By Bridget Levitz, Truth Staff
ELKHART -- Hearing about plans for the Elco Theatre, Indiana University Professor Michael Rushton asked three questions -- does the city own the theater, is there a home theater company or does it book outside shows, and is this a city-driven initiative to revitalize downtown?
Obviously Rushton has experience with theater renovation projects of this kind.
He teaches at IU Bloomington's School of Public and Environmental Affairs and is part of IU's Arts Administration program. His current projects include an analysis of the relationship between artists and urban economic growth, and the use of economic analysis in arts advocacy.
"The first thing I would say when looking at renovating a theater in a place like Elkhart is that the main benefit is going to be to the local community," Rushton said. "Even if there is a push saying it will bring tourists, that's often oversold. The big benefit is to improve quality of life of the residents."
True economic impact, he said, is not the money spent by people going to the theater. It's in creating an active community. But for theater renovations to succeed, support must span across the community, he said.
"If the private sector thinks it's worth doing, that's a real positive sign," he said.
Over the last year, community and business leaders at the request of Mayor Dave Miller worked to develop an overall plan for the Elco and surrounding city block. What they created, group members say, is an outline that could shape Elkhart's Art and Entertainment District and awaken downtown.
The theater's rebirth comes in a $13.5 million renovation package that would incorporate the adjacent former Sorg jewelry store property at Main and Franklin streets. Theater size would be reduced from 2,000 to about 1,500 seats, and the Sorg property would become 6,000 square feet of space for banquets and events.
The combination of a 20-year, $10.5 million roll-over general obligation bond, $2 million in private donations and $1 million in grants would fund the project with no anticipated increase to taxes.
The plan
The 400 Block group knew the Elco wouldn't become a success through structural changes alone. Developing a business plan for a viable theater was top on the list of priorities. INOVA president Dallas Bergl was in charge.
"Anytime you write a plan for a new venture, you can pretty much make it say what you'd like," Bergl said. "But I made this as realistic and conservative as possible. I live and work around here. Five years from now I don't want to be explaining why this wasn't obtainable."
Bergl studied the Elco's performance, what might be reasonable seating capacity, what type of shows it could book and possible net gain from concession sales that would include a three-way liquor license.
"We asked, 'What is the Elco's realistic ability to fill the house?'" Bergl said.
Using the Elco's current operations and an occupancy rate of 50 percent per event, Bergl estimates that by year four, the Elco's main theater could make a net income of about $360,000 with 72 audience events that year.
With all the estimates -- projections for the theater, flex space and upper lobby to total revenue -- Bergl was modest in his calculations.
"It's better to be conservative. You always want to guess too low and over-perform later," he said. "I expect to never have to explain why we didn't hit the numbers I put together."
Construction would be phased so that the Elco's doors never totally shut. Building the flex space first allows shows to continue during the first two years. The theater would close in the third year for renovations, and the flex space and theater would be open in the fourth year.
Total projected income has the Elco operating in the black the final three years of construction. The business plan budgets $100,000 each year for marketing -- which Bergl says is crucial to its success.
"Most small businesses fail because they don't spend enough on marketing and depend too much on word of mouth," he said. "It's the best advertising -- but the hardest to come by. We need to spend dollars on marketing the Elco."
And the business plan looks to fundraising, including the sale of seats, stars, bricks or box seats to generate $500,000 to $1 million toward operating expenses during construction. But it's the fifth through 10th years -- after construction -- when the Elco really should hit its stride, Bergl said.
Though the group didn't project out that far, if expenses stay relatively stagnant and revenue grows by just 15 percent, profits would be up considerably, he said. Eventually, the City of Elkhart should be able to reduce -- or possibly end -- its annual contribution to the Elco. For 2007, the city budgeted $270,000.
The real gem in the plan, the 400 Block group has said, is the Sorg property. Introducing banquet or convention space into the Elco not only draws the community in, it adds to the number and type of events able to be booked at the venue.
Flex space
The formula is one other theaters have used successfully, with Anderson's Paramount Theatre a shining example. The Truth is taking a closer look at Anderson later in this series. That's something the 400 Block Commission did as well.
It's a similar-sized venue and sits outside of Indianapolis, much the same way Elkhart is near Chicago, Bergl said. It was a good place to start.
Anderson has banquet hall space similar to the proposed flex space on the Sorg property -- and it's been a success.
"One thing I discovered as I did research is very little money is made by theaters at this level," Bergl said. "We evaluated what would happen if the Elco was run the way it has been -- it would always need to be subsidized, it wouldn't become self-sufficient."
It isn't until you add the flex space that it can happen, he said. Multiple events at the same times, and on the same days, make the most out of the venue. Then, Bergl said, the numbers really come into play.
"The real money is in the flex space," he said.
Designed to accommodate 400 people seated at 5-foot-round tables for dinner events and more at buffets, dances, and theater-type seating events -- income projections have the space generating $320,000 a year in its fourth year.
The space would be under construction the first two years of the phased project. Bergl estimated 35 events in year three and 48 events in year four -- less than one event per week.
The flex space, according to the business plan, has the highest potential for stronger-than-projected incomes.
Running the show
If the Elco doesn't hit the numbers projected, said Bergl, it probably has a management problem.
A professional staff is crucial to theater operation, said Jonathan Michaelsen, director of IU Bloomington's Theater Department. Michaelsen also is chair and producer at the Brown County Playhouse.
"Especially if you're bringing in touring shows," he said. "you need someone with the ability to book, understand the market size, and knows what will sell and how to sell it."
Once the Elkhart City Council approves the funding, Bergl said the first thing to do is to hire an executive director.
"We need a high-energy, highly professional executive director," he said. "That person will be the catalyst for everything to come."
Phased hirings over the four-year startup would add eight professional positions -- including bookkeeping, marketing and public relations, a sales manager and a production manager.
Also suggested in the business plan is a theater structure that keeps the Elco city-owned, but run by a nonprofit entity. Having a volunteer board of directors keeps the theater out of the political world as much as possible, Bergl said.
With city-owned theaters, this is a common practice, Rushton said. It's done successfully in Bloomington with the Buskirk-Chumley Theater. Many city-owned art museums are run the same way.
"It's critical that we have a professionally run organization that can manage the Elco day to day. If it is strictly city-run, politics can come into play," Bergl said. "If you're going to put that much money into it, you need to let it grow and succeed."
And to do that, Bergl added, the Elco must be able to build reserves.
The business plan suggests a $1 million to $2 million reserve grown over a 10-year window. The money must be earmarked for theater operation, and be protected from "political forces" stripping away that reserve.
"It has to be allowed to build a reserve or it won't be able to sustain in down times," Bergl said.
Let's move
From a business perspective, Bergl says delaying the project for any reason is a bad move.
The Elco isn't getting any cheaper to run. And every year it isn't renovated is delaying downtown development, he said.
"I went to a Sunday matinee at the Morris. Restaurants were packed, people were out on a Sunday afternoon," Bergl said. "That was the first time I thought to myself, 'This could really be good for business in Elkhart.' I came from thinking (the Elco) could be torn down to thinking it can be financially viable."
It goes back to quality of life, Rushton said.
"Smaller cities are faced with this challenge -- we now live in a world where business and the people who work for them are fairly mobile," he said. "It becomes very important for communities to provide the kind of amenities that make people want to live there. Art is a key part of this, along with quality schools, parks, and safety. But the arts do matter."