Can nonprofit arts organizations survive inflation and revenue woes?

Over the past five years, nonprofit arts organizations have maneuvered through pandemic shutdowns, evolving audience behaviors, and the relentless pressure of inflation. But what does the financial landscape look like now? We analyzed data provided by 743 organizations via SMU DataArts’ Cultural Data Profile from 2019 to 2023, revealing the complexities beneath the surface.

Recovery in earned revenue and individual giving lag behind inflation

When nonprofit arts organizations reopened their doors after the pandemic, they faced a new hurdle: high inflation. Since 2021, rapidly rising prices have affected arts organizations and the people who support them. Much like individuals who find their monthly budgets don’t go as far when prices go up, organizations found that the same activities cost much more.

Earned revenue—which includes ticket sales, admissions, subscriptions, and other revenue earned directly from the organization’s activities—was slow to recover even after reopening. When adjusted for inflation, earned revenue dropped 12% over the five-year period. This decline hints at a longer-term shift in how people engage with the arts, further exacerbated by rising costs.

Donations from individuals and trustees, the second-largest revenue source for the average arts organization, declined slightly in 2020. Despite modest growth over the next three years, they have not kept pace with rising costs—dropping by 12% between 2019 and 2023 when adjusted for inflation. Donors may give the same amount as the year before without considering that those dollars don’t go as far and organizations have less buying power. Organizations rely on individual donations and earned revenue, which typically arrive dependably throughout the year, so their sluggish recovery has significant implications.

Gains in working capital are beginning to erode

Working capital—the financial cushion that helps organizations get through uncertain times, innovate, and adapt to change—temporarily grew during pandemic shutdowns, as organizations cut spending and began receiving unprecedented amounts of federal relief funding. In 2021, the median amount of working capital for nonprofit arts organizations was 9.8 months’ worth of expenses, far greater than the 3.9 months in 2019. But as organizations reopened, expenses rebounded faster than revenue. Facing deficits, organizations had to deplete their savings to operate. As a result, the working capital they’d built up declined in both 2022 and 2023.

Organizations in a shakier financial position going into the pandemic, however, never even had a chance to increase their working capital. The 25% of arts nonprofits with the largest deficits sank even deeper into deficit during the pandemic. Across all budget sizes, those 25% of organizations ended 2023 with a deficit equal to more than 10% of their budgets. These groups were likely under extreme pressure—with little capital available to get through the slow recovery of earned revenue and high inflation.

BIPOC organizations became more reliant on foundation funding

Our analysis included 81 BIPOC organizations—organizations that self-identify as having a mission rooted in a Black, Indigenous, or people of color community. Historically more reliant on foundation support, these nonprofit arts organizations have become even more dependent on grants as individual and trustee giving to BIPOC organizations dropped dramatically and have yet to recover.

While government and foundation support grew for all organizations between 2019 and 2023, BIPOC organizations saw particularly large increases—285% in government grants and a 76% rise in foundation funding, even when adjusted for inflation. These sources have become increasingly crucial to their continued growth and sustainability. But because BIPOC organizations received much less contributed funding than their non-BIPOC counterparts pre-pandemic, they still report far lower amounts—not only in government grants but in every type of contribution  except foundation funding.

Nonprofit arts organizations need new funding strategies

While there are bright spots of recovery, pandemic shakeups to recurring revenue sources and inflationary pressures will require arts organizations to be creative and innovative over the coming years. They must rebuild recurring revenue sources in a new environment. And they must build working capital while embracing financial planning and management practices that account for both rising costs and revenue sources that take time to catch up to inflation. As arts organizations navigate these challenges, their commitment to innovation and community relevance can lead to a stronger, more sustainable future for the cultural sector.

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