New USA Team Handball CEO, Matt Van Houten, recently posted an update on his first two months of activity and made a point to highlight the federation’s dire financial straits and that he’s counting every penny.  There have been several indications of this financial stress in the past few years.  In 2011, former Board of Director’s President, Dieter Esch, decided to quit donating personal funds to support the Federation’s operations, forcing a number of cuts to staff and operations. For over a year, USA Team Handball team then functioned with an interim GM, Dave Gascon, serving on a pro bono basis.  More recently, it was announced that athletes wanting to participate in the upcoming Junior Men’s Pan American Championships would each be required to raise at least $1,200.

Beyond the pronouncements, however, it is possible to get a better sense of the situation by reviewing Internal Revenue Service (IRS) Form 990s.  The IRS Form 990 is a requirement for all U.S. tax exempt organizations and provides a window of transparency in regards to finances.  The federation was a little late in providing some of this data, but recently did post its 2010 Internal Revenue Service (IRS) Form 990. (Based on the accountant’s signature date (30 November, 2012) it appears to have only recently been filed.)

The 2010 form covers the period from 1 July, 2010 to 30 June, 2011.  This was a few months prior to the end of the Esch – Pastorino era so it’s now possible to do a little bit more forensic analysis on almost those entire 3 years.  Here are a couple of charts that summarize the Income and Expenses for three years covering the time period from 1 July, 2008 to 30 June, 2011.

 

Form 990 YEAR	Sponsorship Revenue	Membership Dues and Assessments	National Team Revenue	Special Events Income	Other Income	Contributions/ Grants	Total Revenue
2008	$0	$41,117	$0	$0	$11,434	$489,150	$541,701
2009	$75,760	$38,747	$13,972	$129,302	$5,727	$711,104	$974,612
2010	$146,863	$32,803	$26,862	$20,017	$7698	$656,704	$890,947

 

Form 990 YEAR	Total Salary /employee benefits	Travel	National Team Expenses	Germany vs Poland Match	USA Club Competition Expenses	Other Expenses	Total Expenses
2008	$285,279	$65,754	$7,071	$0	$36,058	$87,231	$481,393
2009	$442,766	$218,863	$147,448	$0	$68,179	$141,422	$1,018,678
2010	$368,046	$119,919	$145,099	$136,819	$84,408	$92,618	$946,909

 

A few key data points

– Salaries and other employee compensation constituted the lion’s share of expenses (roughly 40%) during this period.  At its peak the USA staff had as many as 14 (7 full and 7 part time) staff members.  In hind sight (well actually foresight for some) a large staff was not sustainable and did not make much sense given the sport’s state of development.

– A significant amount was also dedicated to travel expenses.  As chronicled on the Federation website there were several overseas trips to build ties and obtain sponsorships.

– Membership revenue declined all 3 years.  This is pretty telling statistic.  With regional staffs and development efforts this revenue area should have seen at least some modest growth.  In contrast, the 2010 membership revenue of $32,803 is the 2nd lowest yearly amount ever collected since 1997..

– Sponsorship revenue apparently peaked at $147K.  Developing sponsorship as a significant source of revenue was a major goal and deem necessary to wean the Federation off reliance of USOC and other donor (mostly Dieter Esch) grants.  There are a number of reasons that could be attributed to this shortcoming and some of them are detailed here.

– The Germany vs. Poland match that was held in Chicago (July 2010) had listed expenses of around $137K and was surely a net loss financially.  The exact amount is difficult to determine.  2009 had a special events income of $129K, so a minimum of $8K was lost and assuming that some other events generated income there probably was an accountable loss of around $30K.  If Dieter Esch opened his checkbook for some other expenses not directly on the books the loss might be far greater.

– It’s not possible to fully determine the contributions of Dieter Esch (and others) since those contributions are not broken out on the forms.  It is, however, possible to get a rough estimate by taking the total amount contributed ($1,857M) and subtracting out USOC contribution ($.857M during those 3 years).   Perhaps, a coincidence, but the number works out to just under $1 million.  (Further note:  There was a $50K contribution requirement for board members, so not all of that $1M came from Mr. Esch’s generosity.  Some of these contributions, though, may be reflected in the sponsorship lines.)

Dire Financial Straits

It doesn’t take an extensive review of this data to better understand the situation.  In simplistic terms, all one has to do is take about $333K off the yearly expenses listed above.  (This is a rough estimation of the Esch (and others) yearly generosity which no longer exists.)  Much like the fiscal cliff discussion the only way to solve the problem is to start cutting and/or raising revenue.

Possible Cuts?

While there are areas which could be (are being) trimmed there’s not a whole lot of margin.  Employee salaries are the obvious expense to put on the chopping block.  There’s no way they can approach the previous levels and the staff is accordingly smaller and leaner.  Board Meeting notes indicated that the CEO salary would have a base of $100K with potential bonuses related to additional revenue being brought in.  Throw in a salary for a Technical Director (~60K) and some Coaching (TBD) and the total salary line (with benefits) is probably around $250K.  Travel expenses surely are another area that will be cut to the bone, perhaps to $25K.  National team expenses in 2009 and 2010 were listed at around $150K.  It’s not clear what all those expenses entailed, but I’d like to think that the bare bones programs of those years will at least be maintained.  With talk of a residency program they might even be increased.  Throw in another $75K for miscellaneous expenses and $50K for club competitions and a rough estimate of total expenses is around $550K.

Additional Revenue?

But what about the revenue side of the ledger?  With yearly Esch generosity no longer coming in the Federation’s biggest source of revenue are USOC grants.  From 2009 to 2011, the USOC contribution was roughly $286K/year.  Reportedly, the USOC has kicked in some extra funding to help pay salary expenses for a couple of years, but it’s not clear how much that will be and whether it will change the overall USOC contribution.  Perhaps the new total will be near $350K.  This means the rest has to be made up through a combination of sponsorships, membership dues and miscellaneous revenues streams (ticket sales, tournament entry fees, etc).

As previously noted the recent high water sponsorship mark was $147K.  Perhaps this number can be matched in the near term, but significant increases are unlikely overnight.  Membership revenue has dipped below $40K and it will surely increase, but near term perhaps $50K can be expected.  Without going into detail on the nuance of the different miscellaneous income items I would be surprised if they also don’t stay in the neighborhood of $20K.  This leaves a total of $607K, but it’s really a rough estimate based on very limited information.

Little margin for error and the importance of transparency

So, this simple estimate projects a surplus of $57K.  To reiterate it’s really rough.  If the USOC doesn’t want to chip in more or the sponsorship projections are off it quickly turns into a deficit.  And then you’ve got to start whacking.  Salary expenses, in theory, could be cut.  So could national team expenses. Maybe the National Championship will need to be a breakeven (instead of a money losing) venture.  Or maybe membership dues could go up.

Which all leads to the importance of transparency when it comes to budget data.  IRS reporting requirements have enabled me to do an assessment of a year and half old financial data.  Informative, but only of limited use after the fact.  It certainly makes you look back on some past Board decisions and really scratch your head.  The Federation couldn’t fund a team to go to the PANAM Games but it could pay for 14 full and part time staff members?  Did the Federation really need to pay over $200K in yearly travel expenses?  Or maybe most importantly, if the Federation had been a little bit more conservative with its spending would it be in such dire straits today?

Switching to present day, you can bet your bottom dollar that a number of decisions will be made soon regarding how to spend limited funds.  Do we have to wait a year and a half to see what funding was available and how that funding was spent? Or can we see what’s available now and what the plans for spending are?  How exactly are the potential spending options prioritized? With limited funds what takes priority: a national team trip, hiring a new coach, or sending funds to support new club programs?  Will a serious effort be made to qualify for the 2016 Olympics or will the Federation quietly opt to focus on 2020? Etc. etc.

To reiterate, the low hanging fruit is there.  With an emphasis on transparency here’s hoping that the Federation will provide real insight into the looming budgetary decisions that will have to be made.