Jon asher's latest up front commentary (4 Viewers)

[clwill]

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

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

Thanks... that's the link I provided back in post #38

 

[Paul]

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.

Chris, after a little digging, it turns out anyone can request a copy of the original exemption application that was submitted to form the non-profit company (this one from the IRS) and also a copy of the original articles of incorporation (this one from the State of California).

I've already filled out and posted the form requesting the exemption app (IRS form 4506-A) and I'm also going to chase down the form to get the articles of incorporation.

If I can determine that I'm not breaking any laws by doing so, I'll post copies of them with links here.

Geez, I guess this means I might have trouble renewing my NHRA membership, but I let it lapse anyway when they went to 1000' so what the heck. Plus I only ever lost money racing, so its sounds like I shouldn't have been allowed to be a member anyway.

A few more thoughts, when there was a member on the NHRA board that deserved and held a lot of respect by the membership and public at large and also had a clear vision for the future of the sport, any talk of a "palace revolt" wasn't appropriate.

But Wally Parks is unfortunately no longer with us, and the NHRA is suffering badly by not having one or more board members that have his vision and command his level of respect. If its at all possible, I feel its in the best interest of anyone who has an attachment to drag racing to make every effort to change that.

 

[clwill]

Chris, after a little digging, it turns out anyone can request a copy of the original exemption application that was submitted to form the non-profit company (this one from the IRS) and also a copy of the original articles of incorporation (this one from the State of California).

My only worry is that they will be from the 1950s...

It would be interesting if one can get the current bylaws, minutes, etc. somewhere...

Will be interesting to see whatever you can get, that's for sure.

 

[Paul]

Chris, when you fill in the request form you can ask for the originals plus everything filed since then, which is what I did.

Its a mail it in and they mail back process so it could take a while, but I'll definitely let you guys know when I get it.

(PJ stated) On a side note, how are the board members selected?

That's a great question PJ, as there has to be some documented process by which board members are appointed. From what I understand with most organizations of this type (for example the NFL) thats typically done through election by the members.

It will be interesting to find out how the NHRA skirted that approach and whether what they did was legally correct.

Keeping in mind the guys that likely architected any "creative" approach to maintaining control of this organization it wouldn't surprise me if there are some serious holes in their plan, matching the ones they've put in their feet over the last decade or so.

 

[Jon Asher]

Paul, again respectfully, my experience has been that it’s usually a small percentage of a total group who will speak out about issues they’re concerned with. The majority are either afraid of being shown to be among the “rebels,” or have too many other things going on to be bothered.

There are literally thousands and thousands of “registered” drivers, many of whom are only part-time competitors, so therefore may have the attitude, “Yeah, these guys may be right, but it has nothing to do with me racing the brackets at Byron Dragway.”

When individuals say they don’t remember the proxy thing you can hardly blame them. If you’ve ever owned a share of stock or belonged to a group like the Sierra Club or anything even remotely like that you’ve been mailed proxy forms. Most of those go directly into the round file.

Back in the 80s, when this happened, remember that it only took a majority of the returned ballots to make the change. That means that if NHRA had about 55,000 members at the time, and only 3,000 returned their ballots, it worked in the Board’s favor. Also remember that there wasn’t any other slate of candidates on that proxy ballot. No one was offered an alternative. Someone could have run for the Board, I suppose, but at the time I would wager the consensus, “Ah, they’re doin’ okay, so I’ll vote for what they wanna do.”

I had an exceptional relationship with Wally. We were e-mailing back and forth literally until a couple of days before he was hospitalized and died. We had numerous candid conversations about not only my writings, but his running of the NHRA. He told me numerous fabulous stories. But it’s critical to remember that back in the 80s his operation of the organization was above reproach from the membership, so I think that helped the Board bring about the changes they wanted.

Look at the effort P.J. Sapienza has mounted to eliminate the Countdown. He knows it, I know it and we all know that he’s, as they say, urinating into the wind – but he keeps trying. The surprising thing is that I’m now hearing from track owner/operators that they think the program is useless in terms of selling tickets and generating media exposure.

Chris, my sense is that the only change possible is a change in ownership of the NHRA. I see no other way of bringing about meaningful changes.

Jon Asher

 

[clwill]

Chris, my sense is that the only change possible is a change in ownership of the NHRA. I see no other way of bringing about meaningful changes.

Probably so (I was just outlining all the possibilities). However a change of ownership would mean having the current shareholders sell their shares. And has been proven many times, you can't force people to sell something if they don't want to.

So unless someone makes them "an offer they can't refuse", it's really, as you say, peeing in the wind. Given the current ownership, and the unavailability of horse heads to place in beds, it seems like such an offer would revolve around $$ (and large $$$) to fatten their wallets. And with the current state of the business, it would take either someone crazy, or hell bent on change to make such an over-priced offer.

 

[yoda]

Probably so (I was just outlining all the possibilities). However a change of ownership would mean having the current shareholders sell their shares. And has been proven many times, you can't force people to sell something if they don't want to.

So unless someone makes them "an offer they can't refuse", it's really, as you say, peeing in the wind. Given the current ownership, and the unavailability of horse heads to place in beds, it seems like such an offer would revolve around $$ (and large $$$) to fatten their wallets. And with the current state of the business, it would take either someone crazy, or hell bent on change to make such an over-priced offer.

That being the case, Chris, wouldn't the next best alternative be to invest that same large $$$ into the creation of another Association? It saves the issue of having to buy something from people that don't want to sell...

 

[Nick Name]

That being the case, Chris, wouldn't the next best alternative be to invest that same large $$$ into the creation of another Association? It saves the issue of having to buy something from people that don't want to sell...

One of the problems you would run into there would be race tracks, or the lack of them. What would need to happen is to somehow, get the sanctioning of race tracks made illegal. Racing organizations should only be able to sanction events, not the tracks themselves.

Therefore the only NHRA tracks would be the ones they own. All others should be free to have an NHRA event, then a month later an IHRA event, etc. This would open up race tracks for the new organization to hold events.

 

[datasnoop]

An uneducated opinion of how to effectively change the NHRA

1. A sweeping paradigm shift is absolutely necessary. This is an overused, politically correct prattle concept, but it must come first. To argue and admit NHRA has problems in policy, interpretation, and execution of those policies is one thing. To actually decide NOT to go to the NHRA event, and instead, go race or watch somewhere else with your discretionary dollars because of your disagreement, is the necessary first step. Just make sure all of your friends are going to the same non-NHRA event because besides the racing, being with your buddies is a big part of the fun. If you think it won't be any good (fun, exciting etc) if it is NOT NHRA, then you understand what needs to be surmounted. Be willing to let NHRA die by itself.

2. The tracks that you currently race or watch national events on will need to change their allegiance as well. Do not ever underestimate the fact that this organization has been around a long time, and, for most of that time did things very well, even if everything they did was not popular. Locking in the local drag strips and convincing them it is in their best interest to be locked in, took time, talent and was exceedingly brilliant.

3. If one or more of the big sponsors follows a multi car/class team to a different venue, the NHRA house of cards really starts to topple.

4. Expect the current oligarchs' to give up and walk away after their counter moves are ineffective to staunch a paradigm shift. However, they will walk away gazillionaires and take the NHRA name with them. What's more, we won't be able to do a damn thing about that either.

The fear of being punished for insubordination can only be used if you actively take the NHRA on. If your actions are passive (not going to their events to spend your dollars, racing in competing venues, booking your match racing dates that conflict with NHRA events all make strong statements. They can and have prevented members from earning series points because of these activities, but that's where we are right now anyway.

Just my thoughts, which like armpits…

Tom

 

[Paul]

Jon, thanks for your insights. The conversations you described with Wally sound really interesting, and its great you were able to have that interaction with him in his final days, I'm sure he really enjoyed that.

In those conversations did you get an understanding on how he saw the future of the NHRA, and if so is it something you would feel comfortable sharing with us?

Chris, my sense is that the only change possible is a change in ownership of the NHRA. I see no other way of bringing about meaningful changes.
Jon Asher

I'm still confused about who claims to currently own the NHRA and also exactly what it is they claim to own.

Based on my current understanding (which admittedly could be all wet, hey I learned it all on internet) of what I've seen regarding the restrictions placed on 501(c)(6) organizations, ownership of this kind of "business league" organization is not something that an individual or share holders can hold.

A business league is a stand alone organization that can't be sold; it can be dis-banded, but only if the assets from such a sale are purely used to further the stated "business interests" of the organization members (note this means organzation members, not board members, in fact board members and employees are specifically banned from profiting from any such asset sale).

Here's a description of the NFL (also a 501(c)(6) "business league" organization) from the wikieapedia listing:

"The National Football League (NFL) is the largest professional American football league in the world. It is a non-profit 501(c)(6) association controlled by its members."

That kind of description makes sense for a 501(c)(6) organization, "an association controlled by its members", and this appears to be the expected (and possibly required) structure of a 501(c)(6) company.

So if anyone understands how there are some individuals who have ownership of the NHRA and can explain exactly what it is they claim to own, please fill us in.

 

[Paul]

I had an exceptional relationship with Wally. We were e-mailing back and forth literally until a couple of days before he was hospitalized and died. We had numerous candid conversations about not only my writings, but his running of the NHRA. He told me numerous fabulous stories.

Jon, totally aside from all this organizational stuff, those conversations and stories in Wally's last days sound like great material for an article, is there any chance of that happening?

 

[clwill]

So if anyone understands how there are some individuals who have ownership of the NHRA and can explain exactly what it is they claim to own, please fill us in.

Paul, you seem hung up on this issue, but it's just not the case. If you read the IRS docs (here), it clearly states that a 501(c)(6) can have any number of forms, to wit:

Each application for exemption must be accompanied by an exact copy of the organization’s organizing document: 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.

The NFL may be an "association", but maybe not. Maybe each team owner has an equal number of shares. Here is an interesting article that discusses how various sports leagues are organized.

We know the NHRA has shares, because they were what the HD Partners were buying. What we don't know is who owns them. My guess is that Wally owned all the shares originally, then distributed them to various people over time. Perhaps as performance awards, even hiring incentives. Maybe even left some to people in his will. We just don't know.

 

[Paul]

Chris, I understand that the typical form of a 501(c)(6) company will be a corporation that has shares of stock, and that appararently is the case with the NHRA.

But unlike a normal corporation, 501(c)(6) companies must adhere to pretty specific rules and limits on share ownership, and I hit a pretty good overview link on this here:

Understanding Nonprofit Ownership - For Dummies (ok, no wisecracks please)

Here's a pretty key quote from that link:

"No one person or group of people can own a nonprofit organization. You don't see nonprofit shares traded on stock exchanges, and any equity in a nonprofit organization belongs to the organization itself, not to the board of directors or the staff. Nonprofit assets can be sold, but the proceeds of the sale must benefit the organization, not private parties.

If you start a nonprofit and decide at some point in the future that you don't want to do it anymore, you have to walk away from it and leave the running of the organization to someone else. Or, if the time has come to close the doors for good, any assets the organization owns must be distributed to other nonprofits fulfilling a similar mission.

When nonprofit managers and consultants talk about "ownership" of a nonprofit organization, they're using the word metaphorically to make the point that board members, staff, clients, and the community have a stake in the organization's future success and its ability to provide needed programs."

So from the above, it appears that shares of a non-profit corporation must be wholly retained by the company and cannot be sold or given to any individuals. These kind of restrctions only make sense given the company has been given the substantial benefit of being tax exempt.

We should be able to see if this was properly done with the NHRA when the company filing documents I sent for arrive. In addition to the initial share distribution the documents should also show any stock transfers have occurred since the company was formed.

If its true that there is no private ownership of the NHRA then the control of the company is totally in the hands of the board members. If this is the case then I believe the members of the organzation (the racers) should have some control over who is on the board.

Regarding the sale to HD Partners, its pretty clear that could have only been a purchase of some "assets" of the NHRA, which was to be the Pro racing divisions, and all the revenue from that sale would have had to come back to the NHRA non-profit, not to any individuals.

As Jon has pointed out getting a majority of members to take some action on this would not be easy, but if the action is as simple as signing a petition stating that the members of this organization wish to have some input on who is on the board, I don't think its impossible.

One other thing that is striking is that it was a pretty selfless and great thing that Wally Parks did in setting the NHRA up this way rather than in a way where he would have seen more financial benefits. I think its drifted way from where he wanted it to go and I also think we owe it to him to get it headed back the right direction.

The bottom line is Wally Parks correctly set up and dedicated this organization to best serve the interest of drag racers as its primary function. If its not doing that well, its members have a right to require some changes.

 

[clwill]

Chris, I understand that the typical form of a 501(c)(6) company will be a corporation that has shares of stock, and that appararently is the case with the NHRA.

But unlike a normal corporation, 501(c)(6) companies must adhere to pretty specific rules and limits on share ownership, and I hit a pretty good overview link on this here:

Understanding Nonprofit Ownership - For Dummies (ok, no wisecracks please)

Paul, this is discussing a typical non-profit like the Red Cross or the United Way. Those are 501(c)(3)s. That's not what a "business league" is, 501(c)(6). Very different animal. Trust me, the people who own the NFL feel a whole lot like owners.

And although you request no wisecracks, I prefer to use the IRS as a reference as opposed to dummies.com.

 

[Paul]

Chris, I agree with you that there are some differences in the requirements of 501(c)(6) and 501(c)(3) non-profits, but the IRS link below:

Business Leagues

does clearly state that

"No part of a business league's net earnings may inure to the benefit of any private shareholder or individual"

so at least its pretty clear that no one can line their pockets through any sale of all or parts of the NHRA.

The link above also leads to some pretty detailed IRS info on 501(c)(6)'s here:

Life Cycle of a Business League (Trade Association)

I think this link will clarify any ownership differences between type (3) and type (6) non-profits, but it looks like a lot to absorb so I'm going to have to dig in to it over the weekend, its time for me to try to make some money.

Actually this link: http://www.aorn.org/docs/assets/96A4B6EA-17A4-49A8-860280D53DEFECC7/Diff_Between_501C3_501C6.doc

is a pretty useful one, it directly contrasts 501(c)(3) and 501(c)(6) NHRA type organizations, and it clearly states regarding 501(c)(6)'s:

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.

So it does appear that the NHRA is not allowed to have any private ownership, all ownership is to be retained solely by the non-profit entity.

 

[nick name]

Paul, I'd suggest that you search for some of the in-depth analyses published during the HD Partners era. They have answers to many of your questions.

You may not remember that the bulk of the proceeds for the sale was going to the remaining arm of the NHRA that would handle sportsman racing. At the time, principals were saying that all that money going to the non-professional side would guarantee its survival for a long time. By doing that, the requirement that proceeds go to the masses was to be met.

Also, please keep in mind that I understand the NHRA has various business interests and not all of them are non-profit. Though I understand that it's losing money, the real estate division (track ownership) is one of them. If NHRA Entertainment (just making that up) was another, and it was involved with producing Professional racing shows, it would not necessarily have to be part of the non-profit, get the racers off the street, publish the National Dragster, set the rules for bracket racing, division.

 

[Paul]

You may not remember that the bulk of the proceeds for the sale was going to the remaining arm of the NHRA that would handle sportsman racing. At the time, principals were saying that all that money going to the non-professional side would guarantee its survival for a long time. By doing that, the requirement that proceeds go to the masses was to be met.

Dan, I do remember that slant to the HD purchase. In retrospect, it appears flawed and probably could have been challenged. With the NHRA set up as a business league, its actually clearly prohibited from having amateur (non-business owner) members, and thus its hard to justify selling off all the professional division assets of the company in order to benefit a group of members who are not pursuing business activities and shouldn't have been allowed to be members in the first place. The rules are pretty clear that you can't sell off any of the business leagues assets unless the revenues are used to also benefit legitimate business owner members. In the HD deal this wouldn't have been the case.

Also, please keep in mind that I understand the NHRA has various business interests and not all of them are non-profit. Though I understand that it's losing money, the real estate division (track ownership) is one of them. If NHRA Entertainment (just making that up) was another, and it was involved with producing Professional racing shows, it would not necessarily have to be part of the non-profit, get the racers off the street, publish the National Dragster, set the rules for bracket racing, division.

This is a good point. However, these other activites were either done wholly outside the NHRA using some other business entity, or could have been done as separate divisions of the NHRA. I had looked over some parts of the IRS type (6) docs that cover this, and these separate divisions can be run as profit generated activities as long as they are in the same thrust as the defined "business interest" of the organization and as long as any profit generated by them is treated in the same manner of any of the other assets of the NHRA.

So if the businesses are subdivisions of the NHRA, like any other asset they own, both any profits they generate or any revenue for the sale of a division is highly controlled and must go back to the organization.

I don't know for sure, but I suspect all these sub businesses were done as sub divisions of the NHRA, I've never seen any mention of separate businesses carrying on those activities. It shouldn't be that hard to find this out, and it likely will become apparent in the various documents I've sent off for.

 

[nick name]

...I don't know for sure, but I suspect all these sub businesses were done as sub divisions of the NHRA, I've never seen any mention of separate businesses carrying on those activities. It shouldn't be that hard to find this out, and it likely will become apparent in the various documents I've sent off for.

Interesting comments and very good points.

I really suspect that the documents you receive will show that the incorporation is of another sort than business league. I remember long ago looking into 501 regulations and finding there were many variants depending on how the organization was structured - or, at least, how it "officially" would be organized.

Though anything is possible, I have to doubt that legal counsel would make such a massive mistake back then or that present counsel would lead the board this far astray. If indeed the NHRA were operating in a IRS-illegal manner, I would have expected a whole lot of tapdancing and paperwork to have been seen in the past.

I may be wrong; if I am you're on the cusp of a huge story.

 

[clwill]

Though anything is possible, I have to doubt that legal counsel would make such a massive mistake back then or that present counsel would lead the board this far astray. If indeed the NHRA were operating in a IRS-illegal manner, I would have expected a whole lot of tapdancing and paperwork to have been seen in the past.

We have a winner. If strains credibility to believe that savvy and experienced investors got within a single shareholder vote of a $100m deal without this kind of due diligence.

 

[Paul]

Dan, even the NHRA has referred to themselves as a 501(c)(6), you won't hit anything on their website regarding this, but in one the press releases they issued regarding the failed HD deal they stated:

"The NHRA, which will remain a non-profit 501(c)(6) corporation,..."

so I don't think there's any dispute about this issue.

The below would of course need to be confirmed by an attorney, and it may be that the documents I've requested will show something unexpected, and its certainly possible I'm misinterpreting a key issue, but at this point here's what the situation looks like to me.

As a 501(c)(6) organization, the NHRA is much more restricted in what it can do in its activities than most of its members (including me up till now) realized, ie:

The NHRA can never be sold, only its assets can be sold, but only if the revenue from the sale furthers the organization's defined "business interests", ie in some way benefits professional drag racers.

It has no private ownership, and no individuals can profit in any way from its activities or any potential sales of its assets.

With no private shareholders, there are no individuals who have "override" authority regarding who the NHRA board members are.

In the absense of shareholders, the board members alone fully control the NHRA.

The bylaws of the organization likely define how the board members are to be determined, and those bylaws were likely modified by the member proxy vote to restrict member control over the board members (I should be receiving these bylaws and any amendments to them in a week or 2, unless everybody in Sacramento has already been layed off).

The NHRA may have erred in changing the bylaws in two possible ways. A 501(c)(6) organization is very clearly restricted from allowing members that are not legitmate business owners, which is typically going to require a business license and the ability to show either a profit over a time period or a legitimate effort to create a profitable business. By allowing these ineligible members its possible that any proxy vote by these members could be thrown out.

The other issue is that the IRS documents regarding 501(c)(6) organizations pretty clearly state that the members or the organization are to have significant input into its operation, thus having some reasonable degree of control over the board members. Here's a couple quotes from one of the links on 501(c)(6)'s I had in a previous post:

"The organization is for the benefit of the organizations’ members."

"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 summary, if you swallow all that (and I think there's some chance the analysis is valid), its pretty clear that NHRA members should have a lot more control over this organization than they currently do, to the point of potentially electing the board members, as is apparently done in many other 501(c)(6) organizations.

I think its worth considering an effort by the members to reassert control over the NHRA. This would require a highly motivated and determined spearhead group, but I don't beleive it would require more from the average member than a signature on a document stating that the organization needs to allow more membership input into board member choices.

The ideal group would probably by necessity need to include one or more well respected and perhaps retired NHRA professionals to give the effort credibility and visibility in the press.

This would be ambitious undertaking but I think its got some chance of success, and the payoff would be huge. I also think the NHRA could end up back in the direction Wally Parks intended.