The Shuttered Venue Operators Grant (SVOG) program was created by Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act), which was enacted on December 27, 2020. The SVOG program requires the Small Business Administration (SBA) to distribute grants of up to $10 million per grant and an aggregate of $16 billion to qualified applicants in the live performing arts event industry. The grants are designed to replace revenue lost as a result of not being able to stage live events during the pandemic.

Unlike the Paycheck Protection Program, which is primarily administered by participating banks and other financial institutions, the SVOG program is to be administered directly by the SBA. The SBA shut down the SVOG program moments after its launch on April 8 due to technical difficulties. Although the SBA has not yet officially announced when the SVOG program will relaunch, it is anticipated this will occur sometime before the end of next week. Properly completed applications will be processed on a first-come-first-served basis, with priority being given to qualified applicants most impacted by the pandemic and those qualified applicants with no more than 50 employees.

It is anticipated that the SVOG program will run out of funds quickly. This alert summarizes the SVOG program, which is significantly more complicated than the Paycheck Protection Program. Any business operating in the live performing arts event industry is well advised to consult with its professional advisers to determine whether it qualifies for a SVOG grant on a priority basis and to prepare a draft grant application based on the information currently available. This alert is based on SBA guidance on the SVOG program through April 20, 2021, and includes the SBA’s Frequently Asked Questions (FAQs) as amended through April 8, 2021.

Who Is Eligible to Receive a Grant?

An “Eligible Person or Entity” is:

• an individual or entity, including a nonprofit organization (exempt under Section 501(a) of the Internal Revenue Code); a government-owned entity; a corporation; a limited liability company; or a partnership or sole proprietorship (“Eligible Party”) that is:
  • a live venue operator or promoter,
  • a theatrical producer,
  • a live performing arts organization operator,
  • a relevant museum operator,
  • a motion picture theater operator, or
  • a talent representative
• that immediately prior to the onset of the pandemic on February 29, 2020, was “fully operational” and
• whose “Gross Earned Revenue” for a 2020 calendar quarter was at least 25 percent below its gross earned revenue for the same quarter in 2019 (significantly impacted by the pandemic)—
  • Gross Earned Revenue is the total of earned revenue from various sales of goods or services, such as admission tickets, merchandise, food and beverages, advertising sales, and contracted presentation income, but it does not include other sources of funds that an organization may receive, such as donations, sponsorships, governmental assistance, or returns on investments.
  • An Eligible Party not in operation in 2019 may qualify for a grant only if its gross earned revenue for the second, third, or fourth quarter of 2020 demonstrates a reduction of not less than 25 percent from their gross earned revenue for the first quarter of 2020—
• and as of the date of the grant is resuming or intends to resume operations (except for a “talent representative,” which must be operating) and
• does not have a “Disqualifying Circumstance.”

A “Live Venue Operator or Promoter,” “Theatrical Producer,” or “Live Performing Arts Organization Operator” is an Eligible Party that meets the following criteria:

• As a principal business activity it organizes, promotes, produces, manages, or hosts live concerts, comedy shows, theatrical productions, or other events by performing artists for which (i) a cover charge through ticketing or front-door entrance fee is applied and (ii) performers are paid in an amount that is based on a percentage of sales, a guarantee (in writing or standard contract), or another mutually beneficial formal agreement. The entity’s principal business activity will be its line of business in which it has the greatest combined amount of revenue, expenses, employees and work hours, assets, contracts, and other business activity as compared to all its other lines of business. The SBA may also consider other factors, such as the distribution of patents, contract awards, and assets as appropriate.
• Either (i) not less than 70 percent of the earned revenue of the individual or entity is generated through—to the extent related to a live event—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 entity makes tickets available for purchase by the public an average of not less than 60 days before the date of the event, and

• The venue at which the performances are held has the following characteristics:
  • The venue has a defined performance and audience space.
  • The venue has mixing equipment, a public address system, and a lighting rig.
  • One or more individuals are engaged in not fewer than two of the following roles:
    • A sound engineer—an individual who helps produce a live performance by managing or enhancing source levels of sound, including by equalization and audio effects, mixing, reproduction, and reinforcement of sound.
    • A booker—an individual such as a talent buyer who books bands or other performing artists for venues and fields inquiries from performing artists and performers and their agents or representatives.
    • A promoter—an individual who supervises the performance space and physical aspects of a production and oversees the performance space while a production is in progress.
    • A stage manager—an individual who supervises the performance space and physical aspects of a production and oversees the performance space while a production is in progress.
    • Security personnel—individuals hired for a live event to provide protection and aid for attendees, performers, and venue employees. Duties of security personnel may include monitoring the event, maintaining order, escorting attendees out of events, and suppressing disturbances.
    • A box office manager—an individual who is responsible for overseeing the sale of all tickets or receipt of admission fees, which may include the task of ensuring the security of payments exchanged.
  • There is a paid ticket or cover charge to attend most performances, and artists are paid fairly and do not play for free or solely for tips, except for fundraisers or similar charitable events. To be “fairly paid,” event performers must be paid an amount based on a percentage of sales, a guarantee (in writing or standard contract), or another mutually beneficial formal agreement.
  • For a venue owned or operated by a nonprofit entity that produces free events, the events are produced and managed primarily by paid employees, not by volunteers.
  • Performances are marketed through listings in printed or electronic publications, on websites, by mass email, or on social media.

To qualify as a “Live Venue Promoter,” an Eligible Party:

• must organize live events by performing artists and carry out tasks (other than as a vendor or service provider) such as renting a performance site, contracting with artists or a production company for the performance, marketing events, and collecting gate receipts;
• must have (i) a profit (net income or loss) interest in the live event’s presentation and (ii) sole or joint rights to control the financial terms of the live event’s presentation, use of the venue, and/or marketing of the event; and
• may own and/or operate live venues or contract for space, and may include festival promoters or the promotion of live performing arts events at outdoor festival spaces that have all the required characteristics of a qualifying venue.

To qualify as a “Theatrical Producer,” an Eligible Party:

• must have the responsibility for creating, producing, or operating live theatrical productions; and
• must have either (i) a non-passive profit (net income or loss) interest in a theatrical production (other than as a vendor or service provider) or (ii) sole or joint rights to control a theatrical production.

For an Eligible Party to qualify as a “Live Performing Arts Organization Operator,” an eligible party’s principal business activity must be to create, produce, perform, and/or present live performances for audiences in qualifying venues, including amphitheaters, concert halls, auditoriums, theaters, clubs, festivals, and schools.

A “Motion Picture Theater Operator” is an Eligible Party that:

• as the principal business activity of the individual or entity owns or operates at least one place of public accommodation for the purpose of motion picture exhibition for a fee, and
• uses as that place a venue with the following characteristics or elements:
  1. At least one auditorium that includes a motion picture screen and fixed audience seating. Fixed seating is seating permanently fixed to the floor or ground or is so heavy or cumbersome as to make removing it impractical. Drive-in theaters do not qualify, as seating must not be temporary, removable, modular or convertible, or other non-fixed seating arrangements.
  2. A projection booth or space containing at least one motion picture projector.
  3. A paid ticket charge to attend exhibition of motion pictures.
  4. Motion picture exhibitions that are marketed through showtime listings in printed or electronic publications, on websites, by mass mail, or on social media.

A “Relevant Museum Operator” is an eligible party that is:

• a museum, which is defined as a public, tribal, or private nonprofit agency or institution that is organized on a permanent basis essentially for educational, cultural heritage, or aesthetic purposes and uses a professional staff, owns or uses tangible objects, cares for the tangible objects, and exhibits the tangible objects to the public on a regular basis and has the following characteristics:

1. Serves as a relevant museum as its principal business activity.
2. Has indoor exhibition spaces that are a component of the principal business activity and have been subjected to pandemic-related occupancy restrictions.
3. Has at least one auditorium, theater, or performance or lecture hall with fixed audience seating and regular programming. Regular programming means programming provided on an ongoing and near-continuous basis of an average of at least four times a month over the course of a year (48 times per year) in its qualifying theater, lecture hall, or similar venue.

A “Talent Representative” is an eligible party that:

• Has not less than 70 percent of its operations engaged in representing or managing artists and entertainers and
• Books or represents musicians, comedians, actors, or similar performing artists primarily at live events in venues or at festivals for which they are paid an amount that is based on the number of tickets sold or a similar basis.

Disqualifying Circumstances

An otherwise eligible person or entity will be disqualified from receiving a grant if it:

• presents live performances of a prurient sexual nature or derives, directly or indirectly, more than a de minimis (not more than 5 percent) gross revenue through the sale of products or services or the presentation of any depictions or displays of a prurient sexual nature, or
• does not have a place of business located in the United States, does not operate primarily within the US, and does not make a significant contribution to the US economy through payment of taxes or use of American products, materials, or labor, or if the otherwise “eligible person or entity” or its majority owner (“Parent”)

• The entity is an issuer, the securities of which are listed on a national securities exchange;
• The entity received more than 10 percent of gross revenue from federal funding during 2019 (excluding amounts received for natural disasters);
  • The 10 percent limitation does not apply to entities owned by tribal, state, or local governments; or
• The entity has the following three characteristics [1]:
  • Owns or operates venues, relevant museums, motion picture theaters, or talent agencies or talent management companies in more than one country.
  • Owns or operates venues, relevant museums, motion picture theaters, or talent agencies or talent management companies in more than 10 states.
  • Employs more than 500 employees as of February 29, 2020, determined on a full-time-equivalent basis, as follows:
    • Any employee working not fewer than 30 hours per week will be considered a full-time employee; and
    • Any employee working not fewer than 10 hours and fewer than 30 hours per week will be counted as one-half of a full-time employee.
• Grant eligibility is determined as of the date an entity submits its grant application, so if an entity was previously owned or operated by an ineligible organization, it will not affect an applicant’s eligibility for a grant.
• “Eligible Person or Entities” cannot have received a grant under the Restaurant Revitalization Funding program and may not apply for a Paycheck Protection Program loan after receiving a grant.

Affiliation

Unlike the Paycheck Protection Program, related Eligible Parties that qualify as Eligible Persons or Entities are treated as independent, nonaffiliated entities, and each such Eligible party may obtain its own grant, provided that “affiliates” under the SBA rules are limited to five initial grants and $50 million in the aggregate. Each grant applicant must have its own employer identification number.

Amount of Grant

An initial grant may be awarded in an amount equal to the lesser of:

• $10 million or
• For an Eligible Person or Entity that was in operation on January 1, 2019, 45 percent of the gross earned revenue of the eligible person or entity during 2019, less the amount of any Paycheck Protection Program loan received in 2021, or for an Eligible Person or Entity that began operations after January 1, 2019, six times the average monthly gross earned revenue for each full month during which the eligible person or entity was in operation during 2019, less the amount of any Paycheck Protection Program loan received in 2021.

If there remain funds in the SVOG program, a second supplemental grant may be awarded in an amount equal to 50 percent of the initial grant, but in no case can an eligible person or entity receive more than $10 million in the aggregate for initial and supplemental grants.

In all cases, an eligible museum and all other museums it operates as subsidiaries may receive not more than $10 million in the aggregate under the SVOG program.

The SBA anticipates that grants under $1 million will be disbursed in one or two installments and larger grants will be disbursed in two to four installments based on the recipient’s intended use of the grant proceeds and its 2020 federal income tax return.

How May Grant Proceeds Be Used?

Grant funds may be used for allowable expenses incurred during the period from March 1, 2020, to December 31, 2021, but if an eligible person or entity receives a supplemental grant, the period during which allowable expenses may be incurred will be extended until June 30, 2022, for both grants.

“Allowable Expenses” are:

• Payroll costs;
• Payments on any covered rent obligation;
• Any covered utility payment;
• Scheduled payments (but not prepayments) of interest or principal on any covered mortgage obligation;
• Scheduled payments (but not prepayments) of interest or principal on any indebtedness or debt instrument incurred in the ordinary course of business that are liabilities of the eligible person or entity and were incurred prior to February 15, 2020;
• Covered worker protection expenditures;
• Payments made to independent contractors, as reported on IRS Form 1099 MISC, not to exceed 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, including fees and licensing costs;
  • State and local taxes and fees;
  • Operating leases in effect as of February 15, 2020;
  • Payments required for insurance on any insurance policy; and
  • Advertising, production, transportation, and capital expenditures related to producing a theatrical or live performing arts production, concert, exhibition, or comedy show, except that a grant under this section may not be used primarily for such expenditures.

A grant recipient may not use grant proceeds for the following “Prohibited Expenses”:

• To purchase real estate;
• For payments of interest or principal on loans originated after February 15, 2020;
• To invest or relend funds;
• For contributions or expenditures to or on behalf of any political party, party committee, or candidate for elective office; or
• For any other use as may be prohibited by the SBA.

An initial grant recipient will have until the first anniversary of the award of its initial grant to use grant proceeds to pay allowable expenses.

A supplemental grant recipient will have 18 months from the date of the initial grant award to use all grant proceeds to pay allowable expenses.

A grant recipient will be required to return to the SBA any grant proceeds not disbursed by the end of the applicable period.

Priorities in Awarding Grants

Up to $12 billion will be made available for priority awards during the first 28 days of the SVOG program as follows:Up to $12 billion will be made available for priority awards during the first 28 days of the SVOG program as follows:

• During the first 14 days of the operation of the SVOG program, initial grants will be awarded to eligible persons or entities not owned by tribal, state, or local governments whose gross revenue during the nine-month period April 1 to December 31, 2020, was not more than 10 percent of their gross revenue during the same nine-month period in 2019 due to the pandemic.
• During the second 14 days of the operation of the SVOG program, grants will be awarded to eligible persons or entities not owned by tribal, state, or local governments whose gross revenue during the nine-month period April 1 to December 31, 2020, was not more than 30 percent of their gross revenue during the same nine-month period in 2019 due to the pandemic.

In calculating gross revenue, any amounts received under the CARES Act may not be counted, and the accrual method of accounting will be used. In addition, the SBA may adopt another method to determine revenue losses for an eligible person or entity that is a seasonable employer and would be adversely impacted by excluding the first calendar quarter from the comparison of year-over–year revenue. In addition, gross revenue is defined as “all revenue in whatever form received or accrued from whatever source, including contributions, donations, and grants from any and all sources (but excluding any disaster assistance funding).”

In addition, for the first 60 days in which grants are awarded, at least $2 billion will be set aside for eligible persons or entities that employ not more than 50 full-time employees. For the purpose of determining the number of employees, the SBA will aggregate the employees of the applicant and its “affiliates.”

Once the SBA has processed all applications submitted during the first 60 days of the SVOG program, it may award a second supplemental grant if after April 1, 2021, the revenue for an eligible person or entity for the most recent calendar quarter is not more than 30 percent of the gross revenue for the 2019 corresponding quarter due to the pandemic.

Required Certifications and SBA Oversight

In applying for a grant, an eligible person or entity must, in good faith, certify:

• that the uncertainty of current economic conditions makes necessary the grant to support ongoing operations of the eligible person or entity;
• if the Eligible Person or Entity has between 500 and 10,000 employees, that it will not abrogate existing collective bargaining agreements and will remain neutral in any union organizing effort for theterm of the grant and two years thereafter; and
• if the Eligible Person or Entity is currently (a) in operation, that it intends to remain in operation after it receives the grant or (b) shuttered, its certification must include a statement that it intends to reopen, along with its estimated reopening date, and that the Eligible Person or Entity was conducting business operations as of February 29, 2020.

The SBA is required to increase oversight of Eligible Persons and Entities, which may include:

• additional documentation to support compliance with the SVOG program, to be retained by eligible persons and entities (i) with respect to employment records for the four-year period following receipt of the grant and (ii) with respect to other records for the three-year period following receipt of the grant; and
• reviews and audits of the use of the grant proceeds by an eligible person or entity to ensure compliance with requirements of the SVOG program, and in the case of fraud or other material noncompliance with respect to a grant, (i) require repayment of misspent funds or (ii) pursue legal action to collect funds.

Actions to Take Now If You Believe You Are an Eligible Person or Entity

Applicants should review the Preliminary Application Checklist before submitting an application and should ensure they take the following actions:

1. If each eligible entity applying for a grant does not already have a Data Universal Numbering System (DUNS) number, apply for a DUNS number by going to the Dun & Bradstreet site. A DUNS number is needed to register in the System for Award Management (SAM).
2. Register in SAM by going to www.SAM.gov, which may take up to two weeks once you submit the registration.
3. Gather documents that demonstrate your number of employees and monthly revenue so you can calculate the average number of qualifying employees you had over the prior 12 months.
4. Gather the documents necessary to determine the amount of “gross revenue loss” you suffered between 2019 and 2020 to see if you qualify for one of the priority periods.
5. Gather the documents necessary to determine the extent of “gross earned revenue loss” you experienced between 2019 and 2020 to see if you qualify for the non-priority period.
6. Frequently visit www.sba.gov/svogrant for updates on the SVOG program.
7. Review and begin completing SBA Form 3515, SVOG Application , which will require a budget for the 12-month period beginning on the grant award date.
8. Review the Preliminary Application Checklist, updated March 11, 2021 , and begin assembling the documents that must be submitted, including a copy of the applicant’s 2019 and 2020 tax returns and income statements, organizational documents of the entity, and the floor plan of the venue.

[1] There is some confusion about whether this disqualifying circumstance requires (1) more than 500 employees and (2) owning or operating in either (a) more than one country or (b) more than 10 states (see answer to Question 3 of “Business Size/Employees” on page 32 of the FAQs). However, we read Section 324(a)(1)(A)(vi)(II) of the Economic Aid Act as requiring the disqualifying circumstance to include both owning and operating in more than one country and in more than 10 states in addition to having more than 500 employees.

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