Event Costs-FIRST accounting

[James3245]

The current concern about the potential Las Vegas Regional cancellation raises anew the sticky issues related to how event costs are covered.

I've had a slow-growing sense that the system is out-of-balance but my impression is based on only snippets of information from event organizers and taking a look at the published FIRST financials. I'm uninformed and admit as much. Nevertheless, my impression that things are out-of-whack has been amplified in the last day learning about the LVR situation.

As a teacher/school administrator at a non-profit independent school I know well that:
a. education endeavors are people-intense and thus expensive to run and that tuition/user fees do not by themselves balance the books
b. large endowments are vital to ensure non-profit institutions can weather mishaps/disasters/changes in the economy
c. large endowments are vital to growth-related projects that have long "payback" periods
d. in education "paybacks" are in the form of better trained students and rarely monetary and thus growth projects depend on donors/sponsors who understand that a new facility/project doesn't won't typically pay for itself through new income

FIRST is essentially an education-based non-profit endeavor that needs to think like one. And given that part of its mission is to "change culture" it naturally is growth oriented. It takes money to grow, and it takes money to ensure the institution's long-term viability.

But, as noted by someone in the LVR post, I, too, have only fuzzy answers for parents/sponsors/students who wonder why events cost so much. Earlier years, I used to ease their concern by conversationally speculating with them about how much it must cost to rent a big venue such as we use here in Utah (a professional sports/concert arena). Then I found out that none of the venue costs are covered by entry fees. Now, my answer to such questions is an honest, "I don't know." An answer that is not satisfying to the parent/student/sponsor nor is it comfortable for me to deliver.

The Las Vegas situation has undermined my confidence in the underlying economic fundamentals of the system. I remain a strong believer in the power of FRC experience; my high confidence in the fundamental learning value of FRC has not diminished at all. However, I'd like to be more informed, for my own peace of mind, as every year our team, like many others, does a lot to promote the FIRST organization.

I want to believe in the institution more fully. I will be a better promotor of the mission if I have more understanding.

What are the costs of running a "typical" regional/ district event?
How much is borne by FIRST? How much does it cost for FIRST to provide field and paid personnel?
What are FIRST's operating principles for disbursement of general funds.
What are the endowment goals?

We don't need to know everything about FIRST financials, and certainly FIRST would not be a better organization led by committee-of-Chief-Delphi. However, a more clear understanding would help us all more confidently promote the organization behind the mission.

[Steven Donow]

This document includes a bunch of good info on the cost of running an event

Here are a bunch more including similar financial documents on running a district (the finances of which are completely different from running a regional.

Also entry fees do not cover events because that includes the cost of the Kit and just general FIRST operation...just because FIRST is a not for profit organization (different from a non-profit IIRC) doesn't mean they can fully run off donations.

[James3245]

Thanks for the documents - I'll take a look. No doubt there is a lot of complexity behind the scenes to make it all work.

[Gdeaver]

It might make more sense to think of First INC. not as a non-profit corp but as a franchise. We have bought into the franchise. Each team and regional-district are responsible for our own business finances. Think of registration fees as franchise costs. For MAR the biggest driving factor to go to a district model was the cost of the Philadelphia and old Trenton-NJ. regional. The money just wasn't there. Now, based on several problems over the past couple years, First needs to take some of that big wad of cash they have accumulated and invest in the franchise product that we bought into. FTC is one area they really need to work on the franchise product. This whole thing is based on sponsorship and volunteerism. What really pi---- me off this year was the product they sold us could not be administered by volunteers. I'm taking about the refs and field reset. They could not handle it. Many of the volunteers we all rely on are on the verge of walking away from First or all ready have made that decision. First caused us to to burn some volunteer capital this year. Not quite on topic but, I felt like venting a little.

[James3245]

Wow - considering this through the lens of a franchise model is very illuminating. The logic starts to fit. Corporate HQ will help out the burger franchise through a bad patch but if it doesn't make enough sales then cut it off after a year or two. The LVR situation fits perfectly looked at from this perspective.

However, while the mission of the burger franchise is to make a certain level of profit through sales, the FIRST mission is about changing culture through education and inspiration. Right?

My understanding of the background costs is improving, but so far I still think there is something fundamentally out of balance in the system if LVR is actually being debated by HQ.

I think Frank did acknowledge that too much was put on the refs/field staff this year. However, your point is well taken; FIRST puts itself in a bad position if it absorbs a net financial gain while relying on an untenable role for the very volunteers that help it maintain that financial cushion. The GDC is doing its best, and I'm amazed at how well they do every year, this is not on them. FIRST, to some degree, sets up these situations by trying to have it both ways - volunteers administering the product, while maintaining a hard-nosed franchise model. Or so it seems...

The heartless-franchise image may be overblowing things, but many of us do share serious misgivings about the existing financial model. We remain big supporters of FIRST because we see students being transformed through the experience. We should question steps that appear to undercut the very opportunities that help more students have such transformative experiences.

[AdamHeard]

I don't know enough numbers to state this as fact, but I feel we are being charged too much for the support they give regionals.

If they want areas to essentially be responsible for themselves, then some of our fees need to go towards that OR we need to pay less.

If the fees stay high, then they need to support areas more.

I could be wrong once (if) FIRST reveals more details about how and why they charge what they do, but I have a hunch even after that most would agree with the above.

[sanddrag]

I don't have the data on how many teams compete at multiple events, but if you did some quick math on 3000 teams each paying a $5000 registration fee for their first regional, 400 teams paying $5000 for championship, and say 1000 teams paying $4000 for a second regional, that's $21 million.

Their 2013 financial audit report indicates a total program registration fee income of $19 million.

Now, I don't know how many people FIRST has on staff and but I could estimate salary and benefits costing somewhere in the neighborhood of $10 million per year for a staff of 90ish.

What gets me is the FRC operating cost of over $33 million. What the report shows is that as much as we pay, that only covers about 50% of FIRST's costs, with approximately the other half being covered by grants.

So, to me, what the audit report looks like, is that it costs FIRST about $10,000 per team per year to operate this program. That seems rather costly for them.

One last note on the reason they want to keep $24 million cash on hand. It must provide great interest payments!

[rsisk]

Originally Posted by sanddrag

... Now, I don't know how many people FIRST has on staff and but I could estimate salary and benefits costing somewhere in the neighborhood of $10 million per year for a staff of 90ish. ...

2011 - 990 tax return has salaries at 8,371,568

[David Brinza]

In Joe Barry's "LAS VEGAS REGIONAL ... terminated?" thread, I wrote a post about FIRST's accounting of grants to teams, based on their 990.

The high cost for registration for 2nd, 3rd regionals doesn't seem justified, given none of those fees directly support the events the teams attend.

I believe FIRST should be more transparent about how registration fees are costed in the program.

[tcjinaz]

Originally Posted by sanddrag

I don't have the data on how many teams compete at multiple events, but if you did some quick math on 3000 teams each paying a $5000 registration fee for their first regional, 400 teams paying $5000 for championship, and say 1000 teams paying $4000 for a second regional, that's $21 million.

Their 2013 financial audit report indicates a total program registration fee income of $19 million.

Now, I don't know how many people FIRST has on staff and but I could estimate salary and benefits costing somewhere in the neighborhood of $10 million per year for a staff of 90ish.

What gets me is the FRC operating cost of over $33 million. What the report shows is that as much as we pay, that only covers about 50% of FIRST's costs, with approximately the other half being covered by grants.

So, to me, what the audit report looks like, is that it costs FIRST about $10,000 per team per year to operate this program. That seems rather costly for them.

One last note on the reason they want to keep $24 million cash on hand. It must provide great interest payments!

High quality interest income is squat these days. Still, it's more than 0.

My back of the eyeball computation shows a return on net assets in excess of 20%. Did I miss something? The encumbered assets are an accounting challenge. Net assets did go up, a lot.

Those FIRST results are a wonderful example of effective, efficient business operations and management. Maybe even worthy of inclusion in how the organization educates the students about the real world. Maybe teams should operate like businesses, with double entry accounting systems, P&L and balance sheet reporting. There's just a little problem in how non- (or not for)-profit organizations keep their books, compared to the commercial world (governments are even worse). But is the goal of FIRST monetary RONA?

[adciv]

Originally Posted by sanddrag

One last note on the reason they want to keep $24 million cash on hand. It must provide great interest payments!

Rain Day Fund. Most organizations do need a reserve in case of unforseen issues. In the case of FIRST, this would be a sponsor or three pulling out in a given year. Having no reserve is a sure way to go belly up.

[Andrew Schuetze]

Originally Posted by sanddrag

I don't have the data on how many teams compete at multiple events, but if you did some quick math on 3000 teams each paying a $5000 registration fee for their first regional, 400 teams paying $5000 for championship, and say 1000 teams paying $4000 for a second regional, that's $21 million.

Their 2013 financial audit report indicates a total program registration fee income of $19 million.


So, to me, what the audit report looks like, is that it costs FIRST about $10,000 per team per year to operate this program. That seems rather costly for them.

I've not looked at the referenced financial documents but do your calculations per team account for Jr.FLL, FLL, and FTC teams in addition to FRC teams?

[Tom Line]

This gets asked so frequently, it seemed like a very good question to submit to Frank answers Fridays, so I fired it over there.