NHRA being Investigated by the IRS

[clwill]

There is no such thing as "standard CEO compensation". 1% of gross is absurd. That would put the CEO of Wal-Mart's salary at $4 Billion a year. Or Jeff Bezos at Amazon (#100 on the Fortune 500) at $245m a year. Both just ridiculously high.

Salaries are like anything else, you get what people (the market) is willing to pay. The way to evaluate executive salaries (and I've done this for a living) is to compare it to people running comparable organizations, as the complainant in this letter has done. Compared to other non-profits, where executives tend to make about half what their for-profit peers do, NHRA's salaries seem out of whack.

However, compared to for-profit companies, in similar entertainment industries, with similar sales, similar employee counts, etc., it has yet to be determined. But I'm betting his number is not far off, perhaps a little low.

Which brings us back around to a bigger point. Regardless of whether you think this "tiger hasn't changed its stripes", it is difficult to argue that NHRA is a non-profit company. It is in the entertainment industry, and has been since the 70s. It should probably have changed its filing status back then. The IRS will determine that.

I do agree about "be careful what you wish for", though. The last thing this organization needs is to be run by a pure vote of the members on each and every day-to-day issue. Just hang around your local track, or some internet message boards, and I think you'd agree. I'm not sure I want some of those clowns voting on anything...

What I'd like to see happen is for this to cause some serious rethink in Glendora and for a) the company to figure out what it is (entertainment, sanctioning body, whatever) and to have the corporate organization match that, and b) to have open and fair election by the members for the board. I'd like the board to be truly a mix of inside and outside members with various levels of experience in racing/entertainment and expertise in a variety of fields like marketing, HR, finance, law, etc. In short, a board like all good corporate boards: elected by the shareholders, more objective, and with experience in and out of their line of business.

Will this action with the IRS cause this? I see two possible outcomes: 1) yes, the board, with its new members, takes this opportunity to really reset and think this all out, or 2) no way, they circle the wagons and waste a ton of time, energy and our money fighting it tooth and nail until the last man is standing. Not sure which will happen.

 

[vegasnitro]

To Jon's point, I do not claim to be an expert on such matters or have any inside information ... I am just trying to flesh out the endgame, or how this can be beneficial to NHRA/racer/fans. So far, I don't see it.

Personal and practical experience tells me that:

Government + Lawyers = Expensive + Nothing good for anybody.

PS Jon it was from that horrible Queen Latifah movie "Last Holiday" ... I saw that movie on an airplane like 3 times. I WANT MY PRIZE! lol

 

[Tim5636sc]

PS Jon it was from that horrible Queen Latifah movie "Last Holiday" ... I saw that movie on an airplane like 3 times. I WANT MY PRIZE! lol

There was a great version of this movie with Obi Wan Kanobi (Alec Guinness) made back in 1950 that I'm quietly confident Jon was talking about....

 

[vegasnitro]

There is no such thing as "standard CEO compensation". 1% of gross is absurd. That would put the CEO of Wal-Mart's salary at $4 Billion a year. Or Jeff Bezos at Amazon (#100 on the Fortune 500) at $245m a year. Both just ridiculously high.

You are correct Chris, I should have been more specific, my friend did expressly asked if it was a fortune 500 company. I gave him the parameters of nice size company, about 100 employees and 120 million in annual revenue, privately held. He said 1% of gross would be standard, which obviously leaves some wiggle room, as some CEOs will be paid more and some less, as no one would be so foolish to assume 1% if they happen to become CEO.

 

[glofria]

Personally, I have no problem with an external audit. Just with the IRS it may not be voluntary. So with that being said, only a positive can come of this.

Then the question is; positive for who, members or the board of direcors?

I like the NHRA that is a non-profit that benefits the sportsman racers and it's members. The entertainment side does little for me. We get more entertainment out of running our own cars than keeping up on the pro circus.

 

[TR]

There was a great version of this movie with Obi Wan Kanobi (Alec Guinness) made back in 1950 that I'm quietly confident Jon was talking about....

Obi Wan, Obi Wan Kanobi, now that's a name I haven't heard in a long time.

Rick

 

[clwill]

I like the NHRA that is a non-profit that benefits the sportsman racers and it's members. The entertainment side does little for me. We get more entertainment out of running our own cars than keeping up on the pro circus.

That is where I've been drifting more and more as I/we have moved more from decades-long fan to sportsman participant. Perhaps there was some real value in the HD Partners kind of deal: two entities, each driven to their own objective? Not exactly clear how the economics of that would work, but it's an interesting possible outcome as well.

 

[twostep]

Or Jeff Bezos at Amazon (#100 on the Fortune 500) at $245m a year.

Jeff Bezos owns $4 billion worth of Amazon stock; he doesn't need a salary. (He draws a token 80K annually). As for Compton/Gardner, I dunno. Are they worth a combined million bucks a year? You make the call.

Having tussled with the IRS over an estate return, I can guarantee you if there's tax money to be had, the IRS will have it. But something tells me the suits anticipated the possibility of this happening years ago, have their bases covered and the complaint will go nowhere.

 

[vegasnitro]

I think it is important to note, as we all try to wrap our brains about all of the possible scenarios that could play out, that NOTHING has actually happened yet. Someone sent a letter proxied by a lawyer to the IRS. The IRS has made no moves. It is not out of the realm of possibility that they do nothing. I have had to remind myself of this a couple of times.

 

[mike]

For what purpose was this release of information designed to do? Stir up the members or stir up the guardians. This so called revelation to the IRS will only hurt the racer,and sounds like a case of jelousy. Could it be that the person filling this is sorry that he or she isn't on the [board] and collecting the associated wages. By the way, I was one of the people who gave them my vote to do what they had to do to keep us racing. It worked and we still are racing.

 

[Tumbleweed]

For what purpose was this release of information designed to do? Stir up the members or stir up the guardians. This so called revelation to the IRS will only hurt the racer,and sounds like a case of jelousy. Could it be that the person filling this is sorry that he or she isn't on the [board] and collecting the associated wages. By the way, I was one of the people who gave them my vote to do what they had to do to keep us racing. It worked and we still are racing.

Ahhh come on Mike, This makes for Great Entertainment (or makes your head spin with blah blah blah) just reading all the Speculation...........

 

[none]

By the way, I was one of the people who gave them my vote to do what they had to do to keep us racing. It worked and we still are racing.

Perhaps you could shed some light on that scenario. I have always thought of it (Members loss of vote) as a sneaky maneuver. You seem to indicate it was a voluntary move...........

 

[Bill]

Perhaps you could shed some light on that scenario. I have always thought of it (Members loss of vote) as a sneaky maneuver. You seem to indicate it was a voluntary move...........

I saw a movie one time ("Drowning Mona") about a woman (Bette Midler) in a small town, who had at one time or another, damaged, messed-up, or screwed up the lives of virtually everybody who lived there. Everybody.

When she turned up murdered, everyone who lived there was a suspect; the police didn't know where to look!

We have something akin to this, here, I believe... it could be anybody.

NHRA may be "successful" in somebody's opinion (hint; there's a lot more to success, in this case, than how much money your organization can make,) but if you compare Sportsman (Stocker, for instance) payouts with those of the '70s, and '80s, compare the number of contingency programs, and the way they're run, with those of the Pre-Compton days, and look at car counts, nationwide, you'll maybe understand why the NHRA's recent egregious fee increases in the middle of this down economy, have not played well with the racers, to put it mildly.

F'r example...

On one end of the scale, we have the Jr. Dragster driver who, by NHRA edict, is required to BUY NEW SEATBELTS for her car every TWO YEARS, while a NASCAR racecar owner gets to use theirs 5... Explain the logic of that one... Is somebody in bed with the seatbelt fairy???? Gee, I wonder....

On the other end of the scale, rumor has it that an NHRA racer had his over-a hundred-thousand-dollar, 5-year plan, top-class Stocker that was an older model, (but expected to be extremely competitive,) rendered obsolete and totally uncompetitive by NHRA's assigned horsepower factors that were arbitrary, lopsided, and impossibly favorable to the new factory-supercharged Mustangs and equally under-factored Drag Pack Dodges, (cars running in Stock Eliminator without possessing even a hint of a V.I N.)

Mona is alive and well in Glendora...

 

[Treeshaker]

I THOUGHT THEY WERE A NOT FOR PROFIT ORGANIZATION? if thats so then why would being profitable even be on the agenda?

I am just asking because I am one of the clueless guys reading all this..lol

Whether you are running a not-for profit, non profit, or for profit entity, you need to bring in more money than what you spend or pretty soon there isn't anything to cover the checks you are writing, if you can write any. The difference in the many categories is the way the extra money can be distributed and their tax status.

Just think of it as your household. How long can you hold out if you are spending more than you are bringing in?

And as mentioned, splitting up the entertainment side that brings in the spectators, and the sportsman group which earns through the back gate is being done by Feld now. NASCAR has been using this model for a long time and even runs the different levels on separate days.

 

[BigDaddyB]

I have read most of the comments left on this matter. Let's be real the NHRA is an entertainment for profit entity. Let's examine the the clues (1) only Coke has the monopoly on sponsoring NHRA events and they pay for it, (2) prohibited by rule if joe smuck gets Gatorade to buy his fuel, short block, or anything he is prohibited by rule unless he can get full sponsorship, (3) Only Goodyear Tires are allowed to be used in Pro Stock by rule, does Hoosier make a safe tire to tun in Pro Stock. Where is the free marketplace, and there many instances where the leadership has let coporate people dictate to what this sport will look and feel like to competitors and fans. I guess the NHRA in the Pro ranks wants to look like NASCAR in which the playground belongs to Hendrick, Gibbs, and Roush. In the NHRA what we have is the same the multi millionaires determining who gets to play on the playground and that is cool so long as there is demand for it and a fan base willing to pay the money to see the "show". And if that is the case the owners should be able to afford a franchiisee fee to get into the "show". In this case for 60 years the "membership" has supported, worked and bleed NHRA red, white, blue, so therefore if this a for profit organization then the membership should have exclusive rights in buying shares in this entertain company. That being said at aleast the shareholders have a say in what direction the company will follow in the future. I do beleive the Lucas Oil Series is more entertaining and would be more profitable with bigger purses because thew little guy can still build car an compete. It's not indivduals who succeed in an organizatrion but sum total of all its parts.

 

[Rajunz]

......................And name me ANY other racing series that is run by the racers/members that is succesful. You can't, because it has NEVER worked. It ultimately devolves into every member looking out for their own interests and nothing gets accomplished if the series continues at all.......

All you have to do is look at PRO, they have a hard time accomplishing much of anything........................

 

[Paul]

Lastly, a friend of mine has several economics degrees and works for American Express Securities. He says standard CEO compensation is 1% of Gross Revenues plus expected benefits (stock options, company car, use of the company jet, etc). Using that model, Compton is WAY UNDERPAID. Shrug ...

There's a very important distinction here. High CEO salaries make sense at public companies where the shareholders can vote to have a CEO replaced for poor performance. If you do a great job for the shareholders then you are worth your high salary, do a bad job and you are gone.

A high CEO salary might even make sense at a non-profit where member voting (like shareholders in a for profit company) determined the board of directors and thus the CEO, again if you are doing a great job for the members, stay and keep your salary, bad job, you're out of here. This was the original model for the NHRA before the board mangled it.

But a high CEO salary at a non-profit where the board members have taken some shady steps to fully eliminate any member input is not a healthy or fair situation.

The checks and balances in place at most for-profit or non-profit companies have been removed by the board members, who now are the only ones who can hire or fire themselves and they can also freely set their own salaries.

They now have power over the company as if it was a private company that they fully owned, although this is not the case. As a non-profit the NHRA is a free standing corporation with no private ownership, so the board now fully controls it but they don't own it.

However, although they totally control the company they still must abide by the general rules regarding non-profit companies and as I've posted previously I believe they have made some serious mistakes in this area.

Personally I don't think what the board members did was fair or in the best long term interests of drag racing, so if takes some IRS heat for the company to become more responsible to its members, maybe it will be worth it.

 

[BigDaddyB]

To respond to Mike. Stir up the members. What members. Your membership entitles you to National Dragster a rulebook, an opportunity to pay for a license to race in certain classes, and entry fee's to race. Your post acts like the membership has some say in this, all you have to do is look a AAA and you see what being a member get's you. WestWay's an opportunity to call yourself a member of something.

 

[Bill]

To respond to Mike. Stir up the members. What members. Your membership entitles you to National Dragster a rulebook, an opportunity to pay for a license to race in certain classes, and entry fee's to race. Your post acts like the membership has some say in this, all you have to do is look a AAA and you see what being a member get's you. WestWay's an opportunity to call yourself a member of something.

" a rulebook"...

A RULEBOOK???

NHRA HAS DECIDED THAT WE DON'T NEED NO STEENKIN' RULEBOOK!!!

You're living in the touchy-feely past. If you want a rulebook, cough up a pound of flesh for Uncle Tom.... this is the NEW NHRA, remember???

One more time-honored tradition down the tubes ...and the beat goes on.

Jeesh...

 

[Paul]

I THOUGHT THEY WERE A NOT FOR PROFIT ORGANIZATION? if thats so then why would being profitable even be on the agenda?

I am just asking because I am one of the clueless guys reading all this..lol

Shane, the term non-profit is kind of misleading. What it really means is that the company has restrictions on what it can do with any profit it generates.

A for-profit can freely pass any generated profit on to its shareholders (owners), after first paying federal and state corporate taxes on the profit. If the company decides to keep the profit inside, it first pays corporate taxes but then can use the profit any way it sees fit, such as moving into different business areas.

A non-profit company does not pay any federal or state corporate taxes on any profit generated and no shareholders exist so no profit can go that direction. A non-profit can also not make any direct cash payments to its members (or board members). The profit can only be used in a manner that directly advances the goals of the company for its members that were originally stated during its incorporation. In the case of the NHRA, this was along the lines of "develop the safety and visibility of the sport of drag racing for its members".

So any profit generated by the NHRA is not taxed, but it must be directly used to benefit its members by increasing the visibility and safety of drag racing.

One of the things the IRS will likely be looking at is whether the current board members circumvented this rule by paying themselves inflated salaries.

Inflated salaries are a common method of "hiding" profit payments, both in for-profit and non-profit companies. Since the board members are the guys that set their own salaries I'd be a little nervous about this if I were them.