Profit or Not?

“Marx was right” I was murmuring to myself when I read the Minutes of the 2018 IOF General Assembly. It was Karl Marx who stated in Die Deutsche Ideologie (1845) as part of his criticism of the Hegelian idealism, that Nicht das Bewußtsein bestimmt das Leben, sondern das Leben bestimmt das Bewußtsein.”  That is, “It is not Consciousness that determines Life, but Life determines Consciousness.”

In the Congress binder of the 2018 IOF General Assembly it was shown that the 2016-18 period the IOF made no profit. In the minutes of the GA it was stated that the IOF’s financial status has been stabilised, and after all, the IOF is a non-profit organisation and the goal is not to make significant profit. This appeared to be in stark contrast with the over €300,000 profit plans presented to the GA 2 years earlier in the 2016 Congress binder for the same period by the same leadership, and the statement that the surplus was required to strengthen the IOF’s financial position. Apparently changes in life changed the thinking of the IOF leadership.

The planned and expected profit figures of total profit for the 2016 – 2018 period are shown below. You may find more details in my previous post IOF Financials – the past is dark, the future is unclear.

iof total profit 2016-2018

 

In the Minutes of the 2016 General Assembly under Section 15.2 “Membership fees and budget for the years 2017–2018” it was stated that

Leho Haldna presented Council’s proposal for the budget for the fiscal years 2017 and 2018.

LAT requested information about how the planned surplus in the budget was to be used, and also asked where the proposed increase in development funding was shown in the budget.

TH [Tom Hollowell] responded that the IOF’s capital and reserves should be strengthened and that the surplus was primarily intended for this purpose.

In stark contrast, under Section 10 in the Minutes of the 2018 General Assembly, under “Report by the Council on the activities of the IOF since the last Ordinary General Assembly”, it reads that

President Leho Haldna (LH) presented the report on the activities of the IOF in the period since the previous General Assembly in 2016 […]

The report also included how the IOF’s financial status had been stabilised during the last congress period. LH wished to make the statement that the IOF is a non-profit organisation, and that the goal was not to make significant profit, but that these funds should always be reinvested into the activities of the organisation.

For the uninitiated the above views of the IOF leadership only two years apart may sound like contradictory to each other. For the avoidance of doubt, one may find that the reason for the significant shortfall in the delivered profit was not reinvesting in activities, but the IOF’s inability to deliver the sponsorship and other external income as planned by the IOF leadership. Although there appears to be some inconsistency across various representations of IOF budgets, forecasts and accounts, my best estimate is as follows:

 

iof sponsorship income 2016-18

What is clear, is that in the beginning of 2016 the capital and reserves of the IOF stood at €114,630. In August 2016 the IOF leadership believed that an extra €300,000 addition was required for the capital and reserves of the IOF to ensure stability. After two years there were virtually no funds added to the reserves. Yet, the IOF leadership declared that the IOF’s financial status had been stabilised. Either a financial miracle happened, or Marx was right and changes in life changed the thinking of the IOF leadership.

It is also notable, that the realisation of 2018 that the IOF is a non-profit organisation came only two years after the largest annual profits were planned in the IOF’s history.

Ten years underperformance - Sept 2018

 

What has changed? Apparently, nothing more than Life made the IOF leadership realise that they could not deliver the fantastic profits they dreamt up.

We have to bow to the wisdom of Karl Marx.

The Value of Athletes

I was approached by different athletes suggesting that the picture below would worth a post. It shows the podium of the 2018 World Cup series. If you zoom in, you can see the prize money given by the IOF to the top FootO athletes of 2018. €100 for 6th place overall, €200 for 5th, €300 for 4th and €400 for 3rd. Tove and Karolin were smart enough to cover up the reputation damaging sums of €1000 and €500 given for their outstanding performance through 2018.

world cup podium 2018

It just does not look right. It is simply shameful, as one athlete said. Even no prize money would work better than showing these sums to the world.

For comparison, here are some numbers for the 2019 overall prize pool of three international federations. Interesting to note that all three have increased the sums over their 2018 prize pool.

  • Orienteering (IOF):       €12 thousand
  • Skyrunning (ISF):        €187 thousand
  • Biathlon (IBU):         €7,000 thousand

The prize fund for the FootO World Cup was increased for 2019 from €5000 in 2018, but the IOF contributes only €1,500, that is less than 1% of its external revenues, and around 0.15% of its total budget to the €12,000 prize fund.

Although the IOF earns good money from broadcasting the performance of top orienteers, there is absolutely no visible intention to share the profit with the athletes.

In 2018 100%, in 2019 88% of the prize fund comes from a contribution imposed on the organisers of World Cup races. The organisers have to pay this extra fee over and above of all other IOF imposed costs like the sanction fee, anti-doping fee, TV production costs, and the likes.

The information on the Skyrunning prize fund is a bit patchy. It is unclear how much different sources contribute. What is clear that individual races of the World Series must have at least a €6,000 or a €10,000 prize fund in addition to contributing to the overall prizes. They also have to offer free entry and accommodation to the top 10 runners.  No obligation on live TV, though. A very different approach from another non-Olympic sport. They clearly try to attract the top athletes.

The IBU prize fund of €7million rewards a large number of athletes. IBU pays this over and above the €4 million planned as participation support to athletes. Of course, IBU plays in a different league, but it is remarkable that the €7million represents approximately of 1/4 of their external revenues of TV rights, sponsors and funds from the IOC.

If the IOF would follow an approach similar to IBU, approximately €45,000 to €50,000 would be paid to the athletes based on the planned net proceeds from sponsors, TV rights, Live Orienteering, and IOC contribution. If we consider the event sanction fees as external revenue, like the IOF leadership does, then €100,000 to €110,000 would be the prize fund following IBU’s approach.

What is behind the IOF’s rather different attitude towards sharing the proceeds with the best athletes?

Continue reading “The Value of Athletes”

IOF Financials – the past is dark, the future is unclear

With this post I would like to give the confidence to the representatives of Member Federations before the vote on the 2019-20 budget on the IOF General Assembly next weekend. I know that for people with no finance background it often looks like a daunting task to interpret financial statements and have confidence in their decision. So I would like to assure them that based on the IOF’s track record for the past 10 years, and especially for the past 2 years since the 2016 General Assembly, their vote doesn’t matter.

No matter how Members Federations vote, the IOF Leadership will spend the money the way they want, independent of the GA approved budget.

In this post I will quickly review the past, present and future of IOF finances as presented on recent General Assemblies.

Continued historic underperformance

The publication of the 2017 results and the forecast for the 2018 published in the Congress Binder have confirmed the remarkable feat achieved:

The IOF Leadership has missed the budget target set by themselves for 10 years in a row.

I wrote about this earlier here and here, the numbers published for the 2018 General Assembly just confirmed the expectations.

Ten years underperformance - Sept 2018

Not only the continued underperformance against their own budget targets set by themselves may come close to a Guinness Record, but the results were poor also in absolute terms.

The IOF has lost a total of €114,000 since 2009, and €38,500 since 2013.

Ignoring the approved budget looks like a recently established culture of the IOF Presidents. It started under Åke with unpublished promotions that very likely had budgetary impact, continued by Brian just informing the Council that he decided to overstep the approved budget to fund an exhibition on the SportAccord convention, and continued further by Leho who started to revise the 2017 budget already in October 2016, within two months after its approval (as discussed below).

Complete wipe out of the 2016 GA promises

Leho, as freshly elected President promised a period of plenty on the 2016 General Assembly, with highly profitable years coming starting from 2016. The result resembled the words of Chernomyrdin, the late Russian Prime Minister:

We wanted to do it better, but the outcome was the usual

Results 2016-18

For the avoidance of doubt, the plus zero result (or 0.2% of the promised total profit of the total of three years 2016-18) was not due to spending all the money on development projects. The reason for underperformance were the complete misjudgement of revenues, and overspend on some expenses, like the World Games (€10,000 planned, €29,306 spent in 2017).

Unfortunately, this poor state of IOF financials contributes to the bad feeling that there was an incentive for the IOF leadership to spend monies collected for anti-doping activities of the IOF differently than the original intention.

Continue reading “IOF Financials – the past is dark, the future is unclear”

IOF Anti-Doping activity questions

(This post has been updated with information received from the Portuguese organisers of the 2016 World MTBO Championships. The updates are shown in the text in blue)

I always believed that the anti-doping fight was too important a matter to be left to the anti-doping officers, to paraphrase Clemenceau’s famous assertion that war is too important a matter to be left to the generals.

Yet, I always found it difficult to have a meaningful discussion about it with Brian and the Council when I was the Chair of the MTBO Commission. Their argument was, of course, that anti-doping matters are highly confidential. That is obviously a very relevant point regarding specific tests, but I could never figure out the reason for their reluctance to discuss anti-doping strategy and finance. Were they hiding their lack of understanding and unwillingness to learn about the topic? Or were they simply reluctant to engage in meaningful discussions?

To the deepest regret of most top managers, questions do not disappear just because they do not want to talk about them. This applies also to the IOF’s anti-doping activity, and the more one scratches the surface the more questions pop up. In this post I will share with you some observations that suggests that all is not well. I have more facts about MTBO for the simple reason that I talk to most athletes and organisers in that discipline, but both anecdotal evidence and data available suggests that there are similar questions across all disciplines of the IOF.

Fewer AD tests

There was a sharp drop in the number of AD tests for MTBO athletes commissioned by the IOF. There is no official data available, but MTBO is a  small community (a bit like FootO was in the 80s and 90s), and people talk to each other.

IOF MTBO anti-doping tests - updated

 

Some explanation: OOC stands for out of competition, IC stands for in competition. The peak in 2016 was achieved in a hybrid year of financing when the IOF leadership introduced flat taxes (or “donations”, as they call it), instead of  just surprising the organisers on the event by the number of AD tests to be paid for. The Portuguese World Championship organisers were asked if they wanted to pay the then newly set fee of €4000 according to the new AD financing system, or pay for the tests as requested by the IOF according to the old system. Knowing that typical number of tests requested would  cost less than €4000, the Portuguese elected to pay themselves. They had the pleasure to pay for a record number of 27 AD tests on 18 athletes, far the highest ever requested by the IOF on a single World MTBO Championships. That cost the Portuguese organisers at around €6500, including doctors’ fee. There was a strong feeling that the IOF took advantage of the situation that the Portuguese elected to go by the old system. This feeling of being taken advantage of was strengthened, when both in 2017 and 2018 the IOF paid only for 8 tests (i.e. less then third that of ordered in 2016) on the World MTBO Championships, despite collecting a record amount of €5000 and €5500 from the organisers.

Anecdotal evidence from FootO elite athletes suggests that recently there was also a sharp drop in AD tests on major FootO events.

Unfortunately, the hard facts available also point to the same directions. The number of athletes in the IOF Registered Testing Pool has dropped by over 60% in 2 years. The number of FootO athletes dropped from 8 to 3 between 2016 and 2018. These are the athletes who have to report their whereabouts in WADA’s ADAMS system, that is, these are the athletes who can get an out of competition AD tests ordered by the IOF. You may find the lists of the registered athletes here.

 

IOF registered testing pool

But this is not the end of the story.

Continue reading “IOF Anti-Doping activity questions”

IOF Financials – Smoke and Mirrors

Let’s get back to the sensitive question of IOF financials. In January I hoped that there might be some meaningful information shared after the IOF Joint meeting where finances was a surprise topic. Unfortunately, the slides of the strategy/finance presentation of the joint meeting were not published by the IOF despite some very positive vibes coming from that meeting. Only the formal minutes related to the meeting were published here and here.

The 2017 audited financial reports are probably already prepared, but we may have to wait for a long time before we see reliable numbers. Last year the audited accounts were not shared with member federations for 3 months. They were sent to members only after the Presidents’ Conference, maybe to avoid inconvenient questions on the conference.

In the meantime, there were bits and pieces of information shared by the IOF clearly with the intention to prop up confidence about the state of finances:

  • The January Council meeting minutes (#187) stated that the IOF had a “a cash position of 157 TEUR at the end of year 2017” under Point 10.2
  • In the same minutes under the same point it was stated that “preliminary financials showed a final result of approximately 16 TEUR”
  • The message of the non-public January meeting was that “the IOF’s financial situation is stable and balanced” as reported for example by the German Federation’s web page based on the report of German delegates.

In this post I would like to show you why one has to take these pieces of seemingly positive information cautiously, especially when they come from an organisation with stretched financials. That’s why I referred to these as “smoke and mirrors” in the title. They give the feeling of an intention is to strengthen confidence, they sound good to people not familiar with the ins and outs of financial reports, but they give no guarantee that the actual financial performance was good or not.

I hope this discussion may also help some Council members (many of whom read this blog) to have a more meaningful discussion next weekend on the Council meeting in Belgium.

Cash position

A “cash position of 157 TEUR at the end of year 2017″ must be good news, mustn’t it? Yes, it is definitely better to have some cash on the bank account, but there is not much more one can say. In an earlier post I wrote about how the amount of cash in hand does not correlate with financial stability. One less familiar with finances may want to read that post first.

Here I will show the balance sheet development of the IOF over the past couple of years to illustrate the same point with hard data.

IOF current assets vs liabilities v2

The above chart shows a simplified picture of the IOF balance sheet. Before we start to analyse it, I would like to explain the basics of accounting for the majority of readers less familiar with the black magic of financial reports.

Continue reading “IOF Financials – Smoke and Mirrors”

IOF Finances presentation

Next weekend, on 19-20 January, the IOF Council and the Commissions are meeting in Warsaw for the regular annual IOF joint meeting. The short common program contains an interesting topic: IOF Finances.

 

IOF meeting Jan 2018

This is a most interesting development for several reasons. The IOF leadership was not particularly interested in talking about finances before. They did not present anything even on the Presidents’ Conference in July 2017. Despite the IOF finances being on a knife edge the leadership just sent a letter to members July 2017 a week later to explain that they were handling financial issues since october 2016. It makes you wonder what happened that now they decided to talk about finances.

What makes it even more interesting is that the audience of this joint meeting has little to do with finances. There will be 60 or so participants invited to discuss commission matters and meet the Council for half a day. The participants are delegated to different commissions who have rather technical mandates from discipline development through mapping standards to environmental protection. They are not representing member federations. Few of the participants have relevant business background to understand finances.

In financially distressed companies management typically starts to talk about finances to technical people when they see the possibility of a financial meltdown right around the corner. We have to follow these developments closely. I will share with you any information I receive as soon as they become available.

 

The Agency Problem – Part 1

A case that may both demonstrate the reason for budget overruns and the general lack of controls within the IOF is the story when Brian Porteous, the President at the time, decided (apparently single handedly) to spend money over the anyhow loss making IOF budget on the SportAccord convention in 2013.

Brian decided to ignore the 2013 budget that was approved in July 2012, just 6 months before. A budget that he himself proposed as Vice President at the time of budget preparation.

The Council members, according to the Council minutes, did not blink, as in many other cases when the President made interesting decisions. The member federations had no meaningful mechanism to react.

As a result of the extra €14,100 spent on the SportAccord Convention the budgeted loss  of €52,400 for 2013 has become a loss of €66,600.  There was still some reserves left to spend.

IOF Budget 2013

Before we get into details of this story, I think that it would be useful to introduce some theoretical background.

The Agency Problem

The core issue around the IOF is what business literature calls the Agency Problem. This is an unavoidable feature of large organisations where owners  (shareholders, or in our case 70 member federations) entrust an agent (CEO/President, Board/Council) to run the organization on their behalf.  Unavoidably, the two parties will have different interest and the agent will run the organization in a way that is not optimal for the owners. Conflict of interests and moral hazards are frequent problems. The lost value to the owners is called the Agency Cost.

Continue reading “The Agency Problem – Part 1”