Analysis: 2013 Burning Man Project Financials

It’s been about a week since BMOrg finally released the IRS Form 990 for the Burning Man Project, for 2013. They made a great fanfare on their blog about how this heralded a new era of transparency for them, but now that they are a non-profit, they are required by law to release the 990 details publicly. In fact, there is very little in the way of new transparency from the Org. It’s about a year now since Larry Harvey promised us a “clean, well lighted suite of rooms”, and we don’t appear to be any closer.

The big news they revealed is that each director was paid $46,000 to pass over their share as a partner in the tontine Black Rock City, LLC. A tontine is an archaic corporate structure with military origins, used to finance the opium-trading vessels of the British East India Company and to organize the Freemason’s Hall in London. What it means is “last man standing”, basically if you leave you can’t come back, and the last one alive gets everything. A most unusual structure for a dance party, begging the question who was advising them back in 1996-97 when they commenced the corporatization of the event.

They don’t have the money yet – it is accounted for on the books of the Burning Man Project as a loan to related parties. They may have been paid out in 2014, we won’t know until 2016.

BMOrg had the business valued by 2 different professional assessors. One came in at $4.5 million, but this was discounted by 35% because control of the business was split 6 ways. They restructured the business and came up with a sale price of $7.39 million. The transaction appears to have been structured in such a way that the 6 directors have donated most, but not all, of the value to the Burning Man Project. This may net them a tax deduction of $1,185,667 each (I’m not a professional accountant so, if my friends from Xero North Sydney are seeing this, or any who are, please chime in).

Ostensibly, this seems very altruistic of the 6 Founders, emphasizing a commitment to Gifting, Civic Responsibility, and – dare I say – Decommodification. However, before we get too excited in handing out the accolades, there are many things about this transaction that remain a mystery, and will not be revealed to us for at least another year. One wonders why this is, if they are turning over a new leaf of transparency?

bm trademarkThe most significant area where transparency is still lacking, is Decommodification LLC. Before giving away their share in the ongoing profits of the Nevada event, they sold the main assets of the business – its trademarks, ownership rights of photos and art, and other intellectual property. Who did they transfer these to? Themselves. That’s why Decommodification, LLC exists, and they are charging the Burning Man Project for the use of their trademarks. Once again, something which had been speculation on our part, is now officially confirmed by BMOrg. The annual royalty fee is $75,000. This license is exclusive, and sub-licensable. It seems that it would cover use of the trademarks in all events worldwide, including by regional subsidiaries. We don’t know how much Decommodification, LLC is obliged to pay Black Rock City, LLC for acquiring these assets, and how much the Burning Man Project is expected to buy them back for in the future.

This fee is based on the valuation of the trademarks by the independent appraisers

It seems extraordinary to me that these expert appraisers would value the Burning Man trademarks, an internationally famous name responsible for at least $30 million a year in revenue, at $75,000 – 0.25% of sales.

In 2018, these Intellectual Property intangible assets will be transferred by Decommodification, LLC back to the Burning Man Project – unless the Directors vote unanimously against that. This is by no means a done deal yet. Will the transfer be a gift, or a sale? Larry Harvey and Danger Ranger both expressed slightly different opinions on the Voices of Burning Man:

    • Speaking for myself, I don’t see why we should be compensated for the transfer of the trademarks. I can say with complete confidence that it will not be a big payday; this has never been our intention.

Last gift? Does this mean they won’t even be attending any more, once the Project has been officially handed over to its Foundation?

The gift of Black Rock City, LLC was valued at “cost” of $7.39m. This is most likely balance sheet assets minus liabilities.

LLCs are different from Incs, in that they don’t have stock. Instead, the partners share in the spoils of the business. LLCs can distribute cash to the partners. We know nothing about what happened between Black Rock City, LLC and the Founders, before they gave their shares of the business to their non-profit foundation. Did they get a payout, on their cut of the profits accumulated over nearly 30 years of putting on this festival? And can this payout be offset by a tax deduction, from the donation of their partnership slot to the non-profit?

We also know nothing about the various salary payouts over the last few years. All we have to go on is the marked jump from $2.8 million to $7.2 million, which our reader A Balanced Perspective incorporated in his guest post calculations on the cash-out. [An addendum to that post follows this article. He feels that these disclosures from the new transparency may invalidate his earlier assumptions; my personal belief is that it is too early to say, as almost all the details of the transaction are still being kept secret].

Also still an unexplained mystery, is the million dollar+ “Other” amount – the difference between the fees paid to the BLM (according to them), and the “BLM and Other” line item on the Afterburn Report. This is the festival’s largest expense after payroll.

Let’s take a look at the combined entity, Burning Man Project (incorporating Black Rock Arts Foundation):

Screenshot 2015-02-03 16.45.22

My updated spreadsheet shows that the combined “Burning Man Arts” entity has become much more expensive to maintain, expenses almost doubled from 2012 to 2013. The largest expense is salaries, with CFO Jennifer Raiser taking home $111,000, paid staff $172,000, and “management fees” of more than $300,000. They also spent $45k on travel and $17k on conferences – this is apparently in addition to the $425k and $100k spent on these by BMOrg (source: Afterburn report).

In 2016, we will see the Form 990 for 2014, the first year that the Burning Man Project and Black Rock City LLC were totally integrated. No-one outside the company has seen the top line revenue numbers for Burning Man, which we understand to be $30 million from comments made by Marian Goodell. Will these sales be reported as sales of the Burning Man Project, or will they just show a single line item for the net profit of Black Rock City LLC? If it turns out to be the latter, we’re really not getting anything new in the way of transparency and opening up the books.

The Reno Gazette-Journal, in a story headlined “Burning Man Founders Sold Festival for $276k”, looked at the numbers, and spoke to BMOrg’s Communications Director Megan Miller:

“It is definitely incomplete information”…While all of the information required from the Internal Revenue Service is in the documents, Miller said, Burning Man cannot yet disclose revenue information from this past year’s festival, nor the one prior since the organization currently is undergoing an outside audit for 2013 and 2014.

All of this missing information that Burners have been seeking should be available before this year’s end, Miller said.

“Coming soon”…11 months away, at least.

“None of the finances were shared before. We didn’t share how the transaction happened, who was paid what. We thought this was a good opportunity to share,” Miller said.

They still haven’t shared how the transaction happened, or who was paid what. They have simply shared the information they were required to by law, as they did the previous year. They share more information about the finances in the Afterburn reports, than in this Form 990.

…all profit made from the festival will flow directly into the nonprofit’s coffers. Burning Man is required as a nonprofit to use any surplus funds to further its worldwide mission of expanding minds through art….

According to one appraiser, the shares were worth $1.23 million each, though another appraiser estimated that each share was worth closer to $809,000, according to the 990 form filed for 2013.

…Since becoming a nonprofit, Burning Man is focusing more on fundraising for its grant programs, including the “honorarium” program that funds projects for artists who want to create art for the playa, the playa being the desert flat where the main event is staged.

We do not yet know if they have increased the size of the individual Art Grants, or are going to award more grants than in previous years.

Burning Man this year discontinued its donation ticket sales, in which Burners could opt to purchase a ticket for more than the previous $380 value to help someone else buy a ticket at a discounted price.

I think the Reno Gazette-Journal’s new Burning Man beat reporter Jennifer Kane, who has not actually been to the event yet, has got her VIP Donation Tickets mixed up with her VIP Pre-Sale tickets. Donation tickets are out, after 1400 were sold at $650 last year. They claim that the Pre-Sale enables lower income Burners to get a discounted ticket, despite the clear mathematical difference between a $410 premium for Pre-Sale and a $200 discount for Low Income. If VIP tickets were there to enable those who can’t afford it to attend, at $800 there should be double the number of Low Income tickets. Pre-sale sold out quickly, bringing the non-profit a cosy $3.3 million cash. Nice way to start the year!

“This is the beginning of what we hope to do a lot more of,” Miller said, noting that the Burning Man organization will be posting its forms annually on its website in an effort to be more transparent.

I hope that the long-awaited transparency turns out to be more than just publishing the information they are required to by law. Compliance is not the same thing as openness.

Having said that, I commend the Founders for choosing to keep the cash in the business to fund more Art. I hope that this will continue into the future.

openness


A Balanced Perspective writes:
.
The BMOrg’s donation of the BRC LLC to the Burning Man Project, and the process the BMOrg utilized is very honourable. The Burning Man’s Nonprofit Financial Information Released, and the 990 form of 2013, are a first step towards ‘a well-lighted suite of rooms’. Larry, Marian, Danger Ranger, Harley, Will, and Crimson deserve our immense gratitude upon their donation. But, there is much more information required for ‘a well-lighted suite of rooms’.
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I must apologise for parts of the cash out posts and my other comments. While I was correct in regards of what occurred, of that they donated the BRC LLC to the Project for near to $0, I was very wrong in regards to the numbers from their donation of the BRC LLC, dba Burning Man, to the Project at the end of 2013, and the 2014, 2015, and 2016 numbers, my numbers were way too big. I estimated the tax deduction in due of the donation was $30 or $45 million, utilizing a market value method of valuation of 1x or 1.5x of sales, but they utilized the cost method of valuation, of assets upon the ledger minus the liabilities, resulting in solely $7.4 million of deductions upon tax levies. I do not understand the rationale of why the profitable $30 million revenue stream was valued at solely $0, but, it is very honourable of the BMOrg to donate the BRC LLC to the Project for such a low deduction upon tax levies.
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I estimated $1 million for 2014, 2015, and 2016 for licence of the Burning Man(TM) name and trademarks in due of the missing $1 million they wrongly stated, in ‘Where Does Your Ticket Money Go’, they paid towards the BLM as a usage fee within 2013, but they will licence the name and trademarks to the Project for solely $75,000 each year. I apologise for being wrong in this manner, what the BMOrg did in donating the BRC LLC to the Project, and taking solely $75,000 each year for the licence of the trademarks, is very honourable.
 .
In addendum, by appearance, they will solely take near to $1 million each, if even that, and, perchance, a very big tax deduction for the other part, as payment for the Burning Man(TM) trademarks within 2018, which is very honourable. I estimated they would take $2 million each for the trademarks, with a high number of $3 million each, I was wrong in this estimate. I based this estimate upon the continuation of their estimated pocketing of $4 million each year of 2010, 2011, 2012, and 2013, based upon the difference in the afterburn reports from the payroll number and what employees, by simple maths, were in actuality paid. This results in an estimated $16 million take towards their pockets, in total, from 2010 to 2013, which remains a valid estimate, whether they took this as salaries, or as distributions of retained earnings, prior to their honourable donation of the BRC LLC to the Project. Might any person desire to dispute this, tell us where is the missing $4 million of payroll, when they stated towards us payroll increased from $2.8 million in 2009, to $7.2 million in 2010, with solely 30 employees to pay, and contractors being on a different line in the ledger, and paying little towards temporary labourers.
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This lowers my estimate of their cash out, from near to $40 million, to within the mid-twenty million dollar range, from 2010 until 2018, I apologise. But, we are not of the knowledge of the amount of cash they took towards their pockets prior to their honourable donation of the BRC LLC to the Project, they do not desire to tell us, thus, this is solely an estimate.
.

I do not understand the rationale as to why the BMOrg delayed 10 months in disclosing the information we have been requesting upon their cashout. It would have been easy peasy for them to state this the prior March (or May, or July, or September, or November) when queries upon payments towards them, and towards their Decommodification LLC, were presented. I might understand of them stonewalling any query upon how much cash they took towards their pockets prior to their honourable donation of the BRC LLC to the Project, but I do not understand the rationale as to why they did not answer the queries upon the donation and upon the years after the donation. The first step in proper public relations is to get in front of an issue, of which, they did not do. Two simple paragraphs were all that might be required, with the statement of that it was preliminary and unaudited.My desire is, now that their honourable donation of the BRC LLC to the Project is complete, and ticket sales were increased from $12 million in 2010, to $30.5 million in 2015, and their cash out is near to completed, is that they might cover all costs of the awesome artists (of which, they do not plan to do within 2015), present to the artists a fair contract, pay all DPW a very fair wage, and provide full transparency, this spring, as to where the ticket money in actuality went within 2014, and is planned to go in 2015, in the place of stating towards the artists, and towards DPW labourers, of that ‘we do not have the cash to pay you’. In addendum, support the mutant vehicle owners, sound camps, and other camps providing entertainment, by gifting them several thousand free tickets to the event, this is solely fair.

The Burning Man Project is a 501(c)3 taking donations, my belief is they owe the donors of art, labour, cash, and stock, to the Project, and to the profitable subsidiary corporation of which they have near to total control, much more information as to where the money did go, and as to where the money is to go, in addendum to their conflicts of interests, purposed towards the DONORS being of the ablility to make an informed decision as to whether they might desire to make their donation of their art, labour, cash, or stock.

‘A Balanced Perspective’

5 comments on “Analysis: 2013 Burning Man Project Financials

  1. Pingback: 2014 Afterburn Report: The Death of Transparency | Burners.Me: Me, Burners and The Man

  2. Pingback: The 1%? All A Board | Burners.Me: Me, Burners and The Man

  3. A tontine may not be a savvy way to maximize earned equity extraction, but it is an ideal way for a small group to tie their fates together before entering a difficult challenge and ensure that the only way out is forward.

    It prohibits those who get tired, lose interest, die, or want to cash out from disrupting or de-funding the underlying project.

    Like

  4. Awesome update, burnersxxx, much obliged.

    A few statements might not be quite correct, but it is not necessary to correct them. It is amazing a small number of Cool Aid drinkers are insistent upon the small amount of cash the BMOrg took for the BRC LLC, while ignoring all the hidden cash directed towards their pockets prior of the donation, and ignoring whatever, perchance, might occur with Decommodification LLC, and of that the 2014 BRC LLC financials might be hidden, from donors, until 2016. I am curious of the amount of tax deductions the BMOrg might take upon the transfer of the trademarks and IP to the Project in 2018, I did not include this within my comments.

    As stated prior, my purpose in penning the cash out posts and comments, is towards assisting the artists, DPW and other volunteers, sound camps, mutant vehicle owners, and the Burner community gain this information, purposed towards assisting them in obtaining fair treatment from the BMOrg so they might continue to bring their gifts to the playa. Budgeting is a zero sum game, with the BMOrg taking much cash towards their pockets, little cash remains for others whom are deserving of support.

    Thank you.

    Liked by 1 person

  5. I read the Burning Blog post, a bit of the actual document and some responses from Larry. I’m pretty satisfied at this point with the financials. Not happy about the BMP board structure or it’s mission of “spreading Burner culture,” but I think I have to live with that as I don’t see it changing.

    Like

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