Helping the Show Go On: Shuttered Venue Operators Grants
The COVID-19 relief package enacted on December 27, 2020, the Consolidated Appropriations Act, 2021, appropriated $15 billion to fund the Shuttered Venue Operators Grant Program (SVP). The Small Business Administration (SBA) will disburse these funds as grants to qualifying live theatre operators or promoters, theatrical producers, live performing arts organizations, museums, motion picture theatre operators, and talent representatives (Venues). A venue may use the grant proceeds to cover eligible expenses incurred between March 1, 2020, and December 31, 2021. The SBA has not yet begun accepting applications for the SVP, but it has issued several FAQs setting forth more details regarding the program. This memorandum summarizes the SVP’s current guidance, including eligible and ineligible Venues, grant amounts and allowed uses, and application requirements.
Eligible Individuals and Entities
Live theatre operators or promoters, theatrical producers, or live performing arts organization operators
A “live theatre operator or promoter, theatrical producer or live performing arts organization operator” is defined as an individual or entity that either:
(1) Is engaged, as its primary business activity, in organizing, promoting, producing, managing, or hosting live concerts, comedy shows, theatrical productions, or other events by performing artists for which a cover charge through tickets or a front door entrance fee is applied; pays the performers an amount based on a percentage of such sales, a guarantee, or other mutually beneficial formal agreement; and generates more than 70% of its earned revenue through cover charges, ticket sales, production fees or reimbursements, nonprofit educational initiatives, or food, drinks, or merchandise sales; or
(2) As its primary business activity, sells tickets at least 60 days prior to live events or performances.
Additionally, the physical venues at which live performances are conducted must have the following characteristics: (1) defined performance and audience spaces; (2) mixing equipment, a public address system, and lighting rigs; (3) employ or otherwise engage persons as sound engineers, bookers, promoters, stage managers, security, and box office managers; (4) require paid tickets or cover charges to attend performances, and pay performers fairly; and (5) promote performances through either printed or electronic means such as mass mailings, websites, or social media. Finally, if a nonprofit venue produces free events, these events must be produced and managed by paid employees of the venue rather than volunteers.
The FAQs issued by the SBA discuss the potential eligibility for several different kinds of venues, including wedding reception halls and sports stadiums. The SBA notes that these types of places likely would not be eligible for a grant because they lack several required features, such as defined audience and performance spaces, lighting rigs, and the employment of persons such as bookers, sound engineers, etc.
Motion Picture Theatres
A “motion picture theatre operator” is defined in the act as an individual or entity that owns or operates one or more places of public accommodation for the purpose of screening motion pictures for a fee. Additionally, the motion picture theatre itself must (1) contain a motion picture screen and fixed audience seating; (2) have one or more projection booths; (3) require a paid ticket for entrance; and (4) market showings through printed or electronic means such as mass mailings, websites, or social media.
To be eligible for a grant, a museum must: (1) operate as a museum as its primary business activity; (2) have indoor exhibition spaces that have been subject to pandemic-related occupancy restrictions; and (3) have at least one auditorium, theatre, or performance or lecture hall with fixed audience seating and regular programming.
A “talent representative” is an individual or entity that focuses at least 70% of its operations on representing artists and entertainers, books, musicians, comedians, actors or similar performing artists primarily at live events in venues or at festivals, with those artists being paid an amount based on ticket sales or a similar basis.
Talent representatives, motion picture theatre operators, live theatre operators, promoters, producers, and live performing arts organization operators may be corporations, limited liability companies, partnerships, or sole proprietorships organized on either a for-profit or nonprofit basis. A museum must be a nonprofit organization to qualify for an SVP grant. Government-owned Venues are also eligible for grants.
Other Eligibility Requirements
To qualify for a grant, a Venue must have been fully operational on February 29, 2020, and experienced at least a 25% reduction in gross earned revenue during the fourth quarter of 2020 as compared to the same quarter in 2019. Additionally, a Venue, no later than the date that it receives a grant, must be open or intend to reopen and resume operations (or representing artists and entertainers in the case of talent representatives).
In several FAQs, the SBA has clarified that the terms “earned revenue” and “gross earned revenue” should be understood according to the accrual method of accounting. In other words, only revenue generated from the sale of goods or services—not funds such as donations, sponsorships, or investment returns—should be included in the calculation.
Venues that received a Paycheck Protection Program (PPP) loan on or after December 27, 2020, are not eligible to receive a grant. Additionally, the SBA FAQs clarify that a Venue eligible to apply for a grant may not do so and simultaneously apply for a first or second draw PPP loan.
A Venue with one or more of the following characteristics is not eligible for a grant: (1) is majority-owned or controlled by a publicly traded entity; (2) received more than 10% of its gross revenue in 2019 from federal funds; and (3) is majority-owned or controlled by an entity with at least two of the following characteristics: (a) owns or operates venues in more than one country; (b) owns or operates venues in more than 10 states; or (c) employs more than 500 employees on a full-time equivalent basis as of February 29, 2020.
Finally, Venues providing performances, or that derive more than de minimis revenue from performances, of a “prurient sexual nature” are not eligible for grants.
Use of Funds
A Venue may only pay the following costs with grant funds: (1) payroll costs; (2) principal or interest payments on covered mortgage obligations; (3) covered rent payments; (4) covered utility payments; (5) principal or interest payments on indebtedness or debt instruments incurred in the ordinary course of business prior to February 5, 2020; (6) covered expenses associated with protecting workers from exposure to the novel coronavirus; (7) payments to independent contractors up to $100,000 in annual compensation; and (8) other ordinary and necessary business expenses, including maintenance and administrative costs or fees, state and local taxes, payments under insurance policies, or expenses in promoting or producing live theatrical performances. Expenses must be incurred between March 1, 2020, and December 31, 2021.
The terms “payroll costs,” “covered mortgage obligation,” “covered rent obligation,” “covered utility payment,” and “covered worker protection expenditure” have the meanings assigned to the same terms under the PPP set forth in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
A grant may not be used for: (1) real estate purchases; (2) principal or interest payments on loans made after February 15, 2020; (3) relending or otherwise investing the funds; (4) political contributions to candidates or political action committees; or (5) other ineligible purposes as determined by the SBA.
A Venue in operation as of January 1, 2019, may receive a grant equal to the lesser of (1) 45% of the Venue’s gross earned revenue in 2019 or (2) $10 million. Venues that commenced operations after January 1, 2019, may receive a grant equal to the lesser of (1) the average amount of its gross monthly income during each full month of operation in 2019 multiplied by six or (2) $10 million.
An eligible entity, together with any affiliates that are also eligible, may receive no more than five grants under the SVP.
The SBA is authorized to make supplemental grants once it has processed grant applications for a minimum of 60 days. To qualify for a supplemental grant, a Venue must (1) have incurred at least a 70% reduction in revenue between April and December 2020 and (2) have revenue less than 30% as of April 1, 2021, compared to the corresponding calendar quarter in 2019. The amount of a supplemental grant may equal up to 50% of the Venue’s initial grant.
Application and Award
The SBA will prioritize certain applications in awarding grants. “First Priority” grants, made during the first 14 days of the SVP, will go to Venues that incurred a revenue loss of 90% or more between April and December 2020. From the 15th day through the 28th day of the commencement of the SVP, “Second Priority” Venues, those with 70% or greater loss of revenue between April and December 2020, will receive grants. Thereafter, grants will be made to all other eligible Venues.
The SBA has stated that for the first 59 days of SVP grant awards, at least $2 billion of the program funds will be reserved for grants to Venues with fewer than 50 employees.
Certification of Need
A Venue will be required to make a good faith certification of need as part of its application for a grant that “the uncertainty of current economic conditions makes necessary the grant to support [its] ongoing operations.” This is the same good faith certification of need required for a PPP loan. A Venue intending to apply for a grant should therefore carefully document both the process used in determining whether to apply and the basis for the decision to do so. Preparing and maintaining such a written record will assist a Venue should it later face an SBA audit.
The SBA recommends that a Venue intending to apply for a grant should take several steps in preparation. First, applicants should obtain a DUNS number and register for the federal government’s System for Award Management, through which applications will be submitted. Applicants should also begin to gather documents to show the number of qualifying employees and monthly revenues over the past 12 months and calculate its decline in gross earned revenue in 2020 as compared to 2019.
In order to avoid criticism similar to that of the CARES Act implementation, the SBA must develop and submit a written plan to Congress detailing the policies and procedures it will use to audit grant recipients. The plan will include metrics to determine which grants will be subject to audit. Additionally, the SBA has been empowered and directed by Congress to exercise oversight of grant recipients to ensure compliance with the SVP’s intended purposes. Congress has also required Venues receiving grants to retain employment records for at least four years and all other records for three years, from the date it receives its grant. As of the date of this memorandum, it is not clear yet whether the requirements the SBA has instituted for the PPP loan certification and audit metrics will be mirrored for the SVP.