Save Our Stages Act Provides Much Needed Funding for Performing Arts Producers, Operators, and Promoters

In this article, we will address the highlights of the different areas included in the stimulus bill. For a detailed dive into each of these areas, be sure to follow our Stimulus Package Headquarters, where we will discuss the procedures and regulations that are sure to make business owner’s New Year just a little more complicated. Without further ado, here is what is included…

Eligibility Under the Save Our Stages Act

The Act provides grants to an eligible person or entity which is a live venue operator or promoter, theatrical producer, or live performing arts organization operator, a relevant museum operator, a motion picture theatre operator, or a talent representative that meets certain requirements (hereinafter referred to as “eligible recipient”).

The eligible recipient must have been operating on February 29, 2020 and have suffered at least a 25 percent decline in earned revenue during a calendar quarter in 2020 as compared to the same calendar quarter in 2019. In addition, at the time of applying for the grant, the eligible recipient must plan to resume its business when it is able to do so. The Act provides certain requirements that venues themselves must meet for eligibility.

Entities which are publicly traded or controlled by a publicly traded entity are not permitted to apply, nor are entities receiving more than 10 percent of gross revenue from federal funding during 2019, excluding assistance under the Disaster Relief and Emergency Assistance Act.

Also precluded are entities that meet, or those owned or controlled by entities that meet, more than two of the following characteristics: (a) own or operate venues in more than one country, (b) own or operate venues in more than ten states, (c) employ more than 500 full-time equivalent employees as of February 29, 2020.

An eligible recipient may not receive a loan under the Paycheck Protection Program (PPP) on or after the enactment of the Act.
Multiple business entities of a qualifying person or entity are permitted to receive grants, but this is limited to five entities that would be considered affiliates under SBA rules.

Live venue operator or promoter, theatrical producer, or live performing arts organization operator is defined as:

(1) an individual or entity that:

(A) as a principal business activity, organizes, promotes, produces, manages, or hosts live concerts, comedy shows, theatrical productions, or other events by performing artists for which

(i) A cover charge through ticketing or front door entrance fee is applied and

(ii) Performers are paid in an amount that is based on a percentage of sales, a guarantee, or another mutually beneficial formal agreement, and

(B) for which at least 70 percent of the earned revenue generated by the eligible recipient is generated through cover charges or ticket sales, production fees or production reimbursements, nonprofit educational initiatives, or the sale of event beverages, food, or merchandise, or

(2) an individual or entity that

(A) As a principal business activity, makes tickets available to the public for purchase at least 60 days before the date of events described in section 1A above, and
(B) For which performers are paid in an amount that is based on a percentage of sales, a guarantee, or another mutually beneficial formal agreement.

The Act confirms that eligible recipients can be individuals or entities meeting the above requirements that operate for profit, nonprofit organizations, government owned organizations, or a corporation, limited liability company, partnership, or sole proprietorship.

Amount of Grant

For eligible recipients that were in operation on January 1, 2019, initial grants under the Act will be the lesser of 45 percent of gross earned revenue of the eligible recipient during 2019, or $10 million.

For eligible recipients that began operations after January 1, 2019, initial grants will be the lesser of average monthly gross earned revenue for each full month during which the eligible recipient was in operation during 2019 multiplied by 6, or $10 million.

There is the potential for eligible recipients meeting certain criteria to qualify for a second (supplemental) grant, which would be calculated as 50 percent of the initial grant, but the overall maximum permitted to be received is $10 million. Therefore, an entity receiving an initial grant of $10 million would in no instance be eligible for a supplemental grant. An eligible recipient can qualify for a supplemental grant if, as of April 1, 2021, the revenues of the recipient for the most recent calendar quarter are not more than 30% of the revenues of the eligible recipient for the corresponding calendar quarter during 2019 due to the COVID-19 pandemic.

Allowable Uses of Funds

Timing

Grants received under the Act must be used to pay qualifying costs incurred during the 22-month period from March 1, 2020 through December 31, 2021. If an eligible recipient qualifies for and receives a supplemental grant under the Act as described above, the period of use for the combined grant funding received is extended to June 30, 2022.

Any grant funds that remain unexpended one year after the date the grant funding was received (18 months for supplemental grants) must be returned to the Small Business Administration.

Expenditures

Allowable expenditures under the Act begin with several items defined in the Paycheck Protection Program (PPP) (SBA 15 U.S.C. 636(a)(36)(A)) and then adds significant additional eligible expenses. Expenditures based on the PPP program are as follows:

• Payroll costs
• Covered rent obligation
• Covered utility payment
• Covered mortgage obligation (interest or principal, excluding prepayments)
• Covered worker protection expenditure

Additional allowable expenditures for grants made under the Act are as follows:

• Scheduled payments of interest or principal on any indebtedness that is a liability of the eligible recipient and was incurred prior to February 15, 2020
• Payments made to independent contractors, as reported on Form 1099, limited to $100,000 in annual compensation for any individual employee of an independent contractor
• Other ordinary and necessary business expenses, including:
  • Maintenance expenses
  • Administrative costs, including fees and licensing costs
  • State and local taxes and fees
  • Operating leases in effect as of February 15, 2020
  • Payments required for insurance on any insurance policy, and
  • Advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production, concert, exhibition, or comedy show, except that the grant may not be used primarily for such expenditures

Prohibited Expenditures

• Purchase of real estate
• Payments for interest or principal on loans originated after February 15, 2020
• To invest or re-lend funds
• For contributions or expenditures to, or on behalf of, any political party, party committee, or candidate for elective office, or
• For any other use as may be prohibited by the SBA

Certification of Need

Eligible recipients applying for a grant will be required to submit a good faith certification that the uncertainty of current economic conditions makes the grant necessary to support the ongoing operations of the eligible recipient.

Grant Priorities

Priority 1 – 90% decline in revenue: During the initial 14-day period that grants are awarded under the Act, they must go to recipients whose revenues for the period from April 1, 2020 – December 31, 2020 are not more than 10 percent of the revenues for the recipient for the period from April 2, 2019 – December 31, 2019, due to the COVID-19 pandemic.

Priority 2 – 70% decline in revenue: During the second 14-day period that grants are awarded under the Act, they must go to recipients whose revenues for the 2020 periods stated directly above are not more than 30 percent of the revenues for the recipient for the 2019 periods stated directly above, due to the COVID-19 pandemic.

In order to determine “revenue” for the priorities listed above, amounts received under the CARES Act will not be counted, an accrual method will be used, and adjustments will be made for seasonal businesses.

The SBA may not utilize more than 80% of the $15 billion appropriated funds on priority grants. Once the 28-day period ends, any eligible recipient may be awarded a loan. Additionally, at least $2B of the allocated funds are intended to be awarded to small businesses employing 50 or fewer full-time employees. This requirement is removed after the first 60 days of grant disbursements.

The Act contains various document retention requirements for grant applicants, generally 4 years for payroll records and three years for other records. Further, the Act provides that the SBA may review or audit grants under the Act and may handle fraud or material noncompliance with the Act accordingly.

Save Our Stage Act Summary

Grants under the Save Our Stages Act will provide critical funding to the performing arts which will assist many productions with the difficult process of remounting shows that will have been closed for more than a year. Broadway Theaters were among the first businesses to close due to the pandemic and will almost certainly be the last to reopen. This industry provides tremendous economic, educational, and cultural value and this funding will help to get it back up on its feet.

No bill is perfect, and one area where this Act fell short is in the case of theatrical productions that launched in 2020 immediately before the pandemic or were set to open around that time. These productions raised and spent millions of dollars leading up to their planned opening night, and many of these costs including rehearsals and advertising will need to be expended again to prepare the show for opening. Since the grants are based on 2019 earned revenues only, these shows would not receive this crucial funding.

The bill itself raises many additional questions and requires thorough interpretation for the various fact patterns we are identifying that will impact theatrical productions and theatrical producers. The industry is hopeful that when the SBA writes the regulations to support the bill, we will have input into the interpretations and rules that will apply.