More On New Jersey

Following yesterday’s article, there are two dynamic aspects worth consideration resulting from the NJSO’s decision to draw a third of their endowment and sell off some of their instrument collection they purchased from Herbert Axelrod…

What About The Staff?
One aspect I haven’t noticed being discussed publicly is whether or not the NJSO will be able to keep their key staffers around. From an administrative perspective, this should be cause for considerable concern. When I refer to key staffers, I’m not talking about senior managers, rather, these are the employees that actually implement day to day operations.

These workers usually shoulder the brunt of the “underpaid and overworked” among the world of nonprofit employment. Nevertheless, these people are directly responsible for allowing their respective organizations to stay within their operational budget and keep necessary growth from spiraling out of control.

Furthermore, first-rate key staffers offer necessary input when budgets are formed because they know how their respective operating environments function. They minimize costs by efficient planning, they know which third party business are best to work with, and they keep production costs down through cost-effective scheduling and precise operational planning.

If key staffers decide that the organization is too unstable, they may decide to become proactive about stabilizing their income: i.e. they’ll go find another job. This would only add fuel to the fire within the NSJO as the organization would begin to hemorrhage cash at an exponential rate as replacement staffers undergo an expected, and typically costly, learning curve.

Damaged Goods?
Another dynamic component of the plan which might derail the intended results is how rare string instruments are bought and sold. It’s not difficult to see how the orchestra put together the deal to buy the instruments from themselves in order to sell them to potential investors, on the surface it isn’t a bad idea if you aren’t aware of instrument broker’s business.

After all, traditionally, the high end string instrument market has been dominated by investors for decades. More often than not, you’ll find soloists, chamber musicians, and first chair orchestral string players among the bigger budget ensembles performing on instruments they don’t own.

Instead, investors purchase these instruments at ever increasing prices and allow these performers and/or orchestras to use the instruments in order to help increase their value. At best, this type of value is merely perceived as an instrument doesn’t really change in value in any tangible fashion when moving from the hands of one professional musician to another (barring any accidents, of course).

All things being equal, it looks like the NJSO is hoping to make some quick cash on the $3.1 million from their endowment over and above what it would earn sitting in the endowment. Using that money to buy three instruments from their collection with the hope that investors will buy them for more than they would have earned through investment income appears to be at the heart of the plan. All things being equal, that probably isn’t a bad idea. Unfortunately, there isn’t very much that’s equal about the instruments in the NJSO’s collection.

First, the NJSO instruments are swarmed by controversy from a variety of directions. Issues of authenticity and misrepresentations through a willful decision against having the instruments appraised shroud the collection in doubt. Even the NJSO’s own internal review into the collection concludes that the controversy and financial restraints prevent them from conducting any appraisals capable of yielding reliable results with regard to the value for any of the instruments

“…add to that a knowledge of the accusations and contentions among appraisers of old instruments and it becomes unlikely that any truly objective and absolute statement of authenticity and precise value can ever be reached.”

Nevertheless, the NJSO will have to place an exact value on the instruments they hope to sell if they expect to find buyers. Additionally, any potential buyer that follows the typical path of buying this sort of instrument will want to conduct an appraisal before handing over a seven figure check. These appraisals come from the same small cadre of individuals that buy and sell rare string instruments as well as conduct authentication and appraisal services the NJSO’s report determined were unlikely to determine and objective statement of value.

In spite of that, these are the same individuals that investors turn to when looking for instruments to purchase. As, such, it becomes clear that the ability of the NJSO to find the type of buyer they would prefer becomes a challenging prospect.

In 2003, the NJSO’s inexperience in dealing with the field of high end string instrument brokers led them to an undesirable conclusion when they first purchased the collection from Herbert Axelrod and his broker, Dietmar Machold. However, it appears that they may be willing to let that same naïveté lead them down the primrose path once again.

Perhaps it would be constructive at this point for the NJSO to observe the old proverb “Fool me once, shame on you. Fool me twice, shame on me.” Hopefully, they aren’t taking G.W. Bush’s version to heart: “Fool me once, shame on you. Fool me — you can’t get fooled again.”

Another consideration is whether or not the NJSO has any buyers lined up. Typically, orchestras announce a major financial undertaking once they have approximately 1/2 – 2/3 of funding secured. However, during a radio interview on the 07/17/06 edition of Soundcheck, with John Schaefer, New Jersey Star-Ledger music critic Willa Conrad said she was told by NJSO representatives that “they are not actively seeking donors” for that purpose; however, my call to the NJSO verifying that has not yet been returned.

If this is accurate then the NJSO may end up with a $3.1 million hole in their endowment for an indeterminate period of time while they wait for some buyers to come their way. How long the organization can sustain the ensuing loss in investment income before donors/buyers are identified is unknown.

Postscript: Did anyone else listening to yesterday’s Soundcheck segment notice the bumper music? It was the fourth movement from Berlioz’s Symphonie Fantastique, entitled “March to the Scaffold”. Either it was pure coincidence or someone at WNYC has a wickedly dry and subtle sense of humor. Also, regular Adaptistration readers might have noticed that the show’s host, John Schaefer, quoted the “Hail Mary” line from yesterday’s article at the opening of the segment.