When is a Nonprofit Not a Nonprofit?

There are so many “dirty” words in our language, it is too bad that the nonprofit sector has to add more.  For example, too many nonprofits mistakenly believe that profit is a dirty word in our sector.  Hard to believe that there are still people out there — yes, even people who work in our sector—who think that nonprofits cannot make a profit.

The term nonprofit, which so many dislike, has nothing to do with making a profit or not; it merely denotes, albeit poorly, that the profits a nonprofit makes are nondistributing.  In other words, the profits cannot be distributed to shareholders but must go back into the services and programs the nonprofit provides.

Another dirty word is competition.  Again, let’s get real:  with 1.6 million nonprofits in the United States — and growing — there is a heck of a lot of competition.  Competition is a fact of life and, many argue, what keeps those who care at the top of their game.

I welcome competition.   If we don’t know who our competition is and how our competition is doing, we aren’t playing smartly in our environment.  What our competition does can and does hurt or help us.  I’ve written before about how one negative headline about a nonprofit tarnishes all nonprofits.  One negative headline and we need to be prepared to say, “Yes, but we do it this way instead.”  Clearly implying that we are better.  So monitoring competition is important for our nonprofit’s survival.

But then we find out we have competition in places we never thought to look.   And I’m not talking about the L3Cs, as by now we should know to look for them.

Thanks to the Bloomberg Report, I learned of a nonprofit about which I knew nothing, despite that it has been a registered nonprofit for 150 years.  The American Bureau of Shipping (ABS), in Houston, “the leading provider of classification services to the global offshore industry” is a nonprofit.  According to its 2010 Form 990, it had total assets of $1.2 billion dollars – zero of which was contributed income.  It had $664 million in earned income, $35 million in investment income and $7 million in “other income” for a total of $707 million in income.  And yup, the IRS apparently has had no quarrel with designating ABS as a nonprofit.  Some other interesting tidbits:  it has 1070 voting members of its governing body.   They paid out $12 million to “current officers, directors, trustees and key employees.”  But, they also gave United Way of Houston $77,725 in employee matching grants.  (They also gave a lot of scholarships to individuals and grants to many other organizations.)

Bloomberg Report also pointed out that the US Polo Association is a nonprofit, as so many of the major sports associations are.  I think by now everyone knows that the National Football League is a nonprofit.  (They may not know that Commissioner Goodell got paid $11.6 million in 2011.)  The National Hockey League is also a nonprofit (though it isn’t fair to pick on them right now).  As is the Professional Golfers Association of America (PGA) which says it is the “world’s largest working sports organization,” and had income of $93 million, according to the 2011 990.  The PGA is also kind enough to pay the officers of its 21 person board, giving the president $51,285.  (The CEO made just under $1 million.)  And each state or regional PGA association is also a nonprofit.

It seems like the players associations of each major sport –those labor organizations that represent players in dealings with management — are also nonprofits.  So, the NBA Players’ Association, the MLB Players’ Association (although the MLB is not a nonprofit), the MLB Players Association, the currently-working NHL Players Association, and the list could, I am sure, go on, are.  You can look up the 990s of these and others.

I don’t like nonprofits that don’t look like and smell like nonprofits.  They cause problems for the rest of us.  None of the 990s of these organizations that I checked had any contributed income, a hallmark of a nonprofit.  None of these organizations paid taxes on their millions and millions of income, fueling the line that curmudgeons love to hurl at nonprofits:  “You nonprofits are always trying to get away with something.”  And here I’d have to agree.  These folks are getting away with things.

One of the key differences between a nonprofit and for-profit is our revenue generating strategy.  A key component of our strategy is raised income, balanced, of course, by earned income.  Don’t get me wrong:  I’d love for The Nonprofit Center to be self-sustaining, to earn 100% of our income, but we don’t; we earn only about 70%.  But I’d also have to wonder if we ever got to that point as to what differentiates us from our for-profit competition.  And the vast majority of nonprofits are nowhere near being self-sustainable on earned income.

Another key difference between a nonprofit and for-profit is that we don’t pay taxes on our mission-related income and we don’t pay other taxes, such as property tax, as well.  One of the things that we have seen happening since 2008, and about which I’ve written before, is jurisdiction after jurisdiction seriously pursuing PILOTs (Payments In Lieu Of Taxes).  The Bloomberg Report article cites an expert saying that these nonprofits that walk and talk like a for-profit company but are classified as a nonprofit, generate “tens of billions” of income that could– and I would argue — should — be taxed.

As Congress and the President fight to determine how to avoid the fiscal cliff, as conversations are had about slashing social services and money available to support the varied work that the nonprofit sector does, perhaps there should also be pressure brought to bear on the IRS and attorneys general around the country to take a look at for-profits masquerading as nonprofits.  I know Halloween is long past, but it is time to unmask the pretenders so that the real folks can get on with their good works unfettered by the dirty run off from fake nonprofits.