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From For-Profit to Nonprofit: Evolution of the International Spy Museum

Category: Center for the Future Of Museums Blog
The International Spy Museum's new building at  L'Enfant Plaza in Washington, DC.
The International Spy Museum's new building at L'Enfant Plaza in Washington, DC.

Next up in my exploration of museum business models, a conversation with Tamara Christian, president of the International Spy Museum. The Spy Museum is the first museum I’ve found that has operated as both a for-profit and a nonprofit entity. As such, I was interested to learn how the legal status of the museum influenced its financial strategies and income streams.
–Elizabeth Merritt, VP Strategic Foresight and Founding Director, Center for the Future of Museums

Elizabeth Merritt (EM): Tamara, tell our readers a bit about the history of the International Spy Museum.

Tamara Christian (TC): The origins of the Spy Museum date to the Korean War when our founder, Milton Maltz, was in the US Navy, and stationed at the National Security Agency. He was assigned to code breaking and became very cognizant of the role intelligence plays in war and peacekeeping. He’d always had an interest in history, and this experience focused his attention on intelligence and national security. After he sold his company (Malrite Communications Group) in 1998, he and his wife Tamar focused attention on their philanthropic interests, including museums, medical, and educational causes.

He still had an interest in intelligence and thought it would be an extraordinary concept for a museum. So he started an advisory board of people in the intelligence community to plan the International Spy Museum. It launched in 2002 as a for-profit company with an educational mission, with programs for adults and youth.

EM: Why did Mr. Maltz decide to transition the museum to nonprofit status in 2016?

TC: Mr. Maltz and his wife, who are the power and energy behind the museum, are now 90 years old. They wanted the museum to exist in perpetuity—nonprofit governance provided that continuity.

It helps that the Museum operated similarly to a nonprofit– with a strong educational mission driving our work, our profits reinvested into the organization, etc. – which made the transition logical. Even so, there were a lot of steps to the transition. Bylaws and a charter of incorporation were created, a governing board was recruited and the change to operating as a nonprofit was finalized in 2016. Since then, the biggest change has been governance. Key stakeholders, including members of the intelligence community, the business community, legal and financial experts provide governance and stewardship for the institution. We still believe in running the museum as a smart business – the way Mr. Maltz always has. We are an entrepreneurial nonprofit—it’s baked into our DNA!

Also, being a for-profit hindered the Museum’s ability to work with government agencies, such as loans of objects or participation in programs.

EM: This past spring you opened a grand new building at L’Enfant Plaza, just off the National Mall. Tell me about the business plan and finances around that move.

TC: At our old site in Penn Quarter, one of the issues was that the rent going up dramatically. That made it hard for the museum to be self-sustaining. We were locked into relatively small space that couldn’t accommodate our high demand from visitors, so we couldn’t bring in more people to offset rising costs. We also faced the challenge that minimum wage in DC will go up to $15 in 2020, as well as rising healthcare costs.

The new International Spy Museum had a total project cost $162 M. The Museum opened as a result of the generous support of the Maltz Family and related foundations by way of $112 M in philanthropic contributions as well as their support of a $50 M revenue bond.

EM: How has the change from for-profit to nonprofit status changed your business model and income streams?

As a for-profit, we were self-sufficient but we battled the increasing costs discussed above. The new building allows us to increase earned revenue by offering a more engaging experience while accommodating significantly more visitors. That means that our ticket income increases. Some operational costs are higher in the new site, and some are lower. The old site consisted of five historic buildings stitched together and had high costs for preservation and maintenance. We now have larger, purpose built, flexible space for rental income from special events. Our retail performance at the new location is much better. The store is the same size but it feels more open, has more light and does a better job bringing the Museum content into the store.

Having a larger space, and the ability to put up temporary exhibits, is a membership plus. We have a bigger theater for educational programs, which lowers associated costs. At the old site, which didn’t have a dedicated theater, we had to put out seats and assemble the stage in our only area for special events, which meant we couldn’t rent space on the nights we did programs.

Three years into operating as a nonprofit we are benefiting from our ability to ask for contributions and sponsorships—this year we hope to raise around $1.4M. We throw one gala event that brings in $800k and nets $500k—it’s also important to our mission. We’ve only just started applying for grants, beginning with funds for educational programs.

EM: Does being a nonprofit change the attitudes and behavior of the public towards the museum?

TC: We have anecdotal evidence that being a nonprofit makes people feel better about buying admission tickets, but most people don’t ask. From my own experience, I suspect it does matter. Here in DC there is a cat café and kitten lounge: I take my friend’s kids there. I’ve spent about $300 and had assumed they were a nonprofit. But I asked and was disappointed to find out they are a for-profit. It’s a wonderful experience but I’d feel better about spending my money there if they were a nonprofit.

Having people who volunteer at the Museum is positive in so many ways. We will have one hundred volunteers by the end of the year, and they are extraordinary. They let us staff positions we couldn’t have before: greeters, demonstrators, exit staff. They add wonderful spirit to the museum and provide a better visitor experience. They are also a great source of feedback, relaying what they hear visitors say about the museum.

EM: What about donations of collections?

TC: We did get donations of objects when we were a for-profit. It would be a situation like “you are telling my father’s story—I have this cool object and I want to help you tell the story better.” But being a nonprofit does make a big difference. We recently received a pledge by H. Keith and Karen Melton to donate the largest private artifact collection for intelligence in the world (valued at $30M). However, there is a flip side. Now more people want to give us artifacts, and we don’t have infinite space. Every gift takes time to catalogue and has to be insured. It’s hard to say no because people want to help, but sometimes we have to say no.

EM: Your own background is in the for-profit world, correct? What’s it like to now run a nonprofit institution?

TC: I was in private equity before starting with the museum eight years ago. I find it weird that salaries are public information. And sometimes nonprofit staff can have an odd attitude towards making money. When I asked someone “why does a nonprofit have to make profit?” they couldn’t answer the question. We need to reinvest money each year into our Museum to ensure it continues to be state of the art and an extraordinary educational experience.

The poverty mindset in nonprofits is something to get used to. For example, all the furniture for the offices at the old building was purchased used. Eighteen years later it was in even worse shape. I used to get splinters from my desk, and no one took pride in the offices. Despite this, one of the big debates as we moved to the new building was, “do we get new office furniture?” You have to make a decision to invest in an exhibit or invest in office furniture and you feel guilty deciding to buy office furniture. However, we went through a program with Knoll to get economical new furniture—it all matches and is functional but is not expensive. Nonprofits shouldn’t have to feel guilty about paying fair salaries and providing a decent work environment.
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Comments

2 Comments

  1. I have yet to encounter a museum (as we know them to be) that could be profitable so the shift from profit to non-profit entity is not surprising. Museums are expensive places to run. There are no profits in collecting, preserving and studying collections, or organizing and presenting exhibitions. Museums get money in three ways: from endowment income; from private philanthropy; and through earned income. This revealing conversation discusses two of those sources but, and perhaps I missed it, there does not seem to be an endowment. Also, as bonds are commonly known they are a dept load. Few museums should do this and many that do find payments an onerous fiscal burden. I have long wondered how the museum survived and it will be interesting to watch it now.

  2. More articles like this need to be distributed to raise the operational business “acumen” within the field. “Non-profit” is just a tax status. Unfortunately it is also a debilitating mindset that locks people into “profit” being bad and enforcing “society needs to pay for us to continue to exist”. Any viable organization cannot survive on continually asking for meals, they need to learn to fish. This is basic economics of creating a sustainable organization.

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