Jon asher's latest up front commentary (2 Viewers)

[Toejam]

btw King nitro: NOT getting RID of the F/C so don't go in a tizzy on me LOL!!!!

Ahhhh...Nancy?

 

[clwill]

Chris, do you have anyone in mind that would go ProBono on this deal?

Whoa, I'm not saying I want to make this happen. All I was saying was, you can't "take over" NHRA, but if you wanted to rattle the board, one way would be to challenge the tax exemption. However, I would imagine that battle going this way:

Challenger: IRS, these people are only interested in making money, not in looking out for the welfare of the racers.

NHRA: But in order to look out for the welfare of the racers, the organization needs to be solvent.

Challenger: But the racers are the backbone of the NHRA, without us, there's nothing.

NHRA: Without the financial resources, there'd be no racing.

Challenger: You're going about it all wrong.

NHRA: That's a matter of opinion. We think we're doing the best to maximize the health of the organization.

Challenger: The execs are enriching themselves with exorbitant salaries.

NHRA: Our wages are well in line with other non-profits with similar revenues.

IRS: This is an internal squabble, challenge to exemption denied.

And there you have it.

 

[Paul]

Christopher-

Thanks for supplying the details on the type of non-profit the NHRA is and for supplying the link that describes 501(c)(6) type non-profits.

That link is a really interesting read, it got my head spinning so I've only been able to make it part way through, but I'd highly recommend reading it to anyone trying to understand how the NHRA is supposed be conducting their business.

I agree with the issues you pointed out as ones that may show that the NHRA is not operating within the required rules of their business type.

In addition, and again after a first read, there are some other striking issues that don't seem right about the way the business is set up and the way decisions are being made.

As you pointed out, the 501(c)(6) means the NHRA is a "business league", like the NFL. The general description of these kinds of organizations is that they are to further the common "business interests" of their members.

Using the NFL as example this makes sense. The NFL owners are members of the "business league". From what I understand they also through voting control who is on the board of the league, and thus ultimately control this business league organization.

Contrast that with the NHRA. Given this type of "business league" organization structure you would expect that the only members of the organization would be professional team owners, or any other racers who can substantiate that they are running their racing activities as a legitimate business. In fact in the document, it specifically states that these type of organizations cannot allow members that are pursuing the activity as a hobby. It appears that a lot of the revenue currently being generated by the NHRA is through memberships that shouldn't be allowed given their current business structure.

Furthermore its pretty clear that the primary function of the organization must be to further the "business interests" of its members, which in this case can only mean the professional racers. Its pretty hard to see how that can be the case when none of the supposed primary beneficiaries of the organization, the professional racers, have any control over the decisions or future of the organization, and to a large degree currently appear to be unhappy the direction of the organization.

Contrast this to the NFL, where its primary beneficiaries, the team owners, vote to determine the future the league and who runs it.

I'm no attorney and likely only understand this well enough to be dangerous, but it sure appears that the NHRA is not operating by the rules for their type of organization, and it also clearly seems to be not operating in a manner that is in the best interest of their intended beneficiaries.

I didn't get in the document deep enough to understand the restrictions on ownership of a "business league" organization and under what terms the assets of that kind of organization can be owned, sold or transferred, but I wouldn't be surprised if there are more restrictions on ownership than are commonly understood, and its an interesting question whether or not the NHRA had a legal right to pursue that business deal they were going after.

Overall it appears to me that the NHRA is far enough out of line with how they are supposed to be running that they could be legally challenged, and as you pointed out the potential loss of tax exempt status would be a pretty good hammer, and add in the potential loss of revenue from non-professional memberships that it appears they shouldn't be accepting.

Does anybody know anyone currently racing that has a background in corporate law that would be willing to take a more educated look at this situation?

 

[clwill]

I have always wondered how NHRA could sell to HD.

Membership <> Shares. They were going to sell the shares. "Membership" in the NHRA, as Jon points out, simply means "Subscription to National Dragster", the right to apply for a Competition license, and some discounts.

It all comes down to the governance. I tried to find filings and annual general meeting minutes posted on the web. Couldn't find it. Their status makes them at least accountable to the tax department.

And they file all the necessary paperwork. Check out the links I provided above to the IRS web site, they spell out all the details of what's required. It's really not much.

An organization is only legally accountable to the shareholders, not the members (customers). The shareholders (a comprehensive list of them I've never seen) are the only ones who have the right to most of the information, and are the only ones the board is accountable to. If, as I suspect, the board and the shareholders are one and the same, they can remain quite private.

As an example, consider Cargill and/or Bechtel, two of the largest companies on the planet. Each is privately owned (largely by one family) and even their gross revenues are only speculated upon, no one really knows. And that's all perfectly legal.

 

[clwill]

As you pointed out, the 501(c)(6) means the NHRA is a "business league", like the NFL. The general description of these kinds of organizations is that they are to further the common "business interests" of their members.

Your analysis is largely on target, as far as I can tell. The "membership" of the NHRA is not the "members", as they have diluted that term to mean "customers". The "membership" in such a business league must mean the professional racing teams, because as you note, the IRS specifically excludes the vast majority of NHRA racers who pursue it as a hobby.

However, there is the rub. It would be extremely difficult for one of these member pro teams to challenge the NHRA in any way. They would be, quite literally, biting the hand that feeds them. The NHRA specifically gives the right to deny participation to anyone actively working against "the best interests of drag racing", and they completely determine what those "best interests" are. If, for example, Don Schumacher decided to challenge their tax exemption as a way of effecting change, they could deny his teams' right to race, and therefore cut off his source of revenue. That would be ugly, and no one would begrudge Don if he declined to pursue that route.

There are really only a few ways to effect the kind of major change Jon is talking about:

• Change the board. Given that the shareholders control the board, that means getting a majority of the shareholders to vote differently. Probably need to know who they are first... Then careful lobbying of them, one-on-one by people they know and respect, to convince them that there needs to be a change. Tough work.
  
• Change the leadership. They're hired by the board. Heck, they ARE the board (that we do know). See above.
  
• Legal challenge, perhaps to the tax status. See above. Very tough hill to climb. Needs a strong champion with deep pockets who's willing to give up racing in the NHRA to fight the fight. And probably not going to work, but might just be ugly and noisy enough to effect change (see below).
  
• Member uprising. Would require PRO or some similar organized fight of the professional ranks to build a unified front against the leadership. In order to fend off the risk of individuals being banned, it would need to be very unified so that NHRA couldn't ban them all without risking the whole show. And with that also comes the threat of a strike/boycott that would carry some real teeth. Here again, this needs strong leadership with great backbone, and a common set of goals/objectives. That kind of unanimity is hard to come by in the pro ranks, as we've already seen.
  
• Grassroots campaign. An loud uprising among the fans to demand major changes. Effective and broad boycotts of events and sponsors, ugly boisterous demonstrations, lots of bad press, over a period of time could wear away at support for the current leadership team among the board. For example, a very public, loud, visible, and persistent campaign to oust the current leadership could prove annoying enough that the board would find it easier to change than to endure the ugly publicity. Here again, champions and leadership (who are willing to not race) are vital.
  
• Competition. A better mousetrap. Another league. A vital and effective IHRA or ADRL or ... If I was Mr. Deep Pockets, that's the approach I'd take. But you'd probably have to secure a number of pro teams first. Awfully big hill to climb, the barriers to entry in this game are big. You'd need venues, a schedule, sponsor support, team support, etc. all lined up in advance.

I'm NOT the "fight the fight" guy. I love racing, the needle's too far in. Just offering observations on how it might be done.

Chris

 

[Paul]

Here's a section from the overview document that describes not allowing "non-business" members:

_____
3.
Hobbies are activities that are not conducted as businesses. Therefore, organizations that promote the common interests of hobbyists do not qualify under IRC 501(c)(6). In the leading case on this issue, American Kennel Club v. Hoey, 142 F.2d 920 (2nd Cir. 1945), the court noted that the Club had many members that were not breeders and concluded that "though the plaintiff is a league of clubs, it surely is not a league of business clubs" since its member clubs "are primarily interested in sport, not in business." Id. at 922.
_____

I think this makes it pretty clear that given the NHRA's current business structure they should only be allowing members that are pursuing racing as a legitimate business activity.

Glenn, regarding your comments on shares and sales of the NHRA, keep in mind that as a tax exempt organization I don't believe the NHRA is allowed to issue shares or have any private ownership. As a business league it can own assets, and the NHRA clearly does, and it can sell some of its assets, but that sale must be in the best interest of the leagues members, and the revenue from any sales must come back to the league and can only be used to further its intended "business interest" goals.

Its looking more and more like the NHRA is not living up to the requirements and restrictions placed on its current business structure.

 

[yoda]

Paul and Christopher: Thank you for the VERY enlightening (and informative) banter...

 

[clwill]

keep in mind that as a tax exempt organization I don't believe the NHRA is allowed to issue shares or have any private ownership.

I'm sorry, I don't see it that way. If you look here, the Organizing Documents section, you see that all of the following organizational forms can qualify: "Articles of incorporation for a corporation, articles of organization for a limited liability company, articles of association or constitution for an association, or trust agreement or declaration of trust for a trust." Any corporation or LLC will have shares. And further, it's only state law that governs what forms are legitimate. I haven't researched California state law, but I doubt it specifically excludes a corporation or LLC from having exempt status.

 

[Paul]

Chris, that was a nice summary of the possible ways change could be affected in the NHRA.

A few comments:

However, there is the rub. It would be extremely difficult for one of these member pro teams to challenge the NHRA in any way. They would be, quite literally, biting the hand that feeds them.

I think the current control and "ownership" and control of the NHRA is much flimsier and subject to forced change then most people realize. I don't think there is any explicit ownership of the NHRA as its not allowed for a tax exempt organization.

Here's a couple of links with info on tax exempt organization ownership:

(click on the first link on this page)
501(c)(6) ownership - Google Search

Tax Planning and Compliance for Tax ... - Google Books

The NHRA is thus just a "business league" organization that consists of its members, a board of the directors and the employees hired by the board. The board members do have control over the organization but they are specifically not allowed to have any ownership of it and cannot profit from any sale of the organizations assets.

Thus to gain some control over the NHRA doesn't require the purchase or acquisition of any private assets, it simply means somehow becoming a board member.

I agree with you that any single team owner would put too much at risk challenging the NHRA alone, but if a majority of the professional racers banded together I think they could force the organization to place one or more of the team owners or their designated representitives on the current board. This only makes sense as the primary goal of the business league is to further the business interests of those who should be the primary members, the professional team owners.

Here's an interesting quote from the first link above regarding 501c6 organizations:

"The organization will have no specific
ownership and are generally controlled by
members, who do not receive stock. All
profits are reinvested in the organization."

In addition to the ownership statement, note the "generally controlled by members" statement.

Given the kind of organization the NHRA is supposed to be and who their intended beneficiaries are to be and the apparent amount of control its members are supposed to have, it seems way out of wack not to have some board members who have a mix of visionary and business skills that could put the NHRA back on track. There is a long list of possibilities here, ie Don Garlits, Jack Roush, etc., etc., etc.

 

[mick]

this is a very good thread.
can anyone shed some light on 'franchise' or 'not to franchise'?
i believe the CART series is franchise? and the IRL not? NASCAR?

if team owners eventually attain owner/mngr. status - best to stay
present course as 'business league'; individual race teams remaining
separtate business entities, racing for a sanctioning body?
or band team owners and sanctioning body owners together?

 

[Jon Asher]

Paul:

Please don’t misunderstand my comments here, because my intent is anything but insulting.

With that said, I don’t think you understand the true scope of the problem. Drag racing is indeed a pretty tight community, but it’s not tight enough to accomplish what you suggest. People have too many other problems to give a serious damn about trying to “fix” the NHRA. Most simply want to race without being hassled or overcharged. They lack the time and interest to get involved in what would be a time- and money-consuming effort to bring about change.

When the proxy situation came up the attorney told us that while NHRA only needed a simple majority of the RETURNED proxies to bring about the changes they wanted, once those changes were made any attempt to alter them would require the supportive proxies of 75% of the total membership of the organization.

Please remember I’m trying to put this together 20-some years after the fact, so my memory could be slightly off.

Suppose you wanted to mount that effort. The first thing you would need is the complete NHRA membership list to make a direct mail campaign. If management knew what you wanted the list for they’d refuse to provide it, and you’d probably need a court order to get it. Then, while you were spending your money to try and convince people to give you their proxies, the organization would be countering by using the “free” pages of National Dragster to belittle your efforts. And one direct mailing probably wouldn’t elicit much of a response.

Even if you did have the proxy votes I’m not sure you could do anything. You’d need to consult an attorney before you even started.

John Farr’s comment about being barred from racing is absolutely relevant here, I think.

Ted, while I appreciate your sentiments, NHRA appears to dismiss, out of hand, any criticism sent in their direction. I have never once had anyone from NHRA admit that problems I’ve pointed out are “real” and need to be addressed, and I can speak for everyone else who’s ever written about NHRA like this. We all get the same non-reaction, or comments to the effect that we shouldn’t have written what we did.

Regarding Nancy Matter’s post, I had a “name” Pro Stock racer tell me yesterday that if the ADRL had a class for him, he’d be there. “It looks like those guys are having fun over there,” he said.

Martin! Stop calling me “Mr. Asher!” But you are right: There are some very bright people posting things on the Internet. But, at the same time, the mere fact that one has a keyboard and access does not make one a journalist. Nitromater is a perfect example. Remember when no real names were required and people would post simply outrageous lies – and get away with it. This is a much saner place to be now.

Jim LeClaire is right about the old AHRA Grand American Series. I am not nostalgic for the old days, but without Tice and AHRA one is forced to wonder if we’d be running nitromethane or Funny Cars, because if you were around back then, NHRA did nothing to help either “item.” Jim Tice forced NHRA to change its ways.

I have mixed emotions about the Countdown. To me it will only be truly successful when we have more than 25 dragsters and Funny Cars fighting for the 10 spots – and that’s not likely to happen in this economy.

Chris, with the Board and executive team being one and the same there will be no changes. It’s not in their personal best interests to change.

I think what we need here is input from an attorney who truly understands these matters better than we do.

Jon Asher

 

[yoda]

...Martin! Stop calling me “Mr. Asher!”

I know, I know... Mr. Asher was your dad....

Thanks for the great reads over the years, sir...

 

[Rollout96]

btw King nitro: NOT getting RID of the F/C so don't go in a tizzy on me LOL!!!!

A-Haaa... Racing BOTH! Very cool !!!!

 

[FuelFC]

Attorney to the microphone please.

Mr. Ash....Err sorry , Jon raises another question and it almost seems like it should be a Trival Pursuit question as well.

How many attorney's are there participating or intimatly involved in all of drag racing? a) none b) none c) none..

 

[yoda]

Attorney to the microphone please.

Mr. Ash....Err sorry , Jon raises another question and it almost seems like it should be a Trival Pursuit question as well.

How many attorney's are there participating or intimatly involved in all of drag racing? a) none b) none c) none..

Not true!! We have our own personal litigator right here on the 'Mater- Toni Froehling- drag bike racer

 

[Paul]

With that said, I don’t think you understand the true scope of the problem. Drag racing is indeed a pretty tight community, but it’s not tight enough to accomplish what you suggest. People have too many other problems to give a serious damn about trying to “fix” the NHRA. Most simply want to race without being hassled or overcharged. They lack the time and interest to get involved in what would be a time- and money-consuming effort to bring about change.

When the proxy situation came up the attorney told us that while NHRA only needed a simple majority of the RETURNED proxies to bring about the changes they wanted, once those changes were made any attempt to alter them would require the supportive proxies of 75% of the total membership of the organization.

...

I think what we need here is input from an attorney who truly understands these matters better than we do.

Jon Asher

Jon, there's no doubt effecting some kind of significant change is an ambitious goal, with a high chance of failure. But I think you may be underestimating how many current members share the sentiments you expressed in your original post.

Regarding "rallying the troops", the effort would definitely take a few key individuals to spear head the effort and those individuals would have to be willing to run the risk of banishment from the organization if the effort failed.

But I don't think additional support from the vast majority of members would be more than a signature on a petition stating that they were in agreement that the organization was not being run properly managed and directed. One way to minimize the risk of signing such a statement would be to have an agreement in place that the signatures would not be made public unless a majority of the professional teams signed the statement.

Your dead on that any such activity would require an attorney experienced in corporate law, and how that attorney would be compensated is a signficant issue.

But regarding the proxy vote, it looks to me as though it might be possible to have that vote thown out as it appears that the NHRA was allowing members to join and vote that never should have been granted membership.

Its interesting to day dream how much better the NHRA would perform if it had a well chosen set of board members. Just in the area of securing corporate race and special event sponsorships, if it was a Don Garlits or Don Prudhomme or Kenny Bernstein getting the foot in the door and making the initial pitch to corporations I think you would see a huge improvement in this area, and this kind of improvement would be in place in every important activity of the NHRA.

Its the difference between "sir, I've got an individual on the line named Don Garlits, do you want to take this call" versus changing that name to any one of the current board members.

 

[FuelFC]

Well there you go. so we can change the answers to:
a) none
b) one
c) possibly two
d) there is no way there are anymore than three

 

[Toejam]

People want to see NHRA change it's policies? I met a vendor named Ken Collins about 12 years ago in Topeka, he's sponsored a number of cars but I cannot remember the name of his company for the life of me! It was Nutrend but he has since taken a different. Apparently he was disgusted with NHRA's policies regarding souvenior sales so he left! Well around 2000 or so(?) he was at a Nascar race and Tom Compton saw him in the Press box and asked why he's not at NHRA races no more? He took him out on the spectator deck and showed Tom his Souvenior trailer with huge crowds around it! And just said "Cause you won't let me do that!" Pointing to the souvenior trailer! Later that season he was allowed to bring in a trailer, and wouldn't you know all the Pro Racers got wind of it, and as you know Teams can know sell their own souveniors! Until NHRA starts losing the Big dog sponsors will they be open to any kind of change!

 

[PJ]

Jon, there's no doubt effecting some kind of significant change is an ambitious goal, with a high chance of failure. But I think you may be underestimating how many current members share the sentiments you expressed in your original post.

Regarding "rallying the troops", the effort would definitely take a few key individuals to spear head the effort and those individuals would have to be willing to run the risk of banishment from the organization if the effort failed.

But I don't think additional support from the vast majority of members would be more than a signature on a petition stating that they were in agreement that the organization was not being run properly managed and directed. One way to minimize the risk of signing such a statement would be to have an agreement in place that the signatures would not be made public unless a majority of the professional teams signed the statement.

Your dead on that any such activity would require an attorney experienced in corporate law, and how that attorney would be compensated is a signficant issue.

But regarding the proxy vote, it looks to me as though it might be possible to have that vote thown out as it appears that the NHRA was allowing members to join and vote that never should have been granted membership.

Its interesting to day dream how much better the NHRA would perform if it had a well chosen set of board members. Just in the area of securing corporate race and special event sponsorships, if it was a Don Garlits or Don Prudhomme or Kenny Bernstein getting the foot in the door and making the initial pitch to corporations I think you would see a huge improvement in this area, and this kind of improvement would be in place in every important activity of the NHRA.

Its the difference between "sir, I've got an individual on the line named Don Garlits, do you want to take this call" versus changing that name to any one of the current board members.

As someone who tried (is still trying) to effect change, its one up hill battle. Those who support behind the scenes can not do so up front for fear of getting backhanded.




On a side note, how are the board members selected?

 

[clwill]

Jon you make a number of good points. And yes an attorney would be useful here. I'm sure there are some who race, you see all kinds of doctors racing, there has to be an attorney or two. But one who wants to get involved in this fight? Hmmm...

It would be interesting to see if one could find, filed somewhere, perhaps with the State of California, the formation documents, the bylaws, the ownership information, etc. for the NHRA. Perhaps even the minutes of board meetings.... I wonder if they would produce them if asked formally? Perhaps someone could send a certified/return receipt letter to Mr. Compton requesting same. Jon?

At the very least, then you'd know what we're dealing with. Is there a process for change, or is it a hopeless case?