Side discussion re: Corps in Trouble

[Pete Freedman]

Perhaps it's a slippery slope to more corporate funding but, at this point, can the activity actually turn away from ANY funding, corporate or otherwise?

Does it really make a difference when we have so many corporate sponsors of the activity now, and their banners hang prominently around every DCI show? So what if they're on the field, too?

Agreed.

I suspect it's more a matter of whether the corps itself wants to present that image; putting advertising on art would generally interfere with the art considerably. For example I would think a GE judge might be tempted to hold it against the corps at score time. As long as the sponsorship wasn't noticeable from the stands, it should be ok.

Putting it in the corps' name should be ok, too, although it could be a little strange:

The Phantom Of The Opera Phantom Regiment

The Hooters Cadets

The Massengill Cavaliers

and a new corps:

The Trojans Trojans

Yeah, it would take some getting used to...

[garfield]

I mean investments. As to choosing an investment, on Wall Street Week or whatever it's called now, Maria Bartrilomo always asks her billionaire investor genius guest for stock/bond advice for the viewers, and they often advise not to buy individually, but to buy an index fund. I personally don't make enough to bother researching it.

I understand your position. Investing is something I've been doing for a few years. (And, although we lovingly call her Maria Barf-iromo in the business, her name is actually Bartiromo.)

However, your logic seems flawed. The corps could only benefit from the profits, not from the gross revenue. Where ever you draw the line between the corps and the business, everything on the business side of that line has to be self-sustaining, and it requires most of the revenues to accomplish that. And I never heard of a reliable start-up business model that multiply $10 million dollars 3 or 4 times in any speedy time frame. Staying in business at all is the first trick, and it's very difficult.

No, my logic isn't flawed. A corporation that expenses its capital outlays (think buses or tympani) reduces its tax liablility, leverages those assets by borrowing for their purchase (interest expense is deductible, too), and takes advantage of MACRs (Modified Accelerated Cost Recovery) programs that allows expensing depreciable assets over a drastically shorter timeframe. All these accounting rules, and many more, are "above the line" adjustments to business income.

That same company can make a charitable contribution out of net profits and receive a tax deduction, but it loses the leverage available in their operation's balance sheet.

An investor simply owns stock, and that stock moves in line with the net profits or losses of the company. A company that funds a drum corps expenses as part of its business practices enjoys tax and asset leverage that's not reflected in the stock's price or available to a stock holder.

Then you go on to suggest several excellent business/fundraising ideas for drum corps. These seem to involve using the corps members to perform work, so presumably they would be compensated with a reduced tour fee? Still, they would be cheaper and hopefully more reliable than hiring new.

Also it would be mostly the local members, since the traveling ones will be busy during the tour. And there don't seem to be as many local ones these days.

The most viable businesses are those that operate when drum corps aren't touring. Pop-up stores are, generally, holiday stores that don't interfere with the summer tour. Volunteer labor is one of the most valuable assets a corps has to offer. Find businesses that need labor. Further, using minor "labor" can be accomodated by the company making a charitable contribution instead of paying salary and benefits.

Has there been a thread on side business ideas for drum corps fundraising? I would love to see all your ideas!

I'm not sharing all my good ideas for free!

[Pete Freedman]

No, my logic isn't flawed. A corporation that expenses its capital outlays (think buses or tympani) reduces its tax liablility, leverages those assets by borrowing for their purchase (interest expense is deductible, too), and takes advantage of MACRs (Modified Accelerated Cost Recovery) programs that allows expensing depreciable assets over a drastically shorter timeframe. All these accounting rules, and many more, are "above the line" adjustments to business income.

That same company can make a charitable contribution out of net profits and receive a tax deduction, but it loses the leverage available in their operation's balance sheet.

An investor simply owns stock, and that stock moves in line with the net profits or losses of the company. A company that funds a drum corps expenses as part of its business practices enjoys tax and asset leverage that's not reflected in the stock's price or available to a stock holder.

Hmm, I'm no expert, but it still sounds flawed to me. All your points relate to the tax advantages of the company feeding cash to the corps directly vs. an endowment (though of course the endowment is tax free to start with). Still, I can see that the corps can take more cash from its company than it would get out of a fund via stock prices and dividends. While true, this would be more than offset by the fact that the corps company (CorpsCo) would be a start up that would probably fail, and take at least some of the seed money with it. It would probably lose money, not make money. On the other hand, the companies in the index fund (or whatever) would be proven successes. It's a choice of making some money versus risking a heavy loss.

I would think businesses should generally only be started by smart, dedicated entrepreneurs willing to make it their passion for several years. Universities start businesses from time to time, but the serious money is in the endowment.

[garfield]

Hmm, I'm no expert, but it still sounds flawed to me. All your points relate to the tax advantages of the company feeding cash to the corps directly vs. an endowment (though of course the endowment is tax free to start with). Still, I can see that the corps can take more cash from its company than it would get out of a fund via stock prices and dividends. While true, this would be more than offset by the fact that the corps company (CorpsCo) would be a start up that would probably fail, and take at least some of the seed money with it. It would probably lose money, not make money. On the other hand, the companies in the index fund (or whatever) would be proven successes. It's a choice of making some money versus risking a heavy loss.

I would think businesses should generally only be started by smart, dedicated entrepreneurs willing to make it their passion for several years. Universities start businesses from time to time, but the serious money is in the endowment.

Hmmm...it doesn't seem you understand business accounting. The issue is not "directly" vs an endowment. The issue is the leverage available by using CorpsCo's balance sheet and borrowing capacity that makes the difference. The issue is the difference between an "above the line" business deduction for an equpment expense vs. CorpsCo simply giving a tax-deductable gift from net income. And that difference is substantial.

And yes, we're discussing the benefit of a business run by a group of "dedicated entrepreneurs". Isn't that the kind of person who's best qualified to finance a drum corps? I maintain that those are the only ones who ought to start businesses or drum corps. And, no, not all businesses are successful, but a talented entrepreneur is not afraid of failure because, with each failure, he realizes he's one step closer to success.

This is why drum corps finance should not be undertaken by music majors or those artsy-types with dreams of starting a drum corps. Funding the operation takes the kind of guts that only a true entrepreneur has.

This is exactly why drum corps should not be run by most directors.

Believe me, I do investments for a living and "investing" for a drum corps, especially on a risk-adjusted basis, would have crashed most balance sheets in the last decade or more. While starting a business doesn't guarantee any more success, I still see those young kids, outside stores, spinning signs.

And two new Halloween stores popped-up in my neighborhood in the last week...

Edited November 10, 2012 by garfield

[soccerguy315]

I'm pretty sure that Crossmen had an advertisement patch on their uniforms this year...

someone would have to double check though.

[Pete Freedman]

Hmmm...it doesn't seem you understand business accounting. The issue is not "directly" vs an endowment. The issue is the leverage available by using CorpsCo's balance sheet and borrowing capacity that makes the difference. The issue is the difference between an "above the line" business deduction for an equpment expense vs. CorpsCo simply giving a tax-deductable gift from net income. And that difference is substantial.

The word leverage, as used in accounting, seems to be short for "ways you can use the seed money the drum corps gives you as a basis to borrow more money from a lender." Is this what you mean? The word is used in a more generic sense in business management, such as my own field IT management.

If that's what you mean, I'm not sure the ability to borrow more money is the likely critical success factor for this enterprise. I mean, it could be, but if I were a director I'd be concerned if my seed money were used that way, especially if my corps is the owner of the business and could be held liable for it's losses. It might help, but you still need a great business idea and a smart entrepreneur, which are rare, and that's the big problem with this. The higher returns you might get in your scenario are offset by the increased risk.

Here's an article about this kind of profit-non-profit hybrids. They seem to be quite rare, at least when created by the non-profit. (They are usually non-profits created by the business for various reasons) But for a non-profit to create a for-profit company, I couldn't find much info. It does sound exciting, but you need to solve the risk problem.

Also, if you are using the local corps members you are limited by their availability. Our best fundraiser was just standing at intersections in uniform with our shakos out saying "Would you like to donate to the American Legion drum corps?" We made a ton of money that way, but you can only do it so many times a year. So the company we are talking about has to not only generate income for the corps, it has to generate more income per corps member hour than the existing fundraising efforts.

Keep in mind, I'm all in favor if the business model and leaders are really good. I'm just taking up the contrary position because, hey, it's a discussion forum!

And yes, we're discussing the benefit of a business run by a group of "dedicated entrepreneurs". Isn't that the kind of person who's best qualified to finance a drum corps?

Yes, and pray tell, how does the corps get them?

I maintain that those are the only ones who ought to start businesses or drum corps. And, no, not all businesses are successful, but a talented entrepreneur is not afraid of failure because, with each failure, he realizes he's one step closer to success.

That's nice for him, but for the corps under discussion (which in this thread and usually in real life don't have much cash to spare) it could be a disaster.

This is why drum corps finance should not be undertaken by music majors or those artsy-types with dreams of starting a drum corps. Funding the operation takes the kind of guts that only a true entrepreneur has.

This is exactly why drum corps should not be run by most directors.

I suspect most of them are pretty good at it. (How's that for controversial?) Think about it: The crazier the business model, the better the leader has to be to make it work. The business model of a drum corps is insane; only a few survived the 80s, and they keep dropping like flies today. My guess is the managers of those that survive may be better at it than we think.

Believe me, I do investments for a living and "investing" for a drum corps, especially on a risk-adjusted basis, would have crashed most balance sheets in the last decade or more. While starting a business doesn't guarantee any more success, I still see those young kids, outside stores, spinning signs.

And two new Halloween stores popped-up in my neighborhood in the last week...

I agree, and I think we are not really disagreeing about much here. An endowment would have to be huge to be effective, and the business would probably fail unless the director has the ability to find and cultivate entrepreneurial talent that would make a venture capitalist weep.

Oh, and I admire the dream...