Community theaters saw SBA’s Covid relief as a lifeline. Now they’re fighting to prove they qualify

Like many community playhouses around the country, the Studio Theatre shuttered its doors in March 2020 for coronavirus pandemic and did not fully reopen for more than a year.

The sales the Little Rock, Arkansas, theater collected from streaming events online or holding outdoor performances did little to cover the debts that began to pile up to pay its rent, utilities and insurance. Then, its treasurer, Amanda Kennedy, heard about a potential lifeline: the Small Business Administration’s Shuttered Venue Operators Grant program. The $16 billion fund was created to help sustain the live entertainment industry. After reviewing the details of the program, Kennedy expected the Studio Theatre would be able to seek $135,000 in grants.

Kennedy, a certified public account, said she viewed the program as “a godsend that we desperately needed.”

“We have loans that I have no idea how long it’s going to take for us to retire … without the grant money,” she said. “It pains me to think about that kind of burden being put on this theater.”

But Studio Theatre’s request for help was denied. It now finds itself among a group of small operators asserting that they are indeed eligible to access the aid. Some are taking legal action, as they saw similar businesses given different responses. Some say the explanations about why they were denied grants were lacking, and that uneven distribution has left them at a competitive disadvantage within the industry. Beyond that, live events advocates say the broader industry was left out of the program altogether, and now the race is on to get a new aid package to the millions who said they were left in the dark.

“I didn’t see that coming at all,” Kennedy said, recalling her experience. “We practically had the funds expended in our minds — in our budgets — because it was pretty much a sure thing that it was coming.”

Last April, Kennedy had logged on to the portal on its first day to submit the theater’s application. Like many others, she was unable to get through as glitches plagued the rollout. The portal itself closed down on its first day. Weeks later, upon the portal’s relaunch, the application was submitted.

Kennedy felt confident. But an email came in July asking Kennedy to check the program’s portal. Once logged in, she said she found out the theater had been denied but not why. Kennedy appealed the decision and received an email in August. Once again, the theater was denied without an explanation.

She held out hope that the denial was a mistake. The theater had run into a separate issue applying for aid through the Economic Injury Disaster Loan program. There was a case of mistaken identity that held up funding, but that had been resolved. This time around, it wasn’t.

To be sure, the SVOG program has helped many venues and operators since its launch this spring. More than 12,000 initial and supplemental grants have been funded, worth more than $13.6 billion. But more than 4,500 applicants were declined, according to SBA data.

Matthew Mokwa, a partner at The Maher Law Firm in Winter Park, Florida, is reviewing potential claims against the SBA with a team drawn from two other firms in Missouri and Washington, D.C. Of the nearly 200 inquiries the group has received, the legal team has formally reviewed more than 100 individual cases, Mokwa said. A significant number appear to meet the SVOG statutory criteria, suggesting there is merit to take action against the SBA, he said. To date, about 25 cases have been filed, Mokwa said, with his firm representing six.

The explanations these clients and potential clients received about their denials were “insufficient,” Mokwa said. He added that getting additional information from the SBA has not been an option for most.

For example, one client called the agency several times a day for many days in an attempt to get more information about a rejected application, but was unable to reach anyone, Mokwa said. What’s more, many rejected applicants can name between five and 10 of their closest competitors who have been funded, creating an uneven playing field for operators trying to make a comeback, he said.

“This is an unintentional consequence of this program, but by not rolling it out evenly, what the government has inadvertently done is picked winners and losers within certain industries,” Mokwa said. “It’s really heartbreaking.”

The SBA declined to comment on pending litigation.

The Studio Theatre is consulting with an attorney to see if it has grounds for a lawsuit. As part of its appeal, its application underwent a comprehensive review, Kennedy said.

According to emails viewed by CNBC, the SBA told Kennedy the Studio Theatre’s application was denied because, as a nonprofit, it doesn’t pay its performers. But the SBA’s eligibility rules appear to exempt nonprofits from having to pay performers.

“Provided the events a nonprofit live performing arts organization stages are produced and managed primarily by paid employees, the use of volunteers in the production casts would not disqualify it,” the SBA said in its list of frequently asked questions about the program.

Grants were funded for neighboring nonprofit community theaters including the Argenta Community Theater in North Little Rock and the Royal Players in Benton, Arkansas, according to both organizations and the SBA’s program data. Both theaters are nearly identical to the Studio Theatre in material aspects, including not paying performers, Kennedy said.

“It’s been almost a year of real financial hardship, but also emotional hardship, being told ‘Here’s something that can help you, here’s a lifeline for you,'” Kennedy said. “And then that being suspended, and that hope being denied over and over and over.”

Mike Savas has found himself in the same position as Kennedy, having also had a grant denied, and having the rejection stand after appeal. Savas runs Superfan Live, a concert and events promotion business based in Clearwater, Florida. He sells VIP experiences to fans as an events promoter and has recently worked on tours with Genesis and the Big Apple Circus.

Savas sought more than half a million dollars in aid and said his business has come close to bankruptcy waiting for help. In addition, he said his own friends and competitors that run similar businesses were approved. He feels the reason behind his denial was unclear and is considering suing, but is concerned about taking on more debt.

“It’s been sloppy, and it’s not consistent. … If everyone in the same bucket didn’t get approved, fine,” he said. “But to have one entity getting approved, another one not getting approved in the exact same business. That doesn’t make sense.”

A person familiar with the federal grant process, who wasn’t authorized to speak with the press, said that while grant applications are reviewed by individuals adhering to standardized criteria, individual application reviewers may use various thresholds or differing data interpretations throughout application screening, programmatic or financial review processes. Each could impact the grant awarding phase which, in turn, could lead to mistaken denials.

The SBA declined to comment on the details of the screening process. But said it has been both “creative and dedicated” in providing applicants with every opportunity to receive funding.

The agency has invited more than 5,000 applicants to appeal SVOG decline decisions, and about 3,000 businesses accepted, said Diedra Henry-Spires, a senior advisor at the SBA’s Covid programs, in a statement. The SBA also invited around 2,000 grant recipients to have the amount of their funding awards reconsidered and about 800 grantees have accepted that offer, she said.

The SBA didn’t specify how many applicants had a prior decision upheld or how many were awarded additional funding.

In an interview for this story, SBA Administrator Isabel Guzman said the appeals process and review was to ensure that all applicants could have “their fair shot” at accessing funding, and to be sure applications were fairly considered. Without commenting on individual applications, Guzman said that the eligibility criteria are complex and that while applicants may appear similar, they may not turn out to be. The administrator added if applicants were formally denied, more detailed information would be provided as to why they were not eligible, if that was the case.

“It could be things like, for example, a museum. One has actual fixed seating, which is a requirement, and the other one doesn’t,” Guzman said. “Maybe it’s an auditorium, but with removable chairs. And so that’s something that may not be clear to the public eye, but it’s a nuance. Their structure organizationally, their ownership might factor into their eligibility. There are specific issues that the individual application might reveal that, of course, we cannot make public.”

Meanwhile, advocates for broader aid beyond the SVOG program are still hopeful Congress will come through.

The Live Events Coalition was formed in April 2020, when the coronavirus pandemic started, and the group said it represents more than 1 million small businesses that employ 12 million people and are worth $872 billion in economic impact. The group said 92% of its small business members — who represent trade shows, corporate events, weddings, local county fairs and more — did not qualify for relief under the program or the Restaurant Revitalization Fund.

While SVOG helped shuttered venues, it is clear the program didn’t “go far enough” to assist the behind-the-scenes workers who make live events happen, said Wendy Porter, the group’s vice chair of government affairs.  

“You’re only saving the stages,” said Porter, who owns an events business that has been shuttered. “You’re missing the rest of our industry, which is all of the service companies — the planners, the lighting and AV people. Everybody that makes an event come to life was left out of that language. They wanted to save the venues, but frankly, if you don’t save the rest of us, all you have is an empty room.”

The group contacted lawmakers to push for broader support, but it was clear a larger aid package would have been more challenging to pass at the time. There’s active legislation being worked on in both the House and Senate to get a lifeline to entrepreneurs working behind the scenes, according to the coalition. But Porter said some members have lost their businesses over the last 15 months.

While SBA programs like the Paycheck Protection Program and EIDL provided a shorter lifeline, the live events industry has yet to fully reopen. The coalition’s fall survey showed nearly half of respondents said between 60% and 100% of their fall and winter bookings were canceled due to the delta variant. And omicron is wreaking similar havoc, with Broadway shows canceling performances, travel being disrupted and consumer confidence taking another hit.

“It’s really hard to watch all of my colleagues go through this. These are people’s livelihoods that they’ve worked on for decades. And no one is listening,” Porter said.

Meanwhile Savas is on the road again, finding creative ways to stay afloat with his business. He’s hopeful he can continue touring and offering fan experiences, despite the burden of debt and uncertainty looming over the grant process.

“It’s been like getting on the world’s worst roller coaster. There’s been ups. There’s been downs. There’s been 360 spins,” he said. “Not knowing if the industry is coming back, not knowing if the shows are going to happen. Not knowing if we’re going to be able to pay our bills, whether we’re going be approved or denied. And it’s just been terrifying — and exciting — and disappointing. Tears and cheers all along the way.”

“I just want to get off this ride, get my money, and go back to work,” he said.

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