Balancing limited income with many desired expenses will require some tough decisions for the U.S. Federation.

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.

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.

American sports leagues have successfully invaded Europe. It’s high time for European handball to invade America.

In Part 7, I listed several reasons why for many years European handball entities did little to develop the American market.  In this part, I highlight how while Europe has opened its eyes to the possibilities, many of its initial efforts have faltered.  (Part 1) (Part 2) (Part 3) (Part 4) (Part 5) (Part 6)

A European Awakening

For many years European handball entities weren’t very much engaged in the development of Team Handball in the U.S.  The litany of reasons for this include basic indifference, a belief that the U.S. should develop Team Handball on its own, market competition from other sports,  the amateur focus in Europe, an unwillingness to invest, not understanding the American marketplace and ineffective American Federation appeals for help. The good news is that while these challenges still exist they are largely becoming passé as professional European leagues and Federations have awakened to the possibility of American revenue streams.

This has happened primarily for a couple of reasons.  First, European handball executives couldn’t have been blind to an American sports invasion in Europe.  Every kid wearing a Dirk Nowitzki, Dallas Mavericks jersey is one not wearing a Pascal Hens, Hamburg jersey.   Every NBA TV broadcast means a little less interest and money being spent on a Handball Bundesliga broadcast.   Ouch. That’s hitting the old pocketbook.  But, it also surely wasn’t lost upon some handball executive that if the NBA can sign big TV contracts and get kids to wear NBA jerseys, then maybe Handball could do the same thing to the U.S.  market.  Or as the South Korean women’s national team often demonstrates, sometime the best defense is a good offense.

Secondly, while there’s sure to be some trepidation in regards to a risky expansion in reverse, European soccer has proven that it can indeed be done. What once was a trickle of minor TV contract deals to get the European foot in the door has evolved into “no kidding” bidding wars.  Case in point was the recent NBC purchase of the English Premier League (EPL) rights for $80-85 million/annually.  This was four times what Fox was paying previously and, get this, you couldn’t even find any soccer matches on TV anywhere in the U.S. not too long ago.  That’s right a bidding war for something nobody, but a few Expats would have watched a dozen years ago.  Sacrilege of sacrilege, these sports networks are even reporting soccer scores on the bottom trailer during broadcasts of American Football games.  I guess I’m an old timer, but I still do a double take when I see Norwich 2, Aston Villa 1; Man U. 3, Reading 0; scroll across the screen.  And call me crazy, but if the EPL can get $85 million, surely the German Bundesliga can get a meaningful fraction of that at some point.  Even 1/100th of $85 million is better than no contract at all.

Stumbles Along the Way

So, with an ongoing American sports invasion in Europe and soccer proving that America could also be plucked, European entities have dipped their toes in the U.S. market.  As often happens, however, there has been some false starts and failures.  Most notably, live events on U.S. soil have only had marginal success.  The French League’s final four cup in Miami (2009) was well staged, but had dismal attendance.  The Poland-Germany match in Chicago (2010) was better attended, but didn’t create the desired post match buzz.  In hind sight it’s clear that these events didn’t fully take into account the basic awareness problem the sport faces in the U.S.  You can’t just simply fly to the states and expect Americans to buy tickets for a sport the bulk of them don’t even know exists.  Well, I guess you can, but there are surely more effective ways to spend your money at this stage of the sport’s development in the U.S.

Showcases on U.S. soil can make sense, but only if they are structured to the current market.  A perfect example of that is the New York City Tournament and All Star Game held the past 3 years as part of a New Year’s Eve package primarily for German tourists; a much smaller event which has a chance to grow.  No, in order to properly stage a big event, you first need to grow your market.  Case in point, are the NFL regular season matches in London that now sell out 80,000 strong.  The NFL plotted this out over many years, slowly but surely developing a fan base in the UK that were hungry to see a live match.

And how was such a fan base developed?  Through TV, of course.  In fact, it’s kind of amazing when you think about it.  American Football had no historical background whatsoever in the UK.  Only a handful of people even play it there today, yet now there’s even talk of a London franchise.

Finally, on TV, but on the right channels?

Encouragingly, European entities have recently been able to break into the U.S. TV market.  The German Bundesliga was first on the scene with matches available first on the “My Sports Germany” Network, and now with Univision Deportes.  The EHF Champions League has also been available, first with MHz and now with beIN Sport and Univision Deportes.  The bad news, however, is that these networks are way off the beaten path.  In many parts of the U.S. they are either not available or require an a la carte or top tier purchase option with a Cable or Satellite TV provider.  In other words, die hard fans can now seek out and find Team Handball on TV, but the likelihood of new American fans stumbling upon Team Handball is pretty slim.

I’m not privy to the negotiations that resulted in Team Handball rights being sold to beIN Sport and Univision Deportes, so I have no idea how much these networks paid and whether any other networks were courted.  Further it’s unclear as to whether other factors such as a network’s market reach factored into the awarding of TV rights.  Let me put it another way.  If ESPN (the #1 behemoth in the U.S. with near total market reach) showed even the slightest inkling of interest (FYI: this suggests they had an inkling) into broadcasting the sport the EHF and/or HBL should have been prepared to bow down and serenade ESPN HQ in Bristol, Connecticut.  Such a possibility would be the ultimate game changer for the sports development in the U.S.  Seriously, every other commentary on this website would start with sentences like, “Before ESPN broadcast Team Handball or “After ESPN….yadda yadda yadda.”  Instead of a glorious two weeks of attention every 4 years during the Olympics there would be a constant stream of new fans and players picking up the sport.

A job too important to give to a middleman

Of course, I don’t know how beIN Sport and Univision Deportes were chosen for broadcast.  Perhaps, they were the only ones interested.  I do know, however, that in the recent past, that this website actually broke the news to one European Handball entity that their matches were now being broadcast in the U.S.  How could that possibly be, you might ask.   Well, it was certainly something that had me scratching my head.  It turns out that the primary reason for this was the farming out of TV rights to a 3rd party to distribute and make deals in foreign markets.   As I understand it, the 3rd party then gets compensated for each deal that’s made around the world.  Again, I’m not privy to the contract specifics, but such an arrangement probably makes it more likely that the highest bidder is going to win.  After all, the middleman has a short term contract and wants to make money.

The trade off of less money (heck, even paying ESPN) for greater exposure is simply not there for a middleman.  That’s not to say that money shouldn’t play a factor, but the right, smaller deal now could lead to better deals later.  Case in point was the EPL decision to go with NBC when reportedly beIN Sport was offering more money.  According to NBC Executive, Jon Miller, EPL Representatives “understand how a property can be hamstrung if it doesn’t have distribution.”  I’m not so sure, however, that the same can be said for European Handball representatives.

Going further, there’s probably a pretty good case to me made that the Europeans should have at least 1 person, if not a fully staffed office section, 100% devoted to the growth of foreign markets like the USA, China and India.  For sure, the U.S. Leagues have done so.  In fact, it wouldn’t surprise me if the staff for NBA Global is bigger than the combined staffs of the EHF, IHF, HBL and the Liga Asobal.

Closing Thoughts on the Awareness Problem

I’ve gotten some negative feedback regarding my characterization of the awareness problem the sport faces in the U.S.  I’ve been told that I’m simply a Negative Nelly for exaggerating the problem and giving it too much prominence.  Essentially, by exposing the problem I’m making too strong of a case to Europeans and TV executives that it’s really mission impossible and they would foolish to waste time and money on something that’s never going to happen.

As you might expect I don’t buy that argument for a second.  I’ll just re-emphasize the crazy opportunity this awareness shortcoming presents.  The fact that such a great sport, tailor made for TV viewing has around 300 fans in this country is really unfathomable.  Despite all the challenges and obstacles I firmly believe that this sport will become a part of the American Sports landscape.  It’s not a question of if, but when?

So, I’ve now covered the underlying reasons why the U.S. didn’t qualify for the Olympics.  Namely the U.S. hasn’t had the funding/resources and that there’s a basic awareness/marketing problem which precludes the ability to secure more funding/resources.  Next, I’ll tackle some management/leadership shortcomings that have at times exacerbated the problems that USA Team Handball has faced.  

(Editor’s note:  At this time I haven’t delved into these shortcomings.  This currently is the last part of this series, but it may continue at some point in the future.)