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Nonprofits Weather Economic Slump

Published May 4, 2011

As the recession hammered nations and companies worldwide, one corner of the bicycle industry emerged relatively unscathed—its nonprofit associations.

Most of them, dedicated to causes such as lobbying Congress, building trails, promoting competitive cycling, supporting retailers, and sending bikes to poor African nations, rolled through the recession in fine fettle.

The 18-month recession—December 2007 through June 2009—was the most severe since World War II. And technically, while the recession may be behind us, for the unemployed it remains a reality.

Still, many cycling organizations posted record revenues, and their directors remain bullish on the world’s economy.

“I’m sure there are companies that are hurting, and high-end stuff is not moving as well as it was before the economic downturn, but in general it seems that the industry and the biking movement have survived reasonably well,” said Andy Clarke, president of the League of American Bicyclists.

Bicycle Retailer & Industry News reviewed annual returns for 25 industry-related nonprofit organizations, covering the years 2007 through 2009. Although nonprofits pay no federal taxes, they must file detailed returns with the IRS. Those returns are public.

Nonprofit directors pointed to several reasons why their associations managed to thrive in the troubled economy:

• The industry is countercyclical, tending to zig when the rest of the economy zags. Enthusiasts’ support for IMBA, the League and USA Cycling remained relatively stable or grew, and supplier dues to Bikes Belong increased as corporate revenues grew.
• Groups like Bikes Belong have deliberately diversified their income sources and now receive significant funding from outside the industry, including grants from major donors such as the Robert Wood Johnson Foundation and Kaiser Permanente.
• Some of the industry’s biggest companies have pumped millions of dollars into nonprofit organizations as part of ambitious advocacy campaigns.
• Regional associations like Chicago’s Active Transportation Alliance benefitted from unprecedented amounts of government funding for cycling infrastructure, reaching its highest levels ever in 2009 and 2010.

“I don’t want to be naïve or dumb, but ever since I’ve arrived [in 2004] we’ve been on a very steady track,” said Tim Blumenthal, Bikes Belong president. “We keep growing, and I’m feeling very good about this year from the support and funding perspective. I don’t see any bad signs out there at all in any of our key categories.”

A New League. The League and IMBA are case studies of growth in tough times. The League’s revenues climbed more than 35 percent between 2007 and 2009 to $2.18 million, while IMBA’s rose by nearly 11 percent to $2.9 million.

“The recession certainly had an impact on membership,” the League’s Andy Clarke said. “We didn’t see a big drop-off in membership, but we saw people ratcheting down a level or two and going back to the basic membership rather than stopping membership altogether.”

However, because of its diversification efforts, membership dues accounted for just 25 percent of the League’s annual revenues in 2009.

For example, the League raises about $300,000 from hosting the National Bike Summit, which includes $75,000 from Bikes Belong.

“One can never take things for granted but I feel that we’re in a good place for the industry and doing programs that they like and putting on the summit, which they like,” Clarke said.

The League has another reason to feel good. After a financial crisis in 2004, the organization has righted itself. It recently received a four-star “exceptional” rating from Charity Navigator, an organization that rates nonprofit financial performance.

It’s Charity Navigator’s highest rating, and it represents a turnaround from the one-star “poor” and two-star “needs improvement” ratings that dogged the League between 2005 and 2007.

“We’re quite proud of it. I think that shows that we’re on a good path,” Clarke said.

The only other industry nonprofits rated by Charity Navigator, IMBA and Transportation Alternatives, also received four-star ratings.

IMBA’s membership, which averages about 34,000, weathered the recession relatively well. IMBA members tend to be well off, with annual incomes averaging about $100,000, said Mike Van Abel, executive director.

“Our enthusiasts—our individual members—were doing OK in this economy,” he said. IMBA is launching a new initiative that Van Abel said should significantly boost its membership numbers and revenues.

Like the League, IMBA has diversified its sources of income so it’s less dependent on memberships as it once was.

Advocacy Assist. A major piece of that diversification is the big increase in advocacy funding by such industry leaders as SRAM, Trek and Shimano, which began kicking in as the economy weakened.

“A good part of the increase you saw from ’07 to ’09 was because of Trek and SRAM’s support,” Clarke said. Advocacy is a critical piece, accounting for between one-third and one-half of League revenues, he added.

Advocacy funding also boosted IMBA’s revenues. “It’s amazing to me how prominent advocacy is as a strategy that the industry is looking at to raise the tide,” Van Abel said. Corporate sponsorships—contributions above basic memberships—have been IMBA’s fastest growing source of revenue for the past three years.

“It’s SRAM, it’s Trek, it’s Cannondale, although they’ve fallen back in 2010, and now it’s Shimano and Specialized,” Van Abel said.

Bikes Belong and its foundation have seen significant growth from non-endemic foundations including the Robert Wood Johnson Foundation, Humana, Kaiser Permanente, and the Centers for Disease Control. Safe Routes to School National Partnership, administered by Deborah Hubsmith under the Bikes Belong Foundation, solicited most of that funding.

“Having not one, not two, not three but four or five major non-endemic supporters on the foundation side has been really, really great,” Blumenthal said.

Steady Sales. Association dues from suppliers and retailers remained relatively steady during the recession.

For Bikes Belong and its foundation, total revenues grew 60 percent to $3.5 million. Blumenthal said the two entities are on track to surpass $5 million this year.

Supplier members pay dues based on a percentage of sales. Those dues grew during the recession, and growth is now accelerating, Blumenthal said.

In addition, Bikes Belong receives an estimated $500,000 annually from Interbike, a fee the trade show pays for the association’s exclusive endorsement.

For 2011, Blumenthal estimates membership dues would rise 4 or 5 percent on average. “But the biggest companies pretty much across the board have increased their dues by more than that,” he said.

Retail and associate membership dues to the National Bicycle Dealers Association also increased from 2007 to 2009. And, like Bikes Belong, the NBDA receives an annual endorsement fee from Interbike. In 2009, it was $175,000 down slightly from 2007, according to its IRS filings.

Bikes Belong’s Blumenthal and Fred Clements, the NBDA’s executive director, are contractually prohibited from discussing their arrangements with Interbike. They declined to comment on the endorsement fees.

BRAIN Freeze. The NBDA’s financial picture, however, is more complex. While income earned on the NBDA’s non-profit side grew during the recession, its reserve fund investments took a hit, much like it did at other nonprofits.

Investments also accounted for much of the drop at USA Cycling, although its race income continued to rise. “We had about $4 million in stocks and lost about a quarter of that, like everybody else,” said Steve Johnson, CEO of USA Cycling. “What you’ll see this year is that it all came bouncing back, like it did for everybody else.”

Unlike the League, Bikes Belong and IMBA, the NBDA also operates a for-profit subsidiary, Bicycle Retailer & Industry News. And Bicycle Retailer slashed its dividend payments to the parent organization in 2008 and 2009.

The NBDA manages the magazine under a licensing agreement with The Nielsen Company, which also owns Interbike.

The NBDA receives a dividend payment from Bicycle Retailer after the magazine pays a 10 percent licensing fee on gross revenues to Nielsen as well as all applicable local, state and federal taxes.

A cut in magazine dividends and a drop in investment income resulted in a $318,000 decline in NBDA’s total revenues from 2007 to 2009, its IRS filings show. Still, the organization maintained spending levels on programs for retailers.

The recession proved especially cruel to the publishing industry, and Bicycle Retailer was no exception. Bicycle Retailer’s dividend payment dropped from $300,000 in 2007 to $175,000 in 2008 to $50,000 in 2009. Marc Sani, the magazine’s publisher, said 2009 was one of the worst years on record since its founding in 1992.

Last year, as sales recovered, the magazine delivered $130,000 in dividends to the NBDA and it could equal that amount this year, Sani said.

Since 2003, when the NBDA acquired Bicycle Retailer under the licensing agreement, it has delivered $1.3 million in dividends to the NBDA to support programs that directly benefit retailers.

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