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Upcoming ruling pivotal to Missouri Theatre's finances, future

Dispute over restoration costs puts $400,000 at stake
Wednesday, June 23, 2010 | 5:54 p.m. CDT; updated 8:43 p.m. CDT, Wednesday, June 23, 2010
Eric Staley has been the CEO of the Missouri Theatre since September. "I love the arts and doing things on behalf of the arts and the not-for-profit community in general. When you have a place as beautiful as this, it's hard not to be inspired," Staley said.

COLUMBIA — The Missouri Theatre Center for the Arts has been in a precarious financial position for the past two years, mostly because of a renovation project that cost an estimated $10 million. Later this summer, the 82-year-old theater's balance sheet will change significantly.

A ruling by an arbitration judge is expected by Aug. 31 on a long-running dispute between the theater and Huebert Builders Inc., the main contractor for the restoration project completed in May 2008.

Huebert Builders is seeking $400,000 from the theater for unpaid bills; the theater filed a counterclaim of the equivalent amount based on construction delays and unapproved changes to the main contract.

A ruling against the theater would add $400,000 to the $2.5 million in outstanding bank loans from the restoration.

Huebert Builders would hold a mechanic's lien on the theater if the construction firm wins the judgment, giving the contractor legal backing to recover the $400,000 from the theater’s future income.

Both Eric Staley, chief executive officer of the theater, and Wayne Huebert, president of Huebert Builders Inc., declined to discuss the course of action they would take after the court-appointed arbitration judge makes a ruling, saying it would be prejudicial to the ongoing legal process.

“It would be foolish to predict an outcome,” Staley said of the arbitration, which has been held in private and will be binding to both parties.

But an additional $400,000 debt, Staley said, would put the theater in "financial jeopardy."

Huebert said he could not discuss how soon his company would demand payment if the ruling goes in his favor. He said the company's attorney, Thomas Schneider, will give advice depending on the outcome.

When contacted in May, Schneider said he would not comment until after the ruling.

The theater became entangled in multiple lawsuits filed by Huebert Builders and subcontractors claiming unpaid bills for the restoration project, according to case files in the 13th Circuit Court for Boone County.

The renovation project was initially supposed to cost $6 million, but it ended up costing $10 million after changes were made to the original contract.

Staley said the theater has reached negotiated settlements with the subcontractors, and only the dispute with Huebert Builders remains unresolved.

The disputed $400,000 is just a tip of the debt iceberg the theater faces.

The $2.5 million in outstanding loans is costing the theater $23,000 in monthly installment payments to a consortium of local banks.

Monthly costs for keeping the 1,200-seat theater open surpass revenues earned from ticket sales and irregular donations, and Staley said financing the $55,000 monthly budget has been a constant struggle.

The CEO praised the restoration work done on the theater’s iconic structure that includes a huge gold-colored chandelier that hangs prominently on a cone-shaped roof, which has specially designed acoustic funnels.

But Staley also pointed out that high maintenance costs such as utility bills of about $50,000 per year and an annual light-bulb budget of $6,000 have made running the theater expensive.

Three part-time employees and two permanent staff lost their jobs in the past 10 months as Staley cut costs designed to keep the historic theater financially afloat.

“We work from month to month to stay open,” Staley said, adding that his remaining staff of six have learned “to live each day as it comes.”

When he took over the reins from former Executive Director David White about 10 months ago, Staley inherited a bank account that had less than one month of operating capital. He organized a fundraiser that brought in $250,000 and managed to temporarily “stabilize” the cash position.

Meanwhile, forensic auditors called in to review the overall financial position revealed revenue leaks that previously went unnoticed, including an estimated $180,000 loss from hosting the 2009 Hot Summer Nights Festival, a two-month long, annual classical music extravaganza.

Staley said members of the theater's board decided to “suspend” the festival after reviewing the audit, even though they recognized its popularity.

Classical music enthusiasts vented their anger over the cancellation at a charged town hall meeting in May. Staley justified the decision, citing poor attendance in previous years. He said the low turnout increased the risk that revenues from ticket sales were likely to fall short of the cost of hosting the festival, estimated at between $300,000 to $400,000.

Further analysis of the accounts showed the theater was also losing money from renting out space to nonprofit groups at subsidized rates.

The auditors noticed a tendency to overlook marketing, mailing, staff and other operational overheads while drawing up budgets for events such as the Hot Summer Nights Festival in previous years.

“The impact of the costs were catching up with us," Staley said. "Financial records were in disarray.”

He stopped short of blaming previous management.

“I don’t look for people to blame," Staley said. "I look at processes and procedures.”

Making sense of the accounts was made even more difficult by the theater's complex organizational structure made up of four independent entities — all of which maintain different sets of financial statements.

To qualify for federal and state tax credits, which were partly used to offset the restoration bill, the theater was split into four different entities — one not-for-profit and three for-profit companies.

The for-profit entities include the Missouri Symphony Society Management LLC, the Missouri Theatre Land Company LLC and the Missouri Theatre Master Tenant LLC.

Missouri Symphony Society, a nonprofit that relinquished ownership of the theater under the new structure, is used for fundraising.

Staley has changed the strategy of collecting donations by adopting a more personal approach that involves calling targeted sponsors. He also raised rental fees “to reflect the real cost of hosting events” in an effort to increase cash flow.

Arts and music lovers who have kept faith in the theater, which was constructed during the Great Depression in the late 1920s, say innovation and concerted community efforts will be needed to keep the organization alive.

Alex Blanton, an MU music graduate and assistant director of MU’s Missouri Youth Symphony, said it is “absolutely vital” to keep the theater operating.

Blanton was involved in organizing a fundraiser for the theater last month, which recorded donation pledges of about $422. He plans to organize another one in August when more people return from summer break.

But Blanton thinks more can be done to secure the theater’s financial stability.

“It has to be a combination of fundraising and bringing in shows that people in Columbia and the surrounding areas want to see,” Blanton said.

Sharyn Kropp, the office manager at Hennessy & Sons Music Store, is one of the people who was disappointed with the cancellation of the Hot Summer Nights Festival.

She occasionally attends shows at the theater and said she has noticed ongoing efforts to diversify shows.

She remembers attending a documentary film that appeared to attract an audience different from the classical music enthusiasts, and she thinks more of those could be what is needed to improve revenues.

“I don’t know whether this is a moneymaker, but it seemed to pack the theater,” Kropp said of the movies.

Bob Wood, the owner of Dawson Shoe Repair on Eighth Street, does not attend as many shows as he did about three years ago when he rented space in the Missouri Theatre building for his shop. He moved out to make way for the restoration.

Wood said news about the debt had dominated other information about the theater since completion of the renovations, adding the publicity could have discouraged some people from attending events.

Diana Moxon, director of the Columbia Art League, said the lagging economy has  eaten into the amount of donations going to arts groups, but she predicted donations will increase as the economy recovers.

"If there's a good variety of shows the attendance will also improve," Moxon said.

Staley said attracting a wider cross section of audiences is a key plank of the theater’s strategy, adding that he plans to form a programming advisory council made up of community members to help.

“We have responded to calls for more diverse programming by producing shows like The Punch Brothers, Leo Kottke, Eileen Ivers and Second City, and we intend to do more.”

High operational costs such as demands for upfront down payments by artists have limited the ability to pull big acts, however, and Staley said only deep-pocketed sponsors willing to underwrite shows or donate "venture capital" can turn the situation around.

“We can’t borrow any more, we are borrowed to the hilt,” Staley said. “If we fall short, we just close the doors.”

Theater lovers such as Mitch Meador, who traveled from Lawton, Okla., to attend the recent "Blind" Boone Ragtime and Early Jazz Festival wishes the community would rally around the theater and pull it out of its financial problems.

“I hope they pay off the debts,” Meador said. “This is the nicest movie theater I have ever been into. It’s opulent.”

Amy Collette, a member of the theater's board of directors, said she cannot predict what the financial position will be in the next year.

"But I'm very confident with the direction we're going and the leadership that we have," she said.

 


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Comments

Bill Ferguson June 23, 2010 | 9:50 p.m.

Was the former Judge Roper the Treasurer when this mess begain?

(Report Comment)
Mike Martin June 24, 2010 | 8:33 a.m.

Theater officials should suck it up, pay Huebbert, and get on with the show!

Based on all the insider chit chat about former Mo Theater director David White's interactions with vendors, contractors, and clients during the renovation process, Huebbert Builders is most likely owed their $400,000 -- fair and square.

Without much (if any) board oversight, Mr. White reportedly upgraded a number of items on the renovation agenda, approving change orders and cost overruns as they occurred without going to his board and with few board inquiries about ongoing project expenses.

(You don't end up $4 million over budget if you're regularly inquiring and care about staying in the black).

That said, I'd stop way short of blaming Mr. White -- or Huebbert Builders -- for anything having gone wrong with the renovation or its costs.

White and Huebbert pulled off a miracle in the restoration of that theater.

And though Mr. White wasn't my cup of tea, he did bring a tremendous amount of fundraising energy to the job which I think has since exited the theater with his departure.

All this moaning and groaning about cost overruns -- and the disputes they've led to -- not only tarnishes this grand achievement, but sends a loud message to the public -- that large cultural organizations are not financially viable in Columbia, Missouri (the home of how many billionaires again?)

Finally, Mr. White's board of directors was an august body of well-regarded types like Judge Roper, whose husband Bob, an outspoken community critic himself, retired in 2008 as CEO of the $3 billion Central Trust & Investment Company.

Had they paid closer attention to Mr. White's money management, and played to his strengths as fund raiser and salesman rather than allowing his weaknesses as budget director and financial manager to cloud the picture -- the theater almost certainly wouldn't be facing the struggle it is today.

(Report Comment)
Bill Ferguson June 24, 2010 | 1:53 p.m.

Mike Martin your comments should help us in the public to better understnd what happen over the course of events. It would be interesting to hear from someone that served on the board of directors

(Report Comment)

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