Business and the Arts

The Council for Business and the Arts, May 2006

May 24, 2006

The Case for Investment in the Arts

Billie Bridgman

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Real, substantial, economic impact

• Public sector investment in the arts and cultural community is essential. It is the catalyst for private sector support and together these drive direct, indirect and induced benefits.

• The arts in Canada provide an economic engine (based on public and private sector support, earned income and incremental tourism) which drives impact at as much as 8X the level of public sector investment.

• Because of these multiples, more than 80% of this public sector investment comes back to government in the form of taxes.

• The maximum impact is generated at the induced level - the real beneficiaries of cultural investment are Canadian communities.

The Council for Business and the Arts, in conjunction with McKinsey and Company, recently completed a research and analysis project around the the partnership potential between the corporate sector and the arts. The simplest measurement is economic and the assumption was that this would be key to corporate interest. The model developed by the study team indicates a number of important features at this level:

The Council for Business and the Arts, May 2006

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Description

Examples

• Financial benefits generated by the attraction/event itself

• Incremental tourist spend

• Regional revitalization – economic activity from direct and indirect spending

• Real, but qualitative benefits for the community, government, and corporations

Type of benefit

Easy to quantify Unable to quantifyHarder to quantify

• Admission/tickets• Tax revenues

• Restaurants• Hotels• Services

• Incremental spend in region due to direct arts spending (i.e., ripple effect of direct benefits)

• Social capital, education, reputation, multicultural, support of objectives

• Talent attraction, CSR, marketing

Direct Indirect Induced Intangible

Source: McKinsey team analysis

A framework for calculating the economic impact of the arts and culture sector in Canada

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0.9

4.2

4.6

4.8Visit museum/art gallery

Attend a fair, festival, etc.

Attend a play, concert, or other cultural event

Attend an aboriginal or native cultural event

*Visitors may attend multiple events during their trip, based on domestic travel within Canada**Underlying assumption that approx. 25% of those tourists who attended an arts attraction traveled solely for the event

Source: Canadian Travel Survey, 2002; Statistics Canada, 2004; team analysis

Participation in arts/cultural eventsPercent of tourists who attend*

% of tourism spend attributed to the arts 0.5% 2.5%1.25%**

Estimated arts-related tourism spend($ Million)

287.5 1,437.5718.8

17%

38%

7%

15%

24%

Total tourism spend in Canada, 2004100% = $57.5 billion

Transportation

Accommodation

Food/beverages

Recreation/entertainment

Other

As a conservative estimate, $0.7 billion of the tourism spend in Canada can be considered an indirect benefit of cultural programs

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Assumptions

• 38% of firms’ spend is on supplies

• 42% of firms’ spend is on wages • 80% of wages are disposable

income• 86% of disposable income is

spent

Induced spend calculation

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1 – 0.38 – 0.29

Direct arts spend Spend on

wages

Other spend

38%

42%

20%

Disposable income

Taxes

Spend on supplies

Personal savings

80%

20%

86%

14%

Personal spending

= 2.0 X ($206 + $215 + $7)

= $856 million

Source: CBAC Annual Survey of Performing Arts Organizations, 2003-2004; CBAC Annual Survey of Public Museums & Art Galleries, 2003-2004; Statistics Canada; team analysis

Multiplier effect of arts spending in Canada

- 1 X direct spend

2/3 of the direct arts spend is ‘rippled’ through the Canadian economy

= 29%

Rationale

• Arts-related revenue causes incremental economic activity amounting to 2/3 of the original benefit

• This sparks a ‘ripple effect’ in the economy – total induced benefit multiplies to 2/3 of the 2/3 of the 2/3, etc.

Induced benefits are estimated to be $856 million based on the ‘multiplier effect’ of arts-related spending

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Public/Private Arts Investment$ millions, 2004

Sources: McKinsey analysis; 143 organizations from CBAC Annual Survey of Performing Arts (approx. 1% of total arts organizations in Canada), 2004-2005; Hill Strategies Research Inc., 2003; Canadian Travel Survey 2002; Team analysis

Economic Impact: return on investment for 143 performing arts companies

101215

DirectBenefits – tickets, etc.

Total public/private funding

105

PrivateFunding

PublicFunding

2067

856

Indirect benefits

Total benefits

1.284

Induced benefits

Multiplier effect – estimated to be 2X all spending attributed to the arts (i.e., spending by arts institutions and tourist spending)

Multiplier effect – estimated to be 2X all spending attributed to the arts (i.e., spending by arts institutions and tourist spending)

Assuming 1.25% of tourism is attributable to the arts and that 1% of that can be tied to this sample.Assuming 1.25% of tourism is attributable to the arts and that 1% of that can be tied to this sample.

Quantified Economic Impact of Investment$ millions

The Council for Business and the Arts, May 2006

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All the reasons: economic impact is the bonus

But, the most important outcome of the study didn’t have an economic basis.

While corporate leaders found the numbers impressive, they all recognized that the real “return on investment” from culture is not monetary. It is not the reason we make art and it is not the reason we need art in our lives

Our art makes us unique, it records our lives, it provides forum for debate, it improves education, creates community engagement, drives national brand identity, encourages multicultural expression

Art facilitates neighbourhood regeneration, attracts creative employees, creates employee engagement and provides unique corporate marketing opportunities

Public/private arts partnerships provide the financial foundation for creativity which in turn generates unique social, community and corporate value.

The Council for Business and the Arts, May 2006

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For business

1. A way to address an increasingly important “Corporate Social Responsibility”

2. Reinforces a creative and attractive Corporate Culture

3. Promotes Community development and engagement

4. Provides unique opportunities to market to Customers

For society

1. Allows Canadians to express, share and recognise their identities – building social capital and community engagement and supporting multiculturalism

2. Helps to create a distinct ‘brand identity’ for Canada

3. Enhances the attractiveness of Canada to valuable talent

4. Strengthens the education system

Qualitative benefits of arts support

… and allows businesses to align with the interests of key stakeholders: employees and customers

An investment in the arts provides significant benefits to society…

While economic impact is quantifiable, the real value of the arts lies in their social, community and partner benefits

The Council for Business and the Arts, May 2006

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The Best Partnerships between Business and the Arts are based on:

The Council for Business and the Arts, May 2006

•Mutual respect

•Real engagement

•Real co-operative programs/projects – not just cheque in / check out.

•It is not about doing favours, it can’t be about “asking”

•It only works if there is a real value proposition on both sides and if both partners understand each other’s equal – though very different - value

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For Business, partnerships with the arts are:

The Council for Business and the Arts, May 2006

•Comparatively reasonably priced

•Offer the gamut of experiences and images with which to create brand association – from traditional to very innovative

•Targeted opportunities

•Niche market – high-touch environment, not impersonal

•Very useful to influence groups of important connections: politicians, business leaders, clients, community leaders, press

•Associated with quality

•Allow layers of participation which build on each other – offer opportunities for adding other specifically targeted associated initiatives

•Association with the arts communicates creativity, forward thinking, innovation – very closely associated with “creative city”, knowledge worker corporate concerns

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Business can be Proactive

The Council for Business and the Arts, May 2006

Go after what you want

Define where your needs are: objectives, issues, new business initiatives

Define each target group: who do you want to meet, how, how often, where

What image do you want to project: innovative / creative, refined, top quality, luxury, on the edge

Develop arts associations which address specific needs / target groups / marketing images

Work with the organization to develop ideas – the sponsorship $ is just the ticket to the dance

Spend outside of the partnership commitment to support the initiative

Do fewer, more targeted

Make multi year commitments, build a campaign strategy, study results, recreate

Don’t ask the arts to be like business, use the arts for what they are and what they offer

Think big by keeping it small – define specific objectives (a few) and make sure that everything you do is on track with those – don’t let things creep, spread, lose focus

Involve many aspects of the company – derive benefit on many levels

Measure your success – through the usual measurement channels as applied to each aspect of the company

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Recurring Messages From CEOs:

Engagement, Relationship, Partnership

1. Inspire me… with your creativity, energy and humanity

2. Help me find a proposition that my employees, communities and customers care about

3. Show me how we can be part of your success

4. Let us make a difference with a distinctive and committed contribution over several years

5. Let us have an Artistic experience together

The Council for Business and the Arts, May 2006