Emily can't save the (Philadelphia) Orchestra

We did a kiddie concert with the Platypus Theatre today. The show, Emily saves the Orchestra, had a very timely feel to it, being a show about a monster by the name of Boardus Dismemberus Cacophonus who hates music and wants to put an end to the orchestra. I wasn’t the only person on stage making the connection between Cacophonus and the folks running the show in Philly.

The situation in Philadelphia has been written about by a lot of people, and the announcement of the bankruptcy filing only happened two days ago. Peter Dobrin’s article for the Philadelphia Inquirer had some of the most interesting information:

“Let’s face it. There are very few things left in Philadelphia that are still world-class. The Philadelphia Orchestra tops the list,” Stuart E. Hirsch wrote in a note to Worley and CEO Allison B. Vulgamore. “In my opinion, the orchestra members, past and present, did their job. . . . We need a board that can do the same. With the resources and endowment, there should be no excuse for bankruptcy. We need creative ideas to preserve this treasure.”

Orchestra leaders say that is just what they have done, though several bankruptcy and charity lawyers said they were puzzled by an organization that enters Bankruptcy Court with assets – $140 million in endowment – that are more than triple its liabilities.

But if the players’ union, the American Federation of Musicians, opposes the bankruptcy, it could succeed in blocking it.

“They may have a decent argument that the filing is not in good faith if the orchestra does not seem to be in bankruptcy,” wrote David Skeel, a University of Pennsylvania Law School professor, in an e-mail. “There’s no requirement that a debtor be insolvent, but if the debtor clearly is solvent, the court might be persuaded that the case should be dismissed as not having been filed in good faith.”

It is management’s position that the $140 million in orchestra and Academy of Music endowment is donor-restricted, therefore untouchable. Others were not so sure.

“I don’t know that I’ve ever had a case in which a group with these kinds of assets has come in with anything like these kinds of resources and claimed poverty and gotten away with it,” said one of the musicians’ attorneys, who asked not to be named.

But a Bankruptcy Court has wide latitude in coming up with a plan to emerge from reorganization, said Marie T. Reilly, associate dean for academic affairs and law professor at Pennsylvania State University.

“The beauty of Chapter 11, what makes it so interesting, is that the lawyers and all of the parties custom-make a solution,” she said. “It’s like commissioning a piece of music. You make a symphony that is appropriate for this group of people.”

No one but a lawyer could put the words “beauty” and “Chapter 11” in the same sentence. But doesn’t the same logic apply to the process of collective bargaining? Unless, of course, “all the parties” isn’t intended to include the musicians.

One of the big drivers of the bankruptcy filing seems to be management’s desire to withdraw from the AFM-EP Fund:

Management has weighed bankruptcy for more than a year after deciding it no longer wanted to participate in the musicians’ current defined-benefit pension fund. No one was forcing a sudden withdrawal from the plan, which would trigger a payment of about $25 million, but it is an obligation of about $3 million annually which leadership believes it can shed in bankruptcy proceedings, along with other contractual obligations it claims will save it more than $40 million over five years.

But any pension plan for the musicians is going to cost a fair amount of money, even if management is successful in getting a bankruptcy judge to lower musicians’ salaries. And the AFM-EP Fund’s lawyers are going to fight a Chapter 11 withdrawal from the Fund like junkyard dogs. It’s certainly possible that, given the current Fund multipliers, there’s more bang for the pension fund buck to be found elsewhere at the moment – but that hardly seems sufficient reason to go this route.

There are a lot of unanswered questions about this move. If the management is successful at convincing a bankruptcy judge that they really are broke, and then equally successful in raising both the bridge funding and the increased endowment, this may be seen in time as something that was worth doing. But that’s a lot of ifs. What we know now is that the management and board of the Philadelphia Orchestra are doing a lot of damage both to their own brand and to the image of the industry as a whole.