Utility costs cripple Hippodrome

Seven years after the Hippodrome Theatre reopened with a citywide celebration and an outpouring of civic optimism, the historic venue is struggling, beset by exorbitant utility expenses and an audience that is seemingly deserting in droves.

Attendance has fallen 54.3 percent since the gala celebration on Feb. 10, 2004, and subscriptions have declined by 37.5 percent. Revenues far short of projections have forced the state to absorb a deficit of nearly $2 million. And the center's financial struggles have diminished the quality of the shows that audiences see on stage.

But that bleak scenario could be about to change. State officials and the theater's operator are pinning their hopes on an ambitious financing plan that could inject new life into the former movie palace and vaudeville house that opened in 1914.

A plan that would shift $250,000 a year in heating, cooling and electrical costs to the state is scheduled to be presented to the Board of Public Works in September. The plan has received the blessing of the Maryland Stadium Authority, the state agency that arranged financing for and oversaw construction of the theater's $63.3 million renovation. Advocates say that winning final approval is necessary to reverse the Hippodrome's slide.

"This is the tipping point," said Jeff Daniel, a vice president of Broadway Across America, which operates the France-Merrick Performing Arts Center, where the Hippodrome is located. "If the financial structure of the performing arts center doesn't change, I'd be concerned for the long-term viability of this theater. If the financial structure does change, we'll be on track to becoming a wildly successful performing arts center that's important not just in Baltimore, but regionally."

A center of promise

When the renovation of the Hippodrome began in 2002, the project was widely perceived as the antidote to a variety of urban ills. The arts center would singlehandedly bring about the renaissance of the once-bustling west-side neighborhood. With the Hippodrome reopened, Baltimore would no longer lose business from touring Broadway shows that bypassed the city because they were too big to fit into the 1,600-seat Mechanic Theatre. The Baltimore Sun ran an editorial headlined "Hope restored."

The night the new theater was unveiled, Marks Chowning, the Hippodrome's former executive director, said: "We want to establish the Hippodrome as a regional performing arts facility on the same level as the Kennedy Center."

And for subscribers such as Linda and Scott Murphy of Ruxton, the arts center has more than fulfilled its promise. The Murphys have purchased season tickets since the theater reopened. During intermissions, they love to walk up and down the lobby, looking at the historic pictures chronicling visits from such stars as Frank Sinatra, Benny Goodman, Glenn Miller and Ronald Reagan.

"Going from the Mechanic to the Hippodrome was like night and day," said Linda Murphy, 52. "When I would go into the Mechanic, I felt like I was walking into a prison. The Hippodrome has so much warmth and character. My favorite thing is looking at the ornate ceiling in the orchestra and the beautiful boxes on either side. And the productions we've seen have been excellent."

But all that gilt paint came at a steep price.

Shortcut to funding woes

Daniel, who was brought in to run the arts center in 2009, blames its financial problems on a shortcut taken during the renovations.

In 2003, there wasn't enough money to build a central plant that would provide heating and cooling for the facility. Rather than delay the project, the Hippodrome was connected to city steam and chilled water loops. The utility companies — originally Trigen and Comfort Link, since bought out by Veolia Energy — agreed to tack the $4 million cost onto the arts center's monthly utility bills.

"Instead of paying the capital costs up front, the debt was put onto the equivalent of a credit card at 101/2 percent interest," Daniel said. "And the balance increases with the Consumer Price Index. It seemed like a good idea at the time, but it has prevented us from being as successful as we should be."

The Hippodrome now pays about $1 million a year for utility services. That compares with an average annual utility bill of $180,000 for performing arts centers in the United States, Daniel said, and is nearly twice the $550,000 paid by the largest venue on Broadway.

To pay its bills, Broadway Across America raised the rent at the 2,286-seat theater. As a result, the Hippodrome has become so expensive that some of the touring Broadway musicals with the biggest box office appeal bypass Baltimore. And companies that do visit perform fewer shows. In the past, musicals stayed at the Hippodrome for an average of two weeks. Now, most shows stay no longer than seven days.

"People don't always make the connection between a theater's finances and its artistic programming," said Michael J. Frenz, the Stadium Authority's executive director. "But the one has a direct effect on the other."

Daniel said rock legends and such nationally prominent dance troupes as the San Francisco Ballet have inquired about performing at the Hippodrome, only to be deterred by the high cost of breaking even.

And the M&T Bank Pavilion, the arts center's small performing space, has been priced out of the reach of local dance, theater and choral groups.

"That for me has been the most disappointing consequence of this whole situation," Daniel said. "The local arts groups assumed we didn't want them here. After a while, they just stopped calling."

He declined to say how much money the arts center has lost, but noted that in the past seven years the utility bill has cost the theater operator $5 million more than a comparable venue.

Broadway Across America has a contract to manage the Hippodrome until 2022.

If the financing proposal is rejected, Frenz said, the theater operator could minimize losses by shifting to a bare-bones policy of programming the least expensive shows for short runs of a few performances each.

"No business can lose money the way the Hippodrome has been losing money and still continue to operate," Frenz said. "The way the situation is now, the more shows the theater operator does, the more money they lose."

Other financial hurdles

But high utility bills are not the only obstacle to the Hippodrome's success. The prolonged recession caused many Baltimoreans to cut back on leisure spending. Stalled efforts to redevelop the West Side have resulted in a dearth of neighborhood dining and entertainment options. And competition with theaters in Washington has cost Baltimore the chance to stage some of the most potentially lucrative musicals on tour.

For instance, "Billy Elliot," one of the biggest hit musicals of the new century, went on tour last fall. This season, the Elton John musical about a miner's son who yearns to dance will visit Washington, Philadelphia, Pittsburgh, Cincinnati, Columbus and 13 other cities — but not Baltimore.

"Producers will always book their shows in the cities where they can make the most money," Daniel said. "If they can go to a city like Washington, with triple the population of Baltimore and double the average income, that's what they'll do."

Even if "Billy Elliot" does visit the Hippodrome in the next year or two, the Kennedy Center will have siphoned off a portion of Baltimore's most avid theatergoers.

Daniel said the Hippodrome's budget woes have meant that less money is available for marketing shows regionally and nationally. Attendance has plummeted by 54.3 percent in the past six years, from a high of 402,566 during the 2005-2006 season to a low of about 184,000 for the fiscal year that just ended.

But Daniel pointed out that the four-week run of "Jersey Boys" in February sold 65,000 tickets. He said it would be a mistake to conclude that lower attendance indicates that the Hippodrome is in danger of failing.

"The Hippodrome isn't going to close," he said. "Nothing can be further from the truth. It's very dangerous to tie attendance to profitability and stability. We can present more shows and lose money, or often present fewer shows and be very profitable. The Hippodrome will be more successful at a lower attendance figure."

The subscription rate is considered another measure of a theater's financial soundness, because season ticket-holders are willing to pay in advance for multiple shows. Subscriptions peaked at 14,400 for the Hippodrome's 2004-2005 season, slid by 43 percent to a low of 8,200 for the 2008-2009 season and then began a slight climb.

But even at its current level, Daniel said, the Hippodrome's 9,000 subscribers translates into the third-highest rate per capita in Broadway Across America's 42 markets. "The audience is there," he said. "I'm convinced of it."

Nonetheless, the drop in attendance has had a pronounced impact on the Maryland Stadium Authority, which receives a $2 surcharge on every ticket sold. When the Hippodrome reopened in 2004, the Stadium Authority projected revenue from the surcharge of $800,000 a year, which was to be used to pay down $20 million in Hippodrome construction debt, including interest. The Hippodrome has met that target just once, in fiscal year 2005-2006. For the other six years, the taxpayer-funded state agency has made up annual shortfalls totaling $1.9 million.

A plan of action

Noting that the state is solely responsible for paying the construction debt regardless of how the Hippodrome performs, Frenz concluded that something had to be done. Talks began in the spring about possible solutions.

He and Daniel worked out a plan in which the Stadium Authority agreed to pay $250,000 a year toward the utility charges. The nonprofit Hippodrome Foundation would make a one-time contribution of $500,000 to pay a portion of the debt, which would help lower the monthly utility payment. Add to that energy-saving measures, and Broadway Across America's heating and cooling bill would be reduced to a more manageable $600,000 a year.

The Stadium Authority would come up with the money by taking advantage of interest rates at historic lows. Refinancing and extending the bonds for five years would reduce the authority's debt payments by $330,000 a year.

In exchange, Broadway Across America would guarantee an annual ticket surcharge of at least $440,000. During boom times, every ticket sold in excess of 350,000 would generate an added 25 cents for the Stadium Authority.

"We believe that if we can shepherd the theater through this rough patch, the state of Maryland will be better off," Frenz said. "If the theater were to close, Baltimore would lose an important cultural resource and west-side development will be further hampered."

Kaliope Parthemos, deputy mayor for economic development and the city's representative on the Stadium Authority's board of directors, believes the board made the right decision in approving the refinancing plan.

"Next year, Everyman Theatre is going to move across the street from the Hippodrome," she said. "We think the neighborhood is going to be very successful as an entertainment destination. We told the theater operator that we will do what we can to increase police presence and make the area feel safer and more attractive for people. We've demonstrated that we're committed to helping the Hippodrome be a success."

If the Board of Public Works gives the go-ahead to the restructuring plan, Daniel said, Baltimore taxpayers and audiences should see results within the year.

"This plan isn't a silver bullet," he said. "But it would be a wildly helpful leg up that will have a major impact on our ability to perform in Baltimore, the region and the nation."

Hippodrome crowds

Attendance figures by fiscal year*:

2004-2005 – 318,086

2005-2006 – 402,566

2006-2007 – 272,632

2007-2008 – 246,804

2008-2009 – 195,617

2009-2010 – 176,539

2010-2011 – 184,000

Source: Maryland Stadium Authority

*The Hippodrome reopened in February 2004. Because it wasn't a full season, attendance for that fiscal year in not listed.