Month: July 2017

The good news is that the IOF has just published their 2016 accounts. This is an unprecedented move. In living memory accounts were published only for General Assemblies. Never on their own more than a year before the GA meeting that should approve it in October 2018. Pity though that it took more than 3 months (or a blog?) for the Council to publish it. The financial report was signed off by the Council in March 2017. But interestingly, it was published only on 14 July, 9 days after the Presidents’ Conference.

The bad news is that the numbers are below all expectations. The losses of 2016 were even higher than the shocking results expected in January. Insolvency is not just a theoretical option any longer.

Less than 2 weeks net cash reserves left. A small negative variance (far smaller than experienced in previous years!) may push the IOF over the edge.

The Council has also sent a revised budget to member federations for 2017. Budgeted expenses were cut from €935,000 to €771,000 (a 18% cut), yet the annual profit is expected to be below €10,000, or 86% down from the €70,000 presented by the IOF Council to the General Assembly in August 2016.

Here are some of the highlights until I find some time to present a more detailed and easier digestible analysis.

• Result for 2016 was a loss of €65,281. This is well below the €37,000 loss expected in January(!), and a shocking €132,737(!!!) below the €67,456 profit predicted by the IOF Council in August 2016 – only 4 months before year end!
• Reserves are down to €45,022 – a low level last seen in 2003. The difference is that in 2003 when costs were below €200,000, it covered 3 months of it. In 2017, at the original budget reserves cover just above 2 weeks of average expenses. With the revised 2017 budget, at lower expected expenses, it covers 3 weeks of average expenses.
• Net cash position is getting very tight. Out of the €45,000 reserves net cash is probably not more than €27,000 – and likely to be less. This includes adjustment for less than €8000 machinery and equipment, and €10,000 debt of the Brazilian Federation from 2014 converted into long term debt to finance South American development. (see https://www.cbo.org.br/financas  2016 – Acordo IOF CBO – Debt Agreement Original em inglês.pdf – unfortunately, this information for some reason is not available from the IOF website) There are other items that are likely to reduce the net cash position further (there were references to long outstanding debts in Council minutes, inventory may not be fully used, etc).
• Net cash position of less than €27,000 covers less than 2 weeks of average expenses, even under the cut budget of 2017. Any development below optimal would wipe it out.
• The stated cash of €191,000 in hand and at banks should not confuse anybody. There were unpaid invoices in the amount of €172,000, and a further €80,000 services already consumed with no invoices received yet.
•  The less than €10,000 expected profit for 2017 would not change the situation in practical terms. We – including IOF suppliers, contractors, and employees – are in for a long ride close to the edge. We can only hope that we will ride on the right side of that edge.

The overall situation of the IOF has become difficult to sustain. Even if insolvency can be avoided, the sword of Damocles will hang over it for many years to come, if things are not changed radically.

Member federations may need to start to warm up to the idea of a cash call, say an extraordinary annual membership fee.

A complete rethink of IOF’s operation also looks unavoidable – asap! It would be inconvenient, but it is better to do it now, before one is forced to do it by the circumstances.

Before we start to discuss the vulnerability of the IOF’s financial situation, it is important to clarify some concepts, around financial difficulties. Most of the visitors of this blog (and happy to see already 1300 unique visitors just over the first 10 days of July!) probably know little about the concepts of financial difficulties of organisations. So we have to clarify some basic ones to be able to have meaningful discussion.

Volunteer member based organisations (clubs, federations, etc) typically run very simple cash based finances, often with little or no non-cash assets. The IOF is no exception. The book value of fixed assets was only €10,000 out of the total €145,000 at the end of 2015. The rest was cash or cash-like asset (money expected and money owed within one year).

The only two basic concepts that you need to understand are as follows. I tried to explain them in layman’s terms to avoid the sometimes confusing language of accountancy as much as possible – while risking being excommunicated by finance professionals.

• insolvency: when there is no cash left to pay the bills, or in other words no liquidity left – AND the ones whom you may owe money (e.g. employees, utilities, service providers, bank, tax office, etc – what they call altogether “creditors”) decide to wait no more.
  Note: one may be wealthy in general, maybe even own huge property, but if there is no cash left, only angry creditors circling around you, that means insolvency.
• technical bankruptcy: when the value of what you own (either what you have in hand or as a firm promise – called “total assets”), is smaller than your obligations (whatever money you owe others in unpaid bills or in cash advance received – called “total liabilities”). It is technical, because you will get into trouble only if everybody you owe something would ask for it. That is rarely the case. Nevertheless, you live on borrowed time. Your net “savings” are less than zero.  It is also called “negative equity”.
  Note: one may have lot’s cash, but if total assets are less than total liabilities, that means technical bankruptcy. The cash in your pocket belongs to somebody else, just not paid yet.

These concepts are simple, but may be tricky to grasp when written down. So instead of getting into lengthy explanations, I would like to introduce you Orienta, a lady artist in her mid-50s, and explain these concepts showing  the problems around her finances.

Meet Orienta

Orienta was an artist with a small, but devoted followership who were rushing around with little painted pictures. She was living mainly on allowing charity festivals to use her name, and she charged them a fee. She also got some money from her fanclub every year, and some little from grants and the odd sponsor. She tried to earn some money on her own, but that wasn’t very successful. You know, artists….

Many dreamt about a happy and enduring relationship with Orienta, but she was capricious with most. She had a sweet spot though for a skinny tall French guy, whom she showered for over a decade with precious bijoux most of us never even dared to dream of. Ah, c’est la vie… But here we want to discuss not Orienta’s romantic life, but her finances….

… and her finances were not in good shape.

Continue reading “Insolvency, bankruptcy, and Orienta”

Probably you were also wondering where all the money collected mainly as fee/tax is going. Many people are guessing, but very few know the numbers. My feeling is that even the ones who know the numbers have only vague ideas about the trends. So I am happy to present here probably the only historic overview of IOF expense evolution from 2000 to present.

The short summary:

• IOF expenses have grown unrelentlessly since 2005, from around €200,000 to a budgeted €900,000 in 2018
• Staff cost is the dominant expense that also provided the backbone for total growth, a superb confirmation of Parkinson’s Law
• Spend on IT systems has exploded from €0 in 2013 to a planned €110,000 in 2018 – or close to 4 times what he IOF spends on quality assurance for all events in a typical year
• The Olympic project is a less visible sink for freely spendable money, but its average annual cost is comparable to all spend on IOF event quality
• Some growth is related to taking on flow through expenses (TV, AD), that were part of the sport, but now they are more visible, which is a good thing.

I have to admit, that it was not easy to put together the data, despite IOF being committed to the highest standards of transparency. It is bad form to complain about the difficulty of an analysis, but I have to give this caveat: post-2006 the data is mainly estimate, directionally correct, but may deviate slightly in detail. Audited reports have a different cut than relevant budget. Post-2012 60% of the expenses were on one single line “Other expenses” in the audited reports, so I had to rely on adjusted budget numbers. Where some details were given, like 2013 and 2015, they did not appear to match the totals in the audited reports, and so on.

The 2017 budget numbers were adjusted in January according to the Council meeting minutes of 2017, but not many specific details known, other than lower cost for staff (one part timer has left, but a part timer may have become full timer), and an extra €20,000 authorised for the World Games (Olympic project).

Despite all the uncertainty, the most reliable number is the ever growing total staff cost, because that was the only major expense reported on a separate line in all audited reports used. Luckily, that is also the single largest expenditure that worths attention. The other ones that exploded over the past couple years are IT systems, Olympic project, TV and Anti-Doping expenses.

Let’s have a look at these in a bit more detail.

Continue reading “Where the money is going”