries, costs can be driven by pensions, particularly defined-benefit pension obligation plans.

Lastly, many of the Met's workers are organized into unions, which allows for collective bargaining and makes it very difficult, if not impossible, to cut wages.

So, costs can't really be cut too much, which is makes sense, given that only 34 people were let go during the restructuring. The Met had to make more money instead!

The Met Breuer (pictured here), purchased from the Whitney Museum of American Art, will cost an additional $17 million per year to run, and has raised the operating budget needed to break even.

The Situation:

Since the advent of a new admissions policy in 2017, admissions income has been steadily rising, although it is only the third most important source of income for the Met.

Endowment Support is income generated from the sale of financial securities in the Met's portfolio, or income from it. The Met has heavily relied on its endowment to fund itself.

Gifts and donations generated from fundraising is probably the most important source of cash for the Met.

Hover for the Interpretation.

The Interpretation:

The endowment portfolio's investment performance looms large over the Met's restructuring. The museum has benefitted greatly from the growth in equities over the past decade, and a market crash or prolonged downturn would be a blow to the operating budget.

The fact that the Met gets so much of its capital needed for operations from gifts and donations makes me dubious as to why they needed to raise money through admissions in the first place.

Grants from the city of New York allow the Museum to recover certain costs of operation, but notice that these have not increased in five years.

The policy to charge tourists a mandatory admissions fee was only agreed upon by the Mayor's office in exchange for revenue-sharing of $2.8 million per year, the bulk of which is going to fund the "Cultural Development Fund and Institutions Group."

The Situation:

In 2017, the Met reached a new deal with the city of NY to be able to charge tourists a full ticket price. There had been a decline in admissions revenue ever since the city forced the museum to change its "recommended" donation for admission to "suggested."

While the growth rate in the Met's attendance has led to higher admission revenues, when compared to the total tourism in NYC, no museum or "traditional cultural tourist attraction" has kept up with overall tourism growth, suggesting tourists prefer to come to New York to shop.

Hover for the Interpretation.

The Interpretation:

This trend may signal a shift away from tourist or average New Yorker interests in museums in general.

The tourism policy is also difficult to enforce, since there is little gating of visitors beyond the security screening stage and it is possible for anyone to claim to be a native New Yorker.

Additionally, City Hall only agreed to allow charging tourists in exchange for revenue sharing, and only will only change "suggested" back to "recommended" if grants for utilities and maintenance are cut. In others, a net zero gain on the budget problem.

According to the Post, the number of adult visitors to the Met paying the suggested fee has dropped from 63% in 2004 to 17% today. Take this with a grain of salt! (It's the Post). But it matches similar observations made in this analysis.