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Lance Armstrong Foundation - Every ¢ent counts

If you've been keeping up with cycling blogs in the last few days, you may have come across some comments concerning the Lance Armstrong Foundation. A few days ago over on Joe Lindsay's Boulder Report a commenter there, Elizabeth, claimed that Armstrong was "using cancer as a front to feed his own ego for his own personal gain" and that the Charity Navigator efficiency rating for the Lance Armstrong Foundation was only one. She further claimed that the Foundation was in "deficit to the tune of over $5 million."

That comment got picked up by another commenter, Lucas Cato, who wanted to make a big deal of the Lance Armstrong Foundation's fund-raising expenses, claiming that the "efficiency of this foundation ranks among the worst-organized and worst-run charities in the US."

The story then got picked up by another blogger, the Cozy Beehive. He also questioned the Foundation's fund-raising efficiency. Then he started making some unusual claims: "LAF has a working capital ratio of 0.59. Which simply means their liabilities are more than assets. Which further means that the company only had 59 cents of current assets to pay for every 1 dollar in current liabilities in 2006." And then he hit on a screamingly capitalised REVENUE REPORT DISCREPANCY between the numbers presented on Charity Navigator and the numbers in the Lance Armstrong Foundation's annual report. Finally there came a withering look at the Foundation's CEO salary packaged with an innuendo-laden question: "How much did chairman Lance Armstrong pocket as a percentage of total expenses? 5%? 10%? 20%?"

Now making sense of the numbers associated with the Lance Armstrong Foundation is, without a doubt, a bit of a head wrecker. To start with, there's four different sets of documents presenting the information. There's the annual reports, which show mixed information for the Lance Armstrong Foundation and the Lance Armstrong Foundation Endowment. Then there's consolidated audit reports for these two Foundations. And then there's separate IRS form 990s for each. On top of which, there's Charity Navigator's scoring system to be taken into account. But saying that, it's not really very difficult to make sense of the relevant number. So I decided to brave the forest of forms and see what truth there was to the claims being made about the Lance Armstrong Foundation.

Let's begin with one of the easy questions raised above. How much did chairman Lance Armstrong pocket as a percentage of total expenses? Well, according to the filed form 990s for both the Lance Armstrong Foundation and the Lance Armstrong Foundation Endowment, in 2006 Armstrong was paid zilch. Ditto 2005. Ditto 2004. Maybe starting with an easy question wasn't really such a good idea after all.

Let's look then at Charity Navigator's rating of the Lance Armstrong Foundation. The way this is calculated is explained here. In short, they give 0-4 stars, depending on how they score a charity. 4 stars is Exceptional. 3 stars is Good. 2 stars Needs Improvement. And no stars is Exceptionally Poor. What did the Lance Armstrong Foundation rate? They rated 3 out of 4 - good, but not exceptional. And hardly supporting Lucas' claim that the Lance Armstrong Foundation is one of the worst organised and worst run charities in the US.

That's not to say that the Lance Armstrong Foundation doesn't have issues. For 2005 it was also rated Good by Charity Navigator. But in 2004 it was rated as Exceptional - a full 4 out of 4 stars. The slippage comes about mostly because of the Foundation's fund-raising costs which, expressed as cents out of every dollar raised, have risen from 13 cent in 2004 to 30 cent in 2006. Which doesn't look good, on the surface. But let's remember what two of the Foundation's big fund-raising items are:
i) the LIVESTRONG™ Challenge events, which are as much about community building as they are fund-raising events. They raised about $10m in 2006. But one company alone - Event 360 - took home a whopping $4.7m over the course of the year for event management services;
ii) that little yellow wristband. Plus various other branded items available to buy at the LIVESTRONGstore. Anyone who thinks that paying a buck to buy a little yellow wristband - or any other merchandise - will see the Foundation's funds raised by a buck needs to reconsider how, and even why, they distribute their money to charities.

How about the amount of money paid to the Foundation's directors in 2006?

Directors:
Mitch Stoller CEO ($311,423 compensation + $22,653 benefits) $334,076 (2005: $300,911)
Betty Otter-Nickerson COO ($210,000 compensation + $20,859 benefits) $230,859 (2005: $98,589)
Greg D Lee CFO ($71,141 compensation + $8,995 benefits) $80,136 (2005: n/a)
Total: $645,071

Now, according to Charity Navigator and cited by Cozy Bee, the current average CEO salary in the charity sector is circa $149k. But that's just a simple average across a complex sector. So how does Mitch Stoller's pay really compare to others? Well, Charity Navigator says the Cancer Fund of America pays its CEO $185k. But Charity Navigator also rates the Cancer Fund of America with zero stars - exceptionally poor. Or there's the Multiple Myeloma Research Foundation, a four star affair by Charity Navigator's calculations. They pay their CEO just over $120k - less than half of what Mitch Stoller gets. But as a percentage of expenses, Multiple Myeloma Research Foundation's CEO was costing 0.84% of expenses, while Mitch Stoller was costing the Lance Armstrong Foundation 0.83% of expenses. The Charity Fund of America's CEO was getting 1.35% of expenses, in case you're curious. Lance Armstrong Foundation ahead by a nose? The simple answer is, there is no simple answer on this one. Some will think Stoller's being paid too much, some will think he's getting a fair wage for the job he's doing.

Next, let's look at Cozy Beehive's claim that the Lance Armstrong Foundation's liabilities exceed its assets. This arises from a total misunderstanding of Charity Navigator's Working Capital Ratio rating, which for the Foundation is 0.59 years. What Charity Navigator is trying to do is determine "how long (in years) a charity could sustain its level of spending using only its net liquid assets, as reported on its most recently filed form 990." It's not a ratio of assets to liabilities, as Cozy Beehive decided to interpret it. But what are the Foundation's assets and liabilities? Well a quick look at a balance sheet would answer that question. Taking the form 990 data, the quick view at the end of 2006 looked like this:

Fixed Assets (Equipment etc after depreciation)   $495,686
Intangible Assets (Trademark)   $564,390
Current Assets    
- Accounts Receivable $5,450,887  
- Pledges Receivable $1,519,762  
- Grants Receivable $36,023  
- Inventories $6,251,485  
- Prepaid Expenses $371,435  
- Cash & Cash Equivalents $5,824,316  
- Investment Securities $17,657,502  
Sub-Total   $37,111,410
Total Assets   $38,171,486
Current Liabilities    
- Accounts payable ($1,167,347)  
- Grants Payable ($7,337,123)  
- Deferred Revenue ($440,170)  
Sub-Total   ($8,944,640)
Net Assets   $29,226,846

Those $29m of assets net of liabilities represent the Foundation's accumulated surplus of income over expenditure. And don't include another $21m in the coffers of the Lance Armstrong Foundation Endowment. Which kind of puts the lie to Elizabeth's claim that the Foundation is in in "deficit to the tune of over $5 million." Where that one came from is that in 2006 the Foundation dipped into its accumulated funds and paid out $5,391,455 more than it took in. Or, you may say, it operated at a net loss for the year. Except sometimes it's good for charities to operate at a loss, periodically. Even Charity Navigator doesn't seem to take a dim view of deficits per se. If they're happening too often, for sure, there's a problem. But now and again? Not an issue. In fact, excessive surpluses can actually indicate an inefficient charity. It's a curious balancing act in charity land. For the record, the Foundation's 2005 surplus was $7,106,160 and the 2004 surplus was $15,986,493. On that basis, some might thing it was high time for them to dip into deficit for a year.

All of which, I think, leaves us with just the Cozy Beehive's revenue discrepancy to explain away before opening the floor to questions. This is the difference between the revenue of $31,778,162 per the Charity Navigator site and $38,941,866 revenue in the Lance Armstrong Foundation's 2006 annual report (PDF - screen 30). The first and obvious answer is that the annual report is showing consolidated information for both the Lance Armstrong Foundation and the Lance Armstrong Foundation Endowment. Charity Navigator is looking at the Lance Armstrong Foundation on its own. Then there is that the Charity Navigator information, taken from the IRS form 990, excludes certain donations received in kind and unrealised gains in assets. In other words, it doesn't have all the numbers. Then there's the reason you need the headache tablet handy. The two - form 990 and the annual report - are prepared to slightly different rules as to when revenue is recognised. I warned you to have a headache table to hand. The net effect is about two million (net) of revenue is being recognised in 2006 having already been reported on previous form 990s. In short, there's no real discrepancy as such, certainly not in the way Cozy Beehive gleefully reports it.

That, I think, deals with the issues raised by others. To my mind, no matter what I might personally think of Lance Armstrong, I think the criticism of his Foundation is a bit wide of the mark. Whether it's the right charity for you to donate to is for you to decide. But there's little about it that makes it screamingly wrong. Or justifies the sort of comments made in respect of it.

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