COVID-19 Relief Act Provides Grants for Shuttered Venue Operators Hard-Hit by the Pandemic

The operative provisions governing the new Grant program, as well as PPP updates and some of the other COVID-19 relief, are in the “Economic Aid to Hard-Hit Businesses, Nonprofits, and Venues Act” (Act), which is Title III of Division N of the Consolidated Appropriations Act. Section 324 of the Act, “Grants for Shuttered Venue Operators,” contains critical provisions to allocate $15 billion in Grant funding, appropriated under Section 323(d)(1)(H) of the Act, for “shuttered venue operators” that have been severely affected by COVID-19. Within its appropriation, the Act sets aside $2 billion in relief, for the first 60 days after the SBA begins distributing Grants, for eligible persons or entities that employ not more than 50 full-time equivalent employees (FTEs).

Eligible Persons or Entities

There are six categories potentially qualifying for Grants:

• A live venue operator or promoter
• A theatrical producer
• A live performing arts organization operator
• A “relevant” museum operator
• A motion picture theater operator
• A talent representative

A potential grantee within one of these categories must meet each of the following requirements:

• The grantee was “fully operational” on February 29, 2020
• The grantee’s “gross earned revenue” during a calendar quarter in 2020 fell by at least 25 percent from the same quarter in 2019
• The grantee has resumed or intends to resume its respective operations (or, if a talent representative, is representing or managing artists and entertainers)
• The grantee must not itself be, and (except for grantees owned by a state entity) must not be majority-owned or controlled by, any of:

- an issuer of securities listed on a national securities exchange

- an entity that received more than 10 percent of its “gross revenue” from federal funding in 2019, excluding grants received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.)

- an entity that has more than two of the following characteristics:

- Owns or operates businesses in more than one country

- Owns or operates venues or businesses in more than 10 states

- Employed more than 500 FTEs as of February 29, 2020

- Has received a PPP loan on or after December 27, 2020

• The grantee is not involved in live performances of, or depictions or displays of, a prurient sexual nature

There are additional very specific operational and venue requirements based on the types of eligible persons or entities, as described further below.

Venues

The venues for live events must meet prescribed minimum professional criteria including a defined performance space, equipment, staff, marketing and, except for charitable events, must pay artists “fairly.” These criteria apply to operators, promoters, and producers, as well as to venues for artists and entertainers represented or managed by a talent representative grantee. Even museums must have at least one auditorium with fixed seating and regular programming. Nonprofits can qualify, but their events must be managed primarily by paid employees. 

Live Operators

A live venue operator or promoter, theatrical producer, or live performing arts organization operator must, as its primary business activity, organize, promote, produce, manage, or host live concerts, comedy shows, theatrical productions, or other events by performing artists and, for such activity, apply a cover charge and pay performers by formal agreement. Either (i) at least 70 percent of the “earned revenue” of the “individual” or entity, if for live events, must be generated through cover charges or ticket sales, production fees, or production reimbursements, nonprofit educational initiatives, or the sale of event beverages, food, or merchandise or (ii) the “individual” or entity, as a principal business activity, must make tickets available for purchase by the public an average of not less than 60 days before the date of the event.

Motion Picture Theater Operator

A motion picture theater operator must, as its principal business activity, own or operate at least one place of public accommodation for the purpose of motion picture exhibition for a fee.

Relevant Museum

A relevant museum is a “museum” as defined in Section 273 of the Museum and Library Services Act (20 U.S.C. 9172) and shall not operate as a for-profit entity. In that statute, "museum" means:

a public, tribal, or private nonprofit agency or institution organized on a permanent basis for essentially educational, cultural heritage, or aesthetic purposes, that utilizes a professional staff, owns or utilizes tangible objects, cares for the tangible objects, and exhibits the tangible objects to the public on a regular basis. Such term includes museums that have tangible and digital collections and includes aquariums, arboretums, botanical gardens, art museums, children's museums, general museums, historic houses and sites, history museums, nature centers, natural history and anthropology museums, planetariums, science and technology centers, specialized museums, and zoological parks.

Talent Representative

A talent representative must engage at least 70 percent of its operations in representing or managing artists and entertainers, including booking or representing musicians, comedians, actors, or similar performing artists primarily at live events at venues or at festivals, and representing performers that are paid based on the ticket sales or a similar basis.

Nonprofits

Except for relevant museums, which cannot be for-profit, qualifying grantees can operate for profit, or be nonprofit or government owned. Nonprofit means federally tax-exempt under Section 501(c) of the Internal Revenue Code of 1986.

Grant Disbursement Priority

Grants will be disbursed in the following priority:

• First-Priority Grants: During the initial 14-day period in which the SBA awards Grants, only eligible grantees with a 90 percent or more loss in “revenue” during the nine-month period beginning on April 1, 2020, and ending on December 31, 2020, in comparison to the same period in 2019, are eligible to receive funds.
• Second-Priority Grants: During the 14 days immediately after the initial 14-day period, only eligible grantees with a 70 percent or more revenue loss during the same nine-month period, are eligible to receive funds. The term “revenue” for this and the initial 14 days excludes amounts received under the CARES Act.
• General: The above priority Grants cannot exceed 80 percent of the initial $15 billion appropriated under the Act. After the first 28 days of disbursement, the SBA may award a Grant to any eligible person or entity.

Grant Amount

• The amount of each Grant for each eligible person or entity can be up to the lesser of:

- $10 million or

- (i) if such person or entity was in operation as of January 1, 2019, 45 percent of its “gross earned revenue” in 2019, or (ii) if such person or entity was not in operation until after January 1, 2019, the amount equal to the average monthly “gross earned revenue” for each full month the grantee was in operation during 2019, multiplied by six.

• A relevant museum operator may not receive a Grant that is more than $10 million with respect to all museums operated by that operator.
• The total amount of Grants received by any eligible person or entity cannot be more than $10 million.
• Under Section 324(b)(2)(D) of the Act, not more than five (5) business entities of an eligible person or entity that would be considered affiliates under SBA affiliation rules may receive a Grant. However, Section 324(a)(1)(D) says that each qualifying entity is treated as an “independent, non-affiliated entity.” The SBA might provide guidance on the interplay of the two sections.

Supplemental Grants

• The SBA may reward a supplemental Grant to an eligible person or entity that receives an initial Grant if, by April 1, 2021, its revenues for the most recent calendar quarter are not more than 30 percent of its revenues for the same quarter in 2019 due to the COVID-19 pandemic.
• The amount for the supplemental Grants shall equal 50 percent of the initial Grant received by such eligible person or entity.

Use of Funds

Timing

• Grants may be used for costs incurred during the period beginning on March 1, 2020 and ending on December 31, 2021 or, if a supplemental Grant is awarded, June 30, 2022.
• Any non-supplemental Grant amounts that are not expended on or before one year after disbursement must be returned to the SBA or, if a supplemental Grant is awarded, the period is 18 months.

Allowable Expenses

Grants may be used toward costs of payroll, covered rent, covered utilities, scheduled interest or principal on any covered mortgage obligation (excluding any prepayment of principal), scheduled interest or principal on any indebtedness or debt instrument (excluding any prepayment of principal) incurred in the ordinary course of business before February 15, 2020, covered worker protection expenditures, payments made to independent contractors (not exceeding a total of $100,000 in annual compensation for any individual employee of an independent contractor), and other ordinary and necessary business expenses, including maintenance expenses, administrative costs, state and local taxes and fees, operating leases in effect as of February 15, 2020, and payments for insurance. A Grant may also be used, but not primarily used, for advertising, production transportation, and capital expenditures relating to producing a live performance or exhibition.

Prohibited Expenses

An eligible person or entity may not use Grants for any of:

• Purchase of real estate
• Payments of interest or principal on loans originated after February 15, 2020
• Investment or re-lending funds
• Contributions or expenditures to, or on behalf of, any political party, party committee, or candidate for elective office
• Any other use as may be prohibited by the SBA

Documentation

The Grantee must make a “good faith certification” that the “uncertainty of current economic conditions makes necessary a Grant to support the ongoing operations” of the grantee. Under the Act, the SBA is to “increase oversight” and may require an eligible person or entity that receives any Grants to retain records that document compliance with the Grant requirements, such as employment records for the four-year period following receipt of each Grant and other relevant compliance records for the three-year period following the receipt of each Grant.

Regulations

Section 303 of the Act gives the SBA only ten days to issue regulations. Stay tuned!

A Final Note

Pillsbury attorneys can help clients interpret and assess the Shuttered Venue Operator Grants’ requirements as clients assess and strategize regarding the availability of various stimulus funds. We are proactively monitoring any forthcoming regulations and guidance in response to the new legislation. These and any accompanying materials are not legal advice, are not a complete summary of the subject matter, and are subject to the terms of use found at: https://www.pillsburylaw.com/en/terms-of-use.html. We recommend that you obtain separate legal advice.