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By Carol Roberts-Spence
Early spring is the time of year when March Madness commands everyone’s attention. But for those of us who manage university or municipal facilities that are not funded, but are auxiliaries and must make money to pay the lights, salaries et al., we enter into the annual dance with the accountants and business managers in charge of budget cycles.
“Stranger in a strange land” is a fitting description of the feeling one gets when leaving the safe haven of the operation/management offices and entering the world of the numbers guys. When we cross over into their world of spreadsheets and bottom lines, we make sure that we pack our translation guide — our copy of generally accepted accounting principles. More than likely, the accountant across the table from you is only familiar with budgets for buildings that house offices or retail, but not public assembly venues, much less stadiums.
The challenge we have is to make our well-intended, pencil-pushing, pocket protector pals understand what’s needed to run a facility that holds 50,000-plus guests, when their mantra is “more for less.” On the budget summary/balance sheet, there are the usual line items: revenue and expenses. The most challenging part of Budget 101 is the forecasting of these line items.
The estimating of expenses has ties to past performance and predicted attendance. But regardless of how many guests attend any given event, there are still hard costs/expenses that must be incurred, such as toilet paper and field paint. For all of the line items on the left side of the annual statement of accounts and the departments they represent, we are asked to present our needs for maintenance and operations, as well as a wish list for improvements and new initiatives. The trick is to accurately forecast the income to pay for the left side of the spreadsheet.
Unlike managers in other types of revenue-generating businesses, a venue manager’s forecasting is based on what might happen — the crystal-ball method of predicting income generated by live entertainment. If the venue has a primary tenant and annual repeat events, then we can look at last season’s stats. If they were decent and the team made it to a postseason event and your annual events have shown a steady increase over the past few years, we can hope for that golden 20 percent increase in profits. But if your team had a bad season or the star player got a better offer, it makes budgeting for the next season all the more capricious.
There are factors that drive your budget that the facility manager has no control over. Everything from the weather to the price of gas plays a role in your decision-making process, and it impacts your ability to forecast. When my business affairs office asks for predictions on next year’s income, I’ve been known to answer, “Let me get out my crystal ball, or would you prefer tossing the I Ching sticks?”
We know we’ll have events, but the uncontrollable variables can’t be dismissed. There are methods one can use to predict income. Relying on past performance is the standard for the normal business model. In the business of live entertainment, the past is also an indicator for forecasting, but not necessarily the best one.
Forecasting for live entertainment is likened to the black swan theory. The term black swan comes from an ancient Western conception that all swans are white. In that context, a black swan was a metaphor for something that could not exist. The discovery of black swans in Australia in the 1600s changed the term to mean that a perceived impossibility actually came to pass. In the live-entertainment business, the black swan is a normal occurrence.
According to Nassim Nicholas Taleb, author of The Black Swan: The Impact of the Highly Improbable, “because nothing in the past can convincingly point to its possibility,” the past is not necessarily the predictor of the future. In the live- entertainment industry, predicting the unpredictable is not an oxymoron.
There will be a number on that income line for FY 09. It will have justifications and explanations in the boxes provided. I don’t want to be discouraging or sound too jaded. There is help to be found and tools to access. Our organization, the International Association of Assembly Managers, is the first stop. The Center for Venue Management Studies (CVMS) is the resource center for public assembly facility management. Also, Public Assembly Management: Principles is a resource I’ve used over and over again.
The opportunities that IAAM affords for professional development are invaluable and are easily accessible. We’ve used the forum on many occasions to get feedback on many topics — from artificial turf management to asking about text messaging for events to finding justification for my proposed budget.
Ahh, spring. The birds are singing, providing accompaniment for the annual dance of the numbers. Hey, I bet we could sell tickets. I think I can add this event to the income line item. fm
Carol Roberts-Spence is director for special events at the University ofTexas at El Paso. She may be contacted at firstname.lastname@example.org.
International Association of Assembly Managers635 Fritz Dr.