Hard Times Made Paper Mill Stronger

There were hoots, hollers and lots of laughs on opening night for "The Full Monty," the biggest response coming when theater legend Elaine Stritch was on stage.

It's been an eventful few weeks at the Paper Mill Playhouse. It opened "The Full Monty" as its final show of the 2008-09 season to positive reviews, asked people what they would do for cash and honored its Theatre School's 20th anniversary.

And it's only been two years since people questioned if the Paper Mill would be able to keep its doors open.

A year ago, township officials signed the deal to purchase the theater's property. It's a deal theater officials hail as the biggest commitment any community has made to the arts in New Jersey. It's also a deal that theater officials say helped stabilize its financial situation.

It's also a deal township officials say was important to keeping downtown strong, especially with the current economic state.

"It's an economic engine of our town," said Daniel Baer, a Township Committee member who served on the negotiating team for the sale. "We would lose a major piece of our economic position (without the Paper Mill). It's vital to downtown. Without them, and on top of the poor economy, it would have a detrimental effect."

Township administrator Tim Gordon, who serves as a Paper Mill trustee, said it was fortunate they purchased the theater when they did.

"No one anticipated the current economic conditions," he said. "The first year (of the deal) has had no real downside."

It was a 'perfect storm'

The foundations of the Paper Mill's financial crisis came long before the 2007 rallies and campaigns, said Shayne Miller, playhouse spokesman.

In the 1980s, the theater had 40,000 subscriptions and didn't need to fund-raise. "State grants were a gift," Miller said.

Things changed in the 1990s, however, and subscriptions became a thing of the past. People who did subscribe also were aging. The theater's income started to decline, and its officials didn't realize the importance of fundraising, Miller said.

Typically, funding for a theater the size of the Playhouse is split 50-50 between fundraising and earned income, Miller said. Traditionally, the Paper Mill Playhouse, however, fund-raised only 15 percent of its income, he said.

"We've always been a non-profit, but we weren't operating like one," he said.

Then management changed with a new focus and the Midtown Direct was introduced into Millburn-Short Hills, giving residents easier access to Manhattan.

"It meant new competition from Broadway," Miller said. "It became a perfect storm."

New director Michael Gennaro brought a vision that meant staging "gem musicals." They are the type of musicals that are not brought out all that often but can be favorites, Miller said. The shows, however, did not go over well with the Paper Mill's audience, he said.

The theater also sold off its scene shop and was running giant deficits, Miller said.

The financial crisis came to a head in 2007 when the Board of Trustees passed a budget that included a deficit of about $2.5 million with the intention of running a capital campaign to make up the difference. It was also the time when Gennaro left his position.

By March, the playhouse had cash flow issues. They were running week-to-week, seeing if they had enough money to keep going.

When it came time to stage "Seven Brides for Seven Brothers," Paper Mill officials didn't know if they could pay the production's performers, crew, orchestra and others, Miller said. There was a lot of money invested in the production, including partnerships with other theaters, he said.

"We were discussing shutting down temporarily," Miller said. "You lose a lot of momentum once you close the doors."

The Playhouse went into crisis mode, going to the local press, and the story went international. Miller said while it may seem ordinary now, at that time theaters, especially of Paper Mill's size and stature, were not closing their doors.

They started a two-month campaign to raise the money, and held a rally on April 9, 2007. They raised over $2 million, and Investors Savings Bank granted a $3.5 million bridge loan.

"It gave us a new sense of fiscal discipline," Miller said.

Previously, theater officials had used the subscription money for the next season to pay for the current season, Miller said, and they no longer use that practice. The money is held in escrow to pay for each performance, he said.

Mark Jones became executive director, forming a new senior staff. The playhouse was in a position to turn things around, but it doesn't happen overnight, Miller said.

The township's commitment to Paper Mill

Miller said theater officials needed to create a fresh start because they knew they couldn't enter yet another financial crisis.

Paper Mill officials know they are a vital part of Millburn-Short Hills, especially the economy, bringing 350,000 people per year to the community, he said. Those people shop and dine downtown, he said.

Paper Mill officials approached town officials to purchase the property, while allowing the theater to lease it. Baer and Thomas McDermott formed a negotiating committee for the Township Committee.

Baer said the theater is an important part of the downtown economy. A successful downtown adds to the tax base, he said, which brings down taxes for residents.

Gordon said if the Paper Mill failed and the theater was dark, it would have a direct impact on business downtown, particularly the restaurants.

During negotiations, one merchant, a restaurant owner, told town officials that when there was a show on the stage he saw a $5,000 increase in revenue per week, he said.

"Imagine that effect on the entire downtown. It fuels our economy," he said.

The downtown area is not as large of a tax base as other commercial areas in town, but in slow economic times they all are vitally important, Gordon said.

The downtown also adds a vitality to the town, he said. Very few small municipalities have an actual downtown like Millburn-Short Hills, he said.

"It gives the town a whole feeling," he said. "It's one of the elements people look at when they look at a place to live."

Mayor Sandra Haimoff said, in addition to the economic reasons, the Paper Mill Playhouse puts Millburn on the map. It's also the only major cultural outlet for the community, she said.

The township bought the property for $9 million, which Miller said was below the property's value. In exchange, the Paper Mill was granted a lease of up to 75 years.

The projected interest rate on the short-term loans, which town officials renewed, was 4 percent, but they paid less than that, Gordon said. They anticipate they'll be able to pay off the purchase in seven years, he said.

Baer said it's not often that a township can purchase a piece of property like the Paper Mill Playhouse.

"They continue to bring people into town," he said. "It gives the town a branding and marketing opportunity. It was a smart investment that will pay dividends and has done so already."

The base lease is for 35 years with the option to extend the lease four times for 10 years each time.

The lease is for $1 in each of the first two years with a rate that increases each year following. Most of the remaining years have a lease of 1 percent of the preceding year's annual operating income, and it includes a minimum payment. The greatest basic payment is in 2037-38 for $337,000.

There is a review and changes to the lease agreement on the Township Committee's agenda for Tuesday. The committee meets at 8 p.m. in Town Hall.

Gordon said there are times he says he doesn't want the township to be in the business of being a landlord, but he views the Paper Mill purchase as a real estate investment.

"If we bought an office building and rented it, it would be a problem," he said. "It's a unique property with a unique purpose. We could find another cultural organization if the Paper Mill failed."

Township officials, however, do not anticipate the Paper Mill Playhouse failing.

Additionally, theater officials run the building and do their own maintenance, Gordon said.

Miller said the town has made a commitment to the arts that no other community has made in the state, taking a huge risk.

"They went above and beyond what a town has done for the arts," he said. "We don't need to own this property. We just need a place to do our work."

Baer said the township made a strong commitment to the arts, and now the Paper Mill Playhouse needs to make that commitment back.

The hard times put Paper Mill in a better position

Gordon, a 23-year Paper Mill subscriber, serves on the Board of Trustees as a way for township officials to monitor their investment.

Gordon said he observes, but he also contributes a little. He serves on the Finance Committee, and he said he makes sure there are prudent financial decisions being made to protect the town's investment.

The theater's trustees say how appreciative they are of what the town did with the purchase and won't let them down, Gordon said. He believes them.

"I've been impressed with the commitment from the Board of Trustees, especially on the executive committee in their commitment to make (the Paper Mill) a viable financial organization," he said.

"It's a theater community that everyone is trying to make it work. It's not just a job. It's a career they truly enjoy."

Everyone is thinking how to do things differently financially, he said.

"They are in a better position than most other theaters in the area because they already went through the hard times," Gordon said.

Baer said the playhouse has made tremendous leaps from where it was and is run far more efficiently.

Theater officials are more selective with the shows they produce and smarter with the length of their season, he said. Even with the downturn in the economy, they had a great year, he said.

"They've turned the corner and next year is the tell-tale year for them," Baer said.

Miller said the theater doesn't make its goal on every show, but some shows make up the difference. The performance of "1776" earlier this year exceeded the theater's goals, Miller said, which made up for the below-goal returns for "Master Class."

While the numbers aren't what they were in the 1980s, Miller said Paper Mill still has a very high number of subscribers compared to other theaters.

Additionally, the level of contributed income has increased, he said, which is "amazing" with the current economic conditions. The percent of revenue from fund-raising is at 23-25 percent, which is higher than the traditional 15 percent, Miller said.

"It's taken longer to build, but we've gotten better at it," he said.

And the relationship with the town goes beyond the one with its government. The relationship with the business community has strengthened, said Miller, who is Millburn-Short Hills Chamber of Commerce vice president. He also oversees the Millburn-Short Hills Business Alliance.

The theater is constantly looking to build new packages with the local businesses, he said, including dinner deals.

And the relationship with Millburn-Short Hills residents has also strengthened. Miller said they are looking to reclaim the theater, and it shows in ticket sales. Over 34 percent of ticket sales come from people who live in Millburn-Short Hills, he said.

Sustaining for the future

Now the theater's officials look to the future while township officials root for them to succeed.

Paper Mill officials want to keep the audience engaged while staying financially feasible, Miller said. It's why they cut back on the number of shows for the 2009-10 season, going from six main stage performances to five. That meant they didn't have to raise ticket prices while even cutting prices for subscriptions, he said.

They'll look to do more than the main stage performances, especially during the dark weeks, but they'll also be marketing and publicizing the theater to attract a new audience, Miller said.

The goal is to become a place for premium performances and educational musical theater for the United States, Miller said.