Orchestra unlikely to save by returning to Academy

In its bankruptcy petition last month, the Philadelphia Orchestra Association took aim at the Kimmel Center, its landlord for Verizon Hall, and the complex lease agreement between the two organizations.

The orchestra's cry for relief from the lease, though so far lacking in specifics, has prompted some board members and others to advocate the orchestra's return to the Academy of Music. The orchestra pays rent in Verizon Hall, and if it returned to the Academy, which it still owns, it could shave expenses, the argument goes.

But a return to the Academy would not be likely to save the orchestra much - if any - money, an examination of tax records and other documents suggests.

Even though it has long held ownership of the Academy, the orchestra paid rent to the hall, which is a separate corporation, until it decamped for Verizon in December 2001.

Rent in Verizon was based on the costs the orchestra was paying to occupy the Academy, according to a July 1999 memorandum obtained by The Inquirer. The memo, from then-orchestra president Joseph H. Kluger to then-Kimmel chief Stephanie W. Naidoff, outlines base rent and a 3 percent escalation per year. The amount it cost the orchestra to occupy the Academy in 1998-99 - including rent and personnel costs - was $1.6 million.

The orchestra currently pays the Kimmel $2.3 million a year - which is, adjusted for inflation, just over that 1998-99 amount.

As part of the deal, the Kimmel rents the Academy for $1 per year, books it, and is able to keep the revenue generated by Broadway shows and other productions. But the Kimmel is also now responsible for paying normal maintenance expenses.

Moreover, since the new lease agreement, which expires in 2026, the Academy of Music has not run a deficit, which was not the case in the orchestra's last years of managing the historic building. The Academy ran an average annual deficit of $150,000 between 1991-92 and 1997-98, even after contributions from its endowment, according to financial data accompanying the memo.

The orchestra's bankruptcy petition cites its contractual relationships with the Kimmel as "problematic," but does not request relief in specific terms - only stating that the relationship "does not appear to optimally serve the needs of all parties."

"For example," the petition says, "POA has become increasingly aware that customer service at Verizon Hall is critical to building long-term relationships with its patrons, but this service is managed and provided by KCI, which has no immediate stake in POA's success."

"Governance structures" of the orchestra and Kimmel's joint ownership of TicketPhiladelphia, the ticketing agency, "are also not robust enough to manage expectations and financial arrangements on both sides."

In response to questions, a Philadelphia Orchestra Association spokeswoman released a statement: "As the home of The Philadelphia Orchestra and an essential member of our city's thriving arts community, the Kimmel Center is a critical partner to our organization. We look forward to continuing discussions of leases and the need to reduce costs, as we work through the reorganization process."

Kimmel Center lawyers responded to the orchestra's petition Monday with a creditors' claim for back rent: $1,156,519.56 through the middle of April. Another $496,604.43 will come due by the end of May.

Kimmel lawyer Neal D. Colton declined to comment on the question of what changes the orchestra might be seeking in the three-way agreement among orchestra, Kimmel, and Academy of Music.

While the orchestra might not save anything by returning to the Academy, the new fund-raising competition presented by the arrival of the Kimmel might be of greater consequence.

The Kimmel sometimes raises tens of millions of dollars a year, for annual fund-raising and special projects such as this summer's $14 million acoustic adjustments in Verizon Hall and renovation of the restaurant and rooftop garden. Lists of donors to the campaign to build the Kimmel and its endowment, and lists of donors to the orchestra's recovery and annual funds, show significant overlap.

There may be no financial justification for the orchestra's reunification with the Academy of Music, but one of the projects outlined in the orchestra's strategic plan should please nostalgists: In 2012, the orchestra will return to its old home for a limited run to mark the centenary of Leopold Stokowski's debut as leader.