The new stimulus relief package known as the Consolidated Appropriations Act (the "Act") passed by Congress on December 21, 2020 and subsequently signed into law by the President appropriates $15 billion in grants for certain "Shuttered Venue Operators" significantly impacted by the COVID-19 pandemic.
The following businesses are potentially eligible for grants under the Act (subject to additional eligibility criteria):
- Live venue operators or promotors
- Theatrical producers
- Live performing arts organizations
- Non-profit museum operators
- Motion picture theatre operators
- Talent representatives
The eligible entity may be for-profit (other than museums), non-profit, or government-owned and may be a corporation, LLC, partnership, or sole proprietorship.
For live venue operators or promotors, theatrical producers, or live performing arts organizations, 70 percent of the earned revenue must be generated through paid admissions, production fees or reimbursements, nonprofit educational initiatives, or the sale of event beverages, food, or merchandise. Similarly, at least 70 percent of the operations of eligible talent representatives must be representations of artists and entertainers at live events where such performers are paid based on tickets sold or similar basis.
Live performance venues must have the characteristics of legitimate professional venues, including a defined performance space, sound and lighting equipment, paid professional staff, marketing programs, paid entry (e.g., tickets or cover charge), and a "fair" compensation structure for artists based on a percentage of sales or a guarantee (and not "solely for tips"). Free events by non-profit entities must be produced and managed primarily by paid employees, not volunteers.
Motion picture theater operators must have at least one auditorium with a screen and fixed audience seating, a projection booth and projector, paid attendance, and marketing programs.
For museums, the operation of a museum must be the "principal business activity;" indoor exhibition spaces must have been subjected to pandemic-related occupancy restrictions; and the space must have at least one auditorium, theater, or performance or lecture hall with fixed seating and regular programming.
For talent representatives, the represented artists or entertainers must perform in venues that meet the above characteristics.
Ongoing Operations and Reductions in Revenue
- Ongoing Operations: The applicant must have been "fully operational" on February 29, 2020, and the "shuttering" of the venue must be temporary, namely, applicants must have resumed or intend to resume activity.
- Reduction in Revenue: The applicant must demonstrate at least a 25 percent reduction in gross earned revenue in the first, second, or third quarter of 2020, as compared to the same quarter in 2019 (applicants that apply for grants after January 1, 2021, have the option to compare fourth quarter 2020 revenue against fourth quarter 2019 revenue).
- Economic Need Certification: Consistent with the Paycheck Protection Program's (PPP) economic need certification, the applicant will be required to submit a good faith certification that "the uncertainty of current economic conditions makes necessary the grant to support the ongoing operations of the eligible person or entity."
Additional Eligibility Criteria
The following additional eligible criteria apply:
- Not Publicly Traded: The applicant (or any entity controlling the applicant) must not have securities listed on a national securities exchange.
- Limitation on Federal Funding: The applicant (or any entity controlling the applicant) must not have received more than 10 percent of its gross revenue from federal funding in 2019 (excluding amounts received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act).
- Limitation on Operations: The applicant (or any entity controlling the applicant) may not have more than two of any of the following characteristics:
- (i) Employs more than 500 full-time equivalent employees as of February 29, 2020;
- (ii) Has operations in more than one country; or
- (iii) Has operations in more than 10 states.
- No Participation in PPP Following the Act's Enactment: The applicant has not received after the date of enactment of the Act a loan guaranteed under the PPP or second draw PPP loan.
- No Prurient Performances: The applicant must not present live performances of a "prurient sexual nature" or directly or indirectly derive more than de minimis revenue through the sale of products, services, depictions, and/or displays of the same.
Priorities and Grant Limitations
Grant-making will be phased based on priority.
- Revenue Threshold: First priority grants go to applicants demonstrating a 90 percent or greater reduction in revenue due to the pandemic between April 1, 2020, and December 31, 2020, when compared to the same period in 2019. Second priority grants go to applicants demonstrating a 70 percent or greater reduction in revenue over the same measuring periods.
- Priority Windows: During the initial 14-day grant-making period, only first priority applicants will be awarded grants. A second 14-day period immediately following the initial 14-day period will be solely for awards to second priority applicants.
- Remainder: After the initial 28-day period, grants may be awarded to any eligible person or entity (at least 20 percent of the appropriated funds must remain available for remainder grants after the two priority windows).
- Supplemental Grants: Recipients may be eligible to receive a supplemental grant, but only after all timely initial grant applications have been processed and only for applicants that as of April 1, 2021, demonstrate that revenues for the most recent calendar quarter are not more than 30 percent of revenues for the corresponding calendar quarter in 2019.
- Award Limits: Initial awards will generally be capped at the lesser of:
- (i) 45 percent of 2019 earned revenue; or
- (ii) $10 million dollars; supplemental grants "shall be" equal to 50 percent of initial award, but the total amount between the initial award and any supplemental grant cannot exceed $10 million dollars
- Small Employer Set Aside: At least $2 billion dollars of the total amount of grants must be awarded to eligible applicants employing no more 50 full-time employees; however, this set-aside applies only during the initial 60 days after grant awards begin.
Use of Funds
- Eligible Costs: Grant monies may be used for payroll costs, rent, mortgage or utility payments, debt service for obligations incurred prior to February 15, 2020 (excluding pre-payment of principal), worker protections, independent contractor payments (not to exceed $100,000 for any individual employee of a contractor), and other "ordinary and necessary" business expenses.
- Timing: Grant monies may be used for eligible costs incurred from March 1, 2020, through December 31, 2021 (or through June 20, 2022, for supplemental grant awards). Funds not expended within one year of the date of the grant must be returned (or 18 months if there is a supplemental grant award).
- Prohibited Expenses: Grant monies may not be used for real estate purchases, debt service for obligations incurred after February 15, 2020, investment or re-lending, or contributions on behalf of a political party or committee, candidate for elected office or other prohibited expenses as determined by the program administrator.
Applicants must retain records that document compliance with the requirements for a grant award under the Act for three years following receipt of the grant (four years for employment records). The program administrator will also have the right to review and audit use of funds by grant recipients.
The above summarizes key terms of the Act, but individual applicants should assess eligibility based on such applicant's specific circumstances and in light of any additional application guidance or procedures subsequently promulgated to implement the grant program.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
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