Time to Sell DCI

[danielray]

Some time ago, I brought up the topic concept of selling DCI to a group of private investors. Given that DCI continues to struggle to keep things together, driven primarily by financial pressures, this option seems more and more like the best path to continued sustainability, and likely the only viable option left for retaining the continuity and integrity of the DCI brand.

It is simply time for acceptance of the fact that DCI has pretty much reached the limit of its potential within the current structure and experience cap of management team. If management team has no experience building up a company with more than $20M+ in annual revenue... and growth has remained relatively flat... seems not going to ever get there.

There must be a change in management. There must be a change in attitude. There must be a change in structure.

In this scenario, DCI intellectual property, commitments, etc., would effectively be purchased from the non-profit organization by a new investor-owned for-profit entity (seems cleaner than converting existing non-profit entity). Clearing any outstanding debts or commitments of the non-profit org would be included into the terms of the purchase agreement.

Moving forward, a refocused and privately-held DCI would be focused on LONG-TERM returns, not short-term sustainability. In the short term, the aim would be to not only distribute as much revenue possible to corps (at least in the near-term to get them stable and increase participation), but would also focus on improving the competitiveness of all corps top to bottom in order to make the league more engaging and to provide greater geographic consistency in terms of quality.

Part of increasing competitiveness would be efforts to lower cost of participation to ensure that talented individuals are not sitting out due to financial reasons. This would be done though a combination of increased operational efficiency, growth in current revenue opportunities and development of new and diverse revenue streams.

Add to this aggressive efforts to shift perception of the activity and raise the profile in order to increase the reach and build future fan base.

Included as conditions of sale would be minimum commitment for revenue distribution to corps. In this model it makes sense to distribute as much revenue as possible to all corps, regardless of current competitive placement, in order to build up competitiveness of all groups. This would be viewed more as a short-term investment in these less competitive groups and cannot come at the cost of a decrease in revenues to any corps... basically all must current get more than they do now.

Also included in this should be a buy-back clause, where the member organizations may buy back various rights (name and other IP) if the investors do not meet specific conditions of the agreement.

Bottom line, DCI under the current model and management is not sustainable. it seems more and more that the best solution moving forward, the one that will keep the activity going for the foreseeable future, is to package DCI to start shopping to potential private investors.

Edited February 3, 2013 by danielray

[garfield]

See? Told you!

:tongue:/>

[2muchcoffeeman]

Uh huh. And the whole educate-students thing?

[garfield]

Uh huh. And the whole educate-students thing?

What educates students better than a profitable, expanding activity?

[danielray]

Uh huh. And the whole educate-students thing?

DCI doesn't educate the students, the individual member organizations do.

DCI is just an event producer that is awkwardly and inefficiently overseen by the individual member organizations, already burdened with their responsibility to manage the operations of their own organizations (curious to know what the actual cost in terms of lost focus/productivity this DCI/G7 distraction was?).

If the events were considerably more profitable, it could improve the stability (and growth) of these organizations, allowing them to better fullfil their individual educational missions.

[garfield]

This idea has rolled around in my head for years but, due to my profession, I perceive it as more of a Leveraged buy-out than a sale, based simply on the fact that wrestling control away from those who built the activity, and particularly in day of ego-driven decision-making, would be extremely difficult.

The attraction to the corps can only be financial, as that speaks louder than any other effort to the corps that claim to drive the activity. A substantial initial payment would have to be made by an "LBO" team, on hopes of bolstering the activity to profit in the future in order to realize a return on their investment.

That payment is a present-value calculation of increasing future revenues. Increasing revenues that can be driven by associations forged by the LBO team themselves in a purely selfish act of achieving a profit on their investment.

The problem is that DCI only has a history of revenues, not profits, so any supposed increase in profits (above and beyond fortifying the corps) would be purely pro-forma (guesses).

Edited February 3, 2013 by garfield

[danielray]

This idea has rolled around in my head for years but, due to my profession, I perceive it as more of a Leveraged buy-out than a sale, based simply on the fact that wrestling control away from those who built the activity, and particularly in day of ego-driven decision-making, would be extremely difficult.

The attraction to the corps can only be financial, as that speaks louder than any other effort to the corps that claim to drive the activity. A substantial initial payment would have to be made by an "LBO" team, on hopes of bolstering the activity to profit in the future in order to realize a return on their investment.

That payment is a present-value calculation of increasing future revenues. Increasing revenues that can be driven by associations forged by the LBO team themselves in a purely selfish act of achieving a profit on their investment.

The problem is that DCI only has a history of revenues, not profits, so any supposed increase in profits (above and beyond fortifying the corps) would be purely pro-forma (guesses).

In exploring this idea a bit more, rather than paying out a substantial initial payment, the individual organizations could be better served instead by a long-term minimum commitment (corps could plan on predictable revenues at least 5 years into the future) and aggressive investment into new and diverse revenue streams that could also help support the individual organizations.

Also, timing of distribution of revenues would be key part of the plan. Revenue distribution would be timed to actual expenses, allowing organizations to pay for things ahead of time, rather than hand-to-mouth on the road. Regular payments during the offseason would help to keep the lights on and retain a focused staff through the fall/winter months.

A deal like this could not only keep top corps satisfied, but could keep groups like Glassmen and Teal actually on the field.

Again, selling DCI to private investors does really seem like the best opportunity to create stability and predictability, which is something the activity needs right now a lot more than autonomy.

[2muchcoffeeman]

Yes, of course: It does no one any good to have DCI collapse. But the logic does not work in both directions. While a bankrupt DCI guarantees that no youth learns anything, it does not necessarily follow that a "profitable" DCI guarantees that youth will receive the kind of drum-corps/educational experience that has attracted tens of thousands of youth to the activity for generations.

Under the current system, yes, the education of youth is left to the individual corps. But I don't believe for a minute that the same would be true if private investors owned DCI. No sane investor would leave their ROI to the vicissitudes of a federation of independently run nonprofit organizations.

If you put private investors, whose only logic is the return they get for their investment, in control of the product on the field, then the only values that will drive the membership, the music, the programming, the touring, the rules, the scoresheets, etc., will be the values that generate the highest profits for the investors. If it were not so, it would not be an investment.

If the point of drum corps is to provide young people with meaningful challenges that help them grow into better musicians, citizens and people, it matters HOW the drum-corps activity is funded, and not merely THAT the drum-corps activity is funded.

Edited February 4, 2013 by 2muchcoffeeman

[danielray]

Yes, of course: It does no one any good to have DCI collapse. But the logic does not work in both directions. While a bankrupt DCI guarantees that no youth learns anything, it does not necessarily follow that a "profitable" DCI guarantees that youth will receive the kind of drum-corps/educational experience that has attracted tens of thousands of youth to the activity for generations.

Under the current system, yes, the education of youth is left to the individual corps. But I don't believe for a minute that the same would be true if private investors owned DCI. No sane investor would leave their ROI to the vicissitudes of a federation of independently run nonprofit organizations.

If you put private investors, whose only logic is the return they get for their investment, in control of the product on the field, then the only values that will drive the membership, the music, the proramming, the touring, the rules, the scoresheets, etc., will be the values that generate the highest profits for the investors. If it were not so, it would not be an investment.

If the point of drum corps is to provide young people with meaningful challenges that help them grow into better musicians, citizens and people, it matters HOW the drum-corps activity is funded, and not merely THAT the drum-corps activity is funded.

In order for drum corps to be profitable, current levels of performance must be retained. This requires that current levels of education are maintained. Also, drum corps are really not all that much about education these days.... kids show up with extremely well-developed skills. Drum corps is more about refining talents, rather than developing them.

As for operational structure in terms of how DCI would interact with individual corps, the model I am thinking of would be roughly similar to the NFL in relation to individual teams.

[BOBSMYTH]

You have to assume that this statement is true so that the rest of your arguments can follow.

... Given that DCI continues to struggle to keep things together, driven primarily by financial pressures, ...

This is the same fallacy of logic that is the philosophical underpinning of the G7 proposal.

If that "given" is not actually true - or not true to the degree you assert - then none of the rest follows.

The sky is not falling.