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 It started under Åke with unpublished promotions that very likely had budgetary impact, continued by Brian just informing the Council that he decided to overstep the approved budget to fund an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”

Ten Years of Underperformance – Update

Over the past month I was too busy to deal with much more entertaining things than documenting the mismanagement and slow motion crash of the IOF. But now I have some time to continue with this gruesome task.

The Council had a meeting on 13-14 October. The published minutes (#186 here) provide additional information and data on the Council attitude to IOF finances.

The Council minute looks like a good old Soviet party communique: all good news, as long as you do not scratch the surface. It reinforces the feeling that the IOF leadership considers finances as their little internal business members should not get involved in.

The 19 page long minutes do not even mention the IOF – Letter to members July 2017 sent by the IOF President after the last Council meeting. The one that was carefully sent after the Presidents’ Conference regarding financial issues and the major revision of the budget. It was a “no event” that the IOF leadership apparently prefer to forget about and erase it from publicly documented history.

The key message of the minutes that revenues are up and expected to rise, while costs are largely under control. The funny bit is that the additional costs mentioned (regional event medals, higher overseas event advising costs, SEA for the World Games) are ones that should have been known when the 2017 budget was prepared. The fact that IOF Leadership uses them as an excuse for higher costs just underlines the feeling that the 2017 budget submitted to the General Assembly for approval was – mildly speaking – not thought through.

Yet, with all the improvements 2017 is still expected to show only a small positive result estimated at around €9,000 (85% below the €66,000 budget), and the updated forecast for 2018 was €30,000, that is over 80% lower than the €169,000 presented to the General Assembly. As expected, the GA approved original budget numbers were carefully not mentioned in the Council minutes.

Now it is official that Council expects to underperform their own budget by a 10 year combined gap of over €500,000 as a result of not meeting their own targets in any year since 2009.

IOF Net income vs budget - update

It is also interesting to zoom in the (2016-18) budgets presented to the General Assembly 2016. The gap between Council promises and delivered results has exploded.

Continue reading “Ten Years of Underperformance – Update”

Ten Years of Underperformance – Skill or Will or Something Else?

The decade long erosion of the financial stability of the IOF discussed in the previous post did not come as a result of a sudden event. It was the result of continuing underperformance of the IOF leadership who missed the budget target for 10 years in a row.

Please see updated numbers to this post here.

This post has turned out to be longer than expected. I had little time to write it, so I could not make it shorter. Here is the summary if you are also pressed on time:

  • The IOF Council has missed the budget target every year since 2009. The target set by themselves, and rubberstamped by the General Assembly without change.  It would take a miracle to achieve the targets for 2017 and 2018. That makes 10 years of missed targets. 10 years of continuous underperformance.
  • It is unlikely that this was due to lack of skills: the leading figures of the IOF during this period (Ake, Brian and Leho) all prided themselves with business background.
  • Looking at recent events one may get a feeling that the IOF leadership just did not care about the budget approved by the GA, hence they could not possibly deliver it:
    • In a letter to member federations about the difficult financial status of the IOF signed by Leho and Tom, the “GA Budget 2017” is different from the 2017 budget published as approved on the IOF website in the minutes of GA 2016.
    • In the same letter they claim that in October 2016, 2 months after presenting the 2017 budget to the GA, they already started to modify it “to get costs in line with expected income”. There was not a hint of an unexpected event that could have modified expected income in the 2 months after the GA. This gives the feeling that the Council presented a 2017 budget to the GA that was not realistic, but the GA approval gave the Council free hand to modify it to their liking.
    • The outcome of budget modification(s) started in October 2016 was not shared with member federations until 14 July 2017, nine days after the  Presidents’ Conference in Tartu. This gives the feeling that the IOF leadership decided to avoid any open discussion about budget modification with the member federations who approve the IOF budget.

Here are the details of the story that may make you wonder how long IOF member federations will put up with being treated like this.

The numbers

The Council missed their own target every year since 2009, for 8 consecutive years. They already conceded that 2017 will be missed (€66,235 surplus was budgeted, but only €9,767 was expected in July 2017). It looks also highly unlikely, that in 2018 the budgeted €169,010 surplus, that is 2.5 times(!) higher than ever achieved in the IOF’s 56 year history, will be delivered. That gives a solid 10 consecutive years of missing the budget as shown on the chart below.

For updated data please see this post published after the October 2017 Council meeting. 

IOF Net income vs budget v2

 

This level of  underperformance is most remarkable under any circumstances. It is even more remarkable, because
a) the IOF was run by experienced managers according to their CV, and
b) the budget was set by the Council themselves, only rubber stamped by the General Assembly.

Officially it is the General Assembly who sets the budget, but in practice it simply approves the one submitted by the Council. I could not find a case in recent memory when the GA modified the budget. I could not even find a case in recent memory when the GA has even debated a line item. There were some high level remarks now and then, but everything was approved as suggested by the Council. So we are not talking about some stretch targets not being met. No, simply the IOF leadership could not deliver for 10 consecutive years on their own promises made with no external pressure. Remarkable.

Skill or Will?

Seeing this level of underperformance one should ask whether it was due to missing skill or missing will. Could it happen that the leadership of the IOF did not have the basic skills required to prepare and deliver a budget for a quite simple small operation? Or was it due to lack of motivation or intention to deliver on their promises, and follow the budget approved by the General Assembly? Or was there something else behind all this?

Let’s try to find some pointers that may help us decide.

Continue reading “Ten Years of Underperformance – Skill or Will or Something Else?”