From the WSJ Opinion Archives
LEISURE & ARTS
Money in Motion
How one museum stayed afloat.
Known for his taste for Minimalist art, Thomas Krens, the high-flying director of the Solomon R. Guggenheim Foundation, recently presented his board with a minimalist budget. Publicly chastised by his board chairman and biggest financial supporter, insurance magnate Peter B. Lewis, Mr. Krens, on pain of possible dismissal, has taken a forced vow of fiscal responsibility for next year. Mr. Lewis sweetened the bitter pill with a $12 million gift that will eliminate this year's deficit, pay outstanding bills and debt service, and cover some of next year's expenses.
Many museums around the country have been hit by the recent decline in tourism and the economy. But the Guggenheim, which more than any other epitomized the heady expansiveness of the 1990s economy, has suffered more than most. It ran a $6.7 million operating deficit last year on a $57.71 million budget. Its endowment should reach about $42 million by the end of the year, still far short of the $100 million level deputy director Judith Cox says it needs to adequately support programs and staff.
Regarded during his 14-year tenure as a brilliantly entrepreneurial innovator, Mr. Krens pioneered a way of increasing the museum's visibility and reach through a global network of satellite Guggenheims, which provided the foundation with financial backing and economy of scale for exhibitions and acquisitions.
But recently, Mr. Krens has been bedeviled by a series of missteps and failures. In New York, post-9/11, attendance has fallen 20%, staff has been reduced by 43%, and hours have been cut by 16%. Exhibitions, which drive attendance and income, are fewer in number and next year will all have to be substantially funded by sponsors.
Worse, many of Mr. Krens's satellites have faltered or failed. The SoHo Guggenheim in New York folded a year ago for lack of audience. The Deutsche Guggenheim Berlin is downsizing its signature art-commissioning program. Guggenheim.com, launched last year with $20 million from investors to provide cultural content and e-commerce, is now offline. Billion-dollar plans for a Frank Gehry-designed Lower Manhattan Guggenheim are on indefinite hold.
Perhaps most damaging to Mr. Krens's luster has been his bad bet in Las Vegas. The Rem Koolhaas-designed Guggenheim Las Vegas and Guggenheim Hermitage museums opened more than a year ago at the Venetian Resort-Hotel-Casino, with the hotel having paid $38.6 million for construction and startup costs. The Guggenheim and its partner, St. Petersburg's State Hermitage Museum, had expected to ring up annual multimillion-dollar jackpots in Vegas. Instead, they have about broken even. Daily attendance, projected at 5,000, now hovers around 1,750. Next year, the cavernous Guggenheim Las Vegas will go dark for at least three months, and the smaller Guggenheim Hermitage plans to take the much-traveled Norman Rockwell show.
Despite these setbacks, Mr. Krens is hoping to spawn yet another Guggenheim, this one a $250 million, Jean Nouvel-designed project in Rio de Janeiro. He wants to charge Rio an additional $40 million for the Guggenheim "brand"--twice what the five-year-old Guggenheim Bilbao paid.
Throughout its troubles, the Guggenheim has managed to stay afloat by using a variety of unconventional financial strategies. In an unusual gambit for museums, the Las Vegas institutions are structured as limited liability corporations, which shield the Guggenheim, their owner, from absorbing their losses. Bilbao's financial support comes from private donors and the Basque government; the Deutsche Guggenheim Berlin is funded by Deutsche Bank. Two years ago, the museum withdrew $10.48 million from its endowment to prepay principal on bonds, with a high 7.2% interest rate, that had helped fund its 1992 New York expansion.
In 2001, the endowment would have dwindled to only $28.9 million, below the $35 million level the museum is required to maintain under the terms of a letter of credit collateralizing the bonds for the expansion. But the museum managed to add $10.1 million--mostly proceeds from sales of works from the collection. The museum says that 6% annually of this portion of the endowment will be earmarked for art purchases.
In all, the Guggenheim netted $10.01 million from art sales in 1999; $4.55 million in 2000. Guggenheim officials refused to provide a list of these privately sold works, but described them as "minor and redundant," or "not [of] museum quality."
Perhaps the only good thing to emerge from the Guggenheim's financial woes is its shift in exhibitions from superficial eye-poppers such as motorcycles and haute couture toward an increased reliance on treasures from its permanent collection. But if the foundation really wants to signal a return to basics, perhaps it can find some money to touch up the peeling paint on the outside of its greatest treasure--its landmark Frank Lloyd Wright headquarters.
Ms. Rosenbaum is a contributing editor of Art in America magazine.
