Tangotiger Blog

This is conventional wisdom and it is complete B.S.:

“A substantial amount of the money raised went to the paid consultant who ran the event and to the expenses of producing the event,” Vallaincourt said. “Really, it’s best practice in charity to have 70 percent of the money go to the charity and this clearly was not the case.”

It is not only in sports where B.S. CW can go unchallenged. It happens all the time in other venues.

Who cares what the expense ratios are? The only thing that matters is how much money I raise for the charity.

If I put on a gala event which has lots of overhead and requires lots of expensive advertising, but that brings in lots of money, is that worse than if I have a bake sale which costs $20 and makes $300 (a nice expense ratio of only 7%)?

Someone did a Ted talk which explained that the charities with the highest paid leaders (CEO’s, etc.) bring in the most money for obvious reasons. If you want to run a successful business, you have to pay a lot for great management. If it is correct to only pay a CEO of a charitable organization $150,000 a year, it must be correct to do the same for a large for-profit corporation! They both have essentially the same goal - maximize net profit! The Ted guy explains that the most successful charities operate in a similar fashion to the most successful for-profit companies - enormous expenses, highly paid executives, and sometimes small profit margins. He also says that we need to get away from this ridiculous, false paradigm that charity executives should not be paid a lot of money and we should NOT be rating charities by their expense ratios!

Kinda like a charity having a .380 batting average.  Who the heck should even care about that number.  It means little to nothing just like the “70%” number quoted.  Need some bottom line common sense.

Given the option to go to a $1K Ball that raises 70% for the charity versus one that raises 30% fro the charity and I’m going to go to the 70% one every time. The Ball’s nice and all but the main reason is to raise money for the charity. Charities with high expense ratios generally get exposed eventually and lose respect and eventually money.

But Toffer, what if the 30% charity is 30% of 10 million dollars and the 70% charity is 70% of 500k?

What point are you trying to make denying the charity all that extra money?  Just because you don’t like the %?

If people are paying money to go to a ball, and the charity gets a cut, then the amount of the cut for charity is the important part.  The expense of the ball is mostly irrelevant.  The expense ratio is not a factor.

If people are giving money away to do good, then the expense ratio is important.  A good CEO presumably is worth a percent of the total, but the better CEO ought to be simultaneously paid a larger dollar figure and a smaller fraction of the total, except. . .

Isn’t the whole point of giving to organized charities the idea that they have economies of scale?

“Charities with high expense ratios generally get exposed eventually and lose respect and eventually money.”

Do you have any evidence that that is true? And if it is, then the people who stop contributing to those charities are being fooled by media (or wherever it is coming from) propaganda, and we may end up hurting perfectly good charity fund raising organizations.

A certain event MIGHT be most efficient with a low expense ratio, but that is hardly a given. It completely depends on the event (the scope, the type, etc.). Again, if you have to spend an extra million extra dollars in advertising to get $1.1 extra in contributions, then that is a good thing, right?

Again, expense ratio alone is a complete non-factor as far as evaluating a charity. My point is that we need to stop promoting that idea so that charities that raise a lot of money with high expense ratios do not lose support because of bad publicity.

If you have a large charity, and you are paying your CEO 10% (or 30% or whatever) of whatever a similar for-profit CEO would get, you are going to get a lousy CEO, on the average (obviously, you could get lucky and have a great one who doesn’t care about the money). But that is another, similar issue (charities get criticized all the time for having CEO’s who make $500,000).

The point is that the expense ratio of ANY organization, whether it is a charity or a for-profit, is a worthless way to evaluate the money making ability of that company.

Why do we do it for charities, which ends up punishing or tarnishing the reputations of those that may be brilliant at raising money but, for whatever reasons, have a high expense ratio? Because “someone” told us that charities must give 70% or more of their revenues to the charity itself? That is just insane…

I still thought the most interesting part was that there are no Astros’ wives.  I guess when your team is that young and that anonymous they’re all still single.

I see the point of MGL, but still cannot fully agree. A for profit entity can pay as much as they want to anyone (employees, advertising, etc), but at the end their product must beat the competition on price, performance, or any other factor that makes the customer buy the product/service.

OTOH, Charities product is giving money to worthy causes. The customer is flatly giving away money, or paying a surcharge on a product/service (dinner, ball, etc), because they expect a good portion of the money going to the cause. Would you give away $1000 knowing that only $1 would ultimately be used for your desired purpose? I would not.

As Jeremy said, the expense ratio is clearly different on a ball than on a donation. But it is prefectly reasonable for a donor to try to get the best bang for the buck on his money.

“Would you give away $1000 knowing that only $1 would ultimately be used for your desired purpose? I would not.”

CM, that is simply one aspect of their marketing strategy. I didn’t say that expense ratio has no bearing on the company. I simply said that in a vacuum, it is meaningless.

The bottom line is the amount of money that the company raises for their cause, right?

Let me give you a perfect example of what I am talking about. Let’s say that I run a charity for children’s cancer and I donate all of my profits to doctors, hospitals, research, etc. (whatever - it doesn’t matter).

And let’s say that I make and sell these really nice handbags and all of the profits go to my cause. And let’s say that it cost $20 to make the handbags and then another $10 per bag to advertise for them. What would you like me to do, sell them for $100 so that I can keep my expenses down to 30%? What if I can’t sell any for $100? I can only sell them for what people will buy them for. I will sell them for whatever price allows me to net the maximum number of dollars. If that is $40 for a net of $10 per bag, then that is what I will sell them for. If it is $60, then so be it. The expense ratio is completely irrelevant to me.

If it turns out that I can make a million dollars a year by selling them for $40 bucks (I sell 100,000 per year), whereas if I sold them for $100 I would only sell $5,000 (for a net profit of half a million), should I be criticized because my expense ratio is 80%?

Yes, for a charity, part of the equation is, “How much will my expense ratio affect my sales,” but really, do you think that is a major factor? How many people do you think buy an item from a non-profit company that says, “All profits go to charity,” and then inquire about their expense ratio before they buy that product? As I said, it is part of the equation, but my point is that without context the expense ratio means nothing, and charities should not be evaluated based on that!

If a charity is wasting money, that is one thing. But it is a complicated thing to figure out if that is the case I would think.

It is also a lot different if a charity is selling a product or putting on a function versus if a charity is simply collecting donations for a cause. In the latter case, there are probably reasonable limits as to what the expense ratios should be, and even then it probably depends a lot on the reach of the company.

Anyway, here is the link to that Ted talk I mentioned. He can explain it better than I can:

http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.html

Here’s some excellent background from Chass on the “President” for the Astros.  It’s good, and you should read it.

http://www.murraychass.com/?p=6166

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As for charities: suppose that I am willing to give 100$ to a charity.  Then, I see that Jack Nicklaus is offering to give money to that very same charity, to anyone willing to pay 1100$ for an all-expenses paid to play one round of golf with Jack Nicklaus.

Jack is upfront that only 10% of the money will be going to the charity, since he has to pay for flying me in, putting me up at the hotel.

Well, that’s still 110$ going, which is more than I was willing to give, PLUS, I get to play with Nicklaus for free (after my reasonable travel expenses).

But, clearly, if I’m willing to do all this, there’s one million people willing to do this.  Nicklaus decides that he can actually make this a daily business for him.  F- the charity, he says, he’ll just sell 250 slots every year, for 10,000$, where he will pay for the expenses, and pocket the difference!

Then he realizes… you know what, I’ll give 200$ of the 10,000$ I’m collecting for charity.

So, what’s better (from the charity’s perspective)?  Me giving 100$ to charity, me giving 1100$ to Jack, and he gives 110$ to charity, or me giving 10,000$ to Jack, and he gives 200$ to charity?

The TED talk link is well worth the time.  Thanks for posting, MGL

I didn’t watch the whole thing yet. I’ll have to re-watch it in its entirety. For anyone who doesn’t know about “TED talks” by the way, many of them are fantastic and I recommend watching them. There is an even a TED app for your phone where you can connect directly to their web site.