Saving Our Stages - With $15 Billion in Government Grants

Many businesses in the live music and entertainment space have been uniquely affected by the pandemic and continue to face dire financial challenges as closure, and social distancing mandates persist. Further, when the economy re-opens, mass gatherings and events of leisure are likely to be the last to return to previously held notions of normalcy. Recognizing this reality, Congress is delivering targeted aid directed at the stage-focused industry.  Among the legislative measures included in the $900 billion COVID-19 relief bill signed by President Trump on December 27, 2020, is a package known as The Save Our Stages Act (“SOSA”). SOSA specifically allocates $15 billion in grants to live venues, independent movie theaters and other cultural institutions, and independent talent organizations. The legislation also includes additional small business loans and unemployment benefits for those businesses that continue to financially struggle due to the pandemic. This article highlights the specifics of the SOSA portion of the aid package.

Who is eligible?

• Live performance venue operators and promoters
• Performing arts organizations
• Theatrical producers
• Talent representatives
• Motion picture theatre operators
• Non-profit museums

In order to be eligible, the business entity must have been “fully operational” on February 29, 2020, and the business must demonstrate a comparative loss equal to at least 25% of gross revenues in 2020 relative to 2019. Each eligible business must also be either currently operating or intending to resume operations in order to receive a grant.

Who is excluded?

• Entities owned or controlled by a publicly traded corporation
• Entities that received more than 10% of gross revenue from federal funding during 2019
• Any entity that (i) owns or operates venues, museums, motion picture theatres, or talent agencies in more than one country; and (ii) owns or operates venues, museums, motion picture theatres, or talent agencies in more than ten states; and (iii) employs more than 500 full-time employees
• Any entity that offers performances, services, or goods of an excessive sexual nature

A business that meets the eligibility criteria is eligible for a grant equal to (i) 45% of the eligible business’ 2019 gross earned revenue, or (ii) a snapshot calculation of revenues for any business that launched operations after January 1, 2019. In the event that any allocated funds remain undistributed following the initial grant period, a second supplemental grant equal to 50% of the initial grant amount may be awarded to entities that continue to experience losses equal to 70% or more into 2021.

The U.S. Small Business Administration (“SBA”) is currently drafting regulations that will govern the administration of the SOSA program. We expect that SBA may begin accepting grant applications as early as January 6, 2021; however, as of the date of this article, SBA has not yet issued any guidance. The law provides that priority will be given to businesses that experienced revenue loss equal to 90% or more in 2020, followed by those experiencing a loss of 70% or more; provided that no more than 80% of the allocated funds will be awarded to such prioritized business. Furthermore, $2 billion is specifically reserved for entities with fewer than 50 full-time employees.

Grant proceeds may only be used for expenses incurred between March 1, 2020 and December 31, 2021. Such allowable expenses include rent and mortgage payments, utilities, payroll costs, debt incurred in the ordinary course of business, personal protective equipment, independent contractor payments up to $100,000, maintenance expenses, sanctioned administrative and operating costs, state and local taxes and fees, insurance, and advertising, travel and capital expenditures for live performances. Grant monies may not be used to purchase real estate, for loan payments on loans originated after February 15, 2020, investment or re-loan of funds, or political contributions.

Finally, each business must certify that the uncertainty of current economic conditions makes necessary the obtaining of a grant to support the entity’s ongoing operations. Note as well that SBA will have the authority to audit and review business activities for up to four years to ensure compliance. Thus, it’s advisable to fully document the required “economic uncertainty” contemporaneously with applying for the grant since such documentation may be needed for loan forgiveness, audits, or investigations at a later date when it might be harder to gather and/or organize this documentation.

Most theatres, clubs, and stages shut down in March 2020 and many were questioning whether their doors would ever open again. The pandemic coupled with governmental orders created a situation in which even the most successful businesses faced financial ruin. Now, in the proverbial “eleventh hour,” SOSA may well prove to be the lifeline that ultimately saves our nation’s many stages.

Matthew V. Wilson is a partner and co-chair of the firm’s Entertainment & Sports industry team.

Tenley A. Carp is a partner and leader of the firm’s Government Contracts practice.