Pay, Roll

Last week I wrote that one fundamental problem with the current for-profit improv theater/training center model—as represented by UCB, iO, and Second City—is that it’s structured to funnel money to landlords first and workers second. This week it occurred that we have a rare opportunity to attach some hard numbers to this thesis.

The Small Business Administration recently published granular information about its Paycheck Protection Program loans, which distributed millions of dollars to businesses earlier in the pandemic. The loans were chiefly intended for businesses to keep their employees on payroll; businesses that used them for this purpose (and a few others) would be eligible for loan forgivenesses. Or they could spend the money on whatever they wanted and treat it like a regular low-interest loan.

As you may recall, all three major improv theaters took out PPP loans. UCB and Second City received some heat for this, because they very obviously didn’t rehire the workers they laid off before getting the money. Over at iO, Charna Halpern did keep employees on payroll but ended up closing the theater anyway—and putting it on the market—citing property taxes and other financial struggles. UCB and Second City ended up in more or less the same place: the former just sold one of its remaining two theaters, while the latter is still looking for someone to buy its flagship theater and also the entire company.

Of the three, Second City’s fate should come as the biggest surprise. While I have often argued (and still believe) that things didn’t have to be this way, UCB and iO were undeniably run on (relatively) shoestring budgets, largely because they fucked themselves over in the mid-oughts by spending millions of dollars on property. (UCB went a million in debt on UCB East, never found tenants for most of Sunset’s retail storefronts, and locked itself into a 15-year lease at around $315,000/year in Hell’s Kitchen. Halpern spent $7 million on a new space in 2014, financed by a small business loan, while running her Los Angeles location into the ground.) Second City has long been a highly professionalized cash machine. Former CEO Andrew Alexander told Crain’s in 2016 that the company had an annual revenue of $55 million, almost double its 2012 revenue of $30 million. By contrast, the New Yorker pegged UCB’s training center revenue for that year at $5 million. Some speculative napkin-math would suggest the theatre brings in at least a couple million annually, on the low end (even if it ultimately isn’t enough to cover expenses).

Anyway. The thing with the PPP loans is that they all follow the same calculation: two and a half months of a company’s 2019 payroll. That means we can use each theatre’s loan amount to reverse engineer its payroll for the year before the crisis. Second City’s $3.22 million loan indicates a 2019 payroll of $15.4 million for a reported 490 employees. (I believe this includes all three of the company’s locations, even Toronto; my understanding is that the PPP allowed you to use your total headcount to calculate the loan, though you couldn’t disburse any funds to non-US employees.) UCB’s $1,120,458 loan, across both training centers, indicates a 2019 payroll of $5.37 million for a reported 160 employees. And iO’s $516,700 loan indicates a 2019 payroll of $2.48 million for a reported 140 employees.

Now, there’s only so much we can extrapolate from these numbers in a vacuum. And it’s important to categorically separate Second City from the other two. It’s a dinner theatre that pays performers: that payroll includes comedians, teachers, touring performers, corporate trainers, service staff, and a sizable creative and administrative team. UCB and iO are much smaller operations, largely because they’re based on wage theft. (That’s where the “funneling money to landlords first” part comes in for them.) Their payrolls encompass teachers, touring performers, corporate trainers, a few café employees in LA, and creative/admin/marketing staff.

Still, we can make a couple observations. To my knowledge, Second City did not experience any of the struggles UCB or iO experienced in the years leading up to the crisis. Its total revenue for that year was likely comparable to (or more than) its 2016 levels. So we can observe that Second City, which quashed a union effort in 2017, and whose flagship theater is owned by a notorious Chicago slumlord, spends a fairly small amount of the money it makes on its employees.

Then there’s that disparity between UCB and iO. They have comparable business models and roughly the same number of employees: iO had 140 in 2019 while UCB had 160. But UCB’s payroll was more than double iO’s: $5.37 million to $2.48 million. It makes sense that UCB would have a noticeably higher payroll than iO, given the duplicative senior roles across both coasts—artistic directors, training center directors, etc. But I’m not sure how that would account for a difference of $2.89 million, unless those people were all getting paid tech exec money.

For a bit of context: Groundlings, the LA theater and training center which I don’t write much about because honestly I’m poorly sourced there and haven’t gotten around to fixing that, received a PPP loan of $355,000. That indicates a 2019 payroll of $1.7 million for its reported 100 employees. This is roughly proportionate to iO: 71.4% of the headcount and 68% of the payroll.

While we don’t have enough information to see how UCB and iO’s payrolls fit into their total revenue, we can easily see that it doesn’t make any difference. None of these theaters were prepared for a rainy day. Neither Second City nor UCB lasted a week of lockdown before laying off hundreds of people between them. iO lasted three months—a little over the intended lifespan of a PPP loan—before collapsing entirely.

Sixty million a year, $10 million a year, it doesn’t make any difference if you’re on the hook for rent and mortgage and loan payments and taxes and your only revenue streams are live, in-person experiences. Let this be the death knell of the for-profit comedy theater.