Increasing revenue helped cut the Direct Marketing Association’s deficit, but it nevertheless operated at a loss in fiscal 2002-03 for the third year in a row, according to its most recent tax return obtained by DM News.
The $1.49 million operating loss reported in the tax return for the July 1, 2002-June 30, 2003, period was evidence that the DMA was coming out of its economic slump but still smarting from the dot-com collapse that tore down so many of its members.
Click here to view the DMA's latest tax return:
http://www.dmnews.com/pdffiles/dma.pdf
The loss was about half the $3 million deficit the DMA reported in fiscal year 2001-02. The DMA last reported an operating profit in the 1998-99 fiscal year.
A spokesman said the DMA would not comment for this story.
In the introduction to the DMA annual report for 2003, president/CEO H. Robert Wientzen and chairman Gordon R. Cooke called 2003 “a tough year” and noted that the industry struggled with the economy, an ongoing advertising slump and privacy issues concerning telemarketing and spam.
“Are we on the rebound?” Wientzen and Cooke asked in the introduction. “We hope so, but it is tough to predict accurately.”
The DMA files its taxes as a 501(c)(6) not-for-profit organization. As a result, its tax filings are public record and available to anyone who requests them. They generally become available eight months after the DMA closes its books on the fiscal year.
According to the return, the DMA’s expenses for the year were $34.56 million. The association experienced expense increases in a few key areas, including:
• Its contribution to its employee pension plan soared to nearly $3.4 million from only $880,000 the previous year. The tax return did not offer an explanation for this increase. The increase would have occurred before the fiscal year’s end June 30, 2003, predating Wientzen’s December announcement of his impending retirement. Wientzen’s salary rose from $576,000 to $585,000 from 2001-02 to 2002-03, according to the tax return.
• The tax return reveals that the DMA paid Direct Marketing Days Conferences $2.6 million for the DMDNY show, $1.05 million of which the DMA is paying in installments over the next seven years.
• Legal expenses climbed to nearly $850,000 from less than $150,000 the previous year. However, 2003 was an active year for the DMA on the legislative front as it confronted issues including privacy, postal reform, the launch of the national no-call list and a debate over the regulation of unsolicited commercial e-mail that resulted in the CAN-SPAM Act.
• Postage and shipping cost the DMA nearly $1.8 million, about $1.3 million more than in the previous year. While the DMA’s spending on postage and shipping ranged from $501,000 to $662,000 between the 1999-2000 and 2001-02 fiscal years, it previously spent more in this area, including $1 million in 1998-99 and $1.5 million in 1997-98. The tax return offered no indication as to why postage and shipping expenses had resumed their previous high levels.
Though the DMA’s expenses increased, according to its 2002-03 tax return, its revenue for the year rose as well. The return indicates that revenue was $33.07 million, up from $29.68 million in 2001-02. Most of that growth came from DMA programs, which increased from $19.06 million in 2001-02 to $22.56 million in 2002-03. Revenue from member dues fell slightly but held steady around $11 million.
In comparison, the DMA’s annual report to its members portrays a more optimistic picture of the association’s finances than its tax return. The annual report shows that the association actually made a profit in the 2002-03 fiscal year and grew its assets rather than suffered a loss.
Mitchell Lewis, partner with the accounting firm Weiser LLP, New York, said the association’s tax return doesn’t have to match its annual member report. Associations may choose to present summaries in formats different from those required on tax returns and may decline to report activities that must be reported for tax purposes. Though it is a nonprofit organization, the DMA does engage in taxable activities.
In one example, the DMA told members it made $33.02 million in revenue in 2002-03, whereas its tax return showed $33.067 million. The difference of $46,969 represented the amount of income it received from Interactive Marketing Solutions, its compliance venture.
In another example, the DMA showed its 2002-03 expenses at $31.9 million, down more than $300,000 from the previous year, in its annual report. However, its tax return indicates a $1.8 million rise in expenses, from $32.76 million to $34.56 million.
Expenses are grouped differently in the tax return and annual report as well. The return organizes expenses by type, such as “employee compensation” and “legal fees,” while the annual report groups expenses by programs and departments, such as “meetings and conferences” and “marketing department.”
Other discrepancies between the DMA’s tax return and its annual report include:
• The annual report shows the DMA’s net year-end fiscal 2002-03 assets at $6.2 million, up $1.1 million from the previous year. The tax return indicates net year-end assets at $4.43 million, down more than $500,000.
• The annual report indicates that the association made a profit of more than $1 million in 2002-2003, rebounding from a $2.5 million deficit during its last year, rather than the loss reported in its tax return.
The net asset and revenue numbers quoted by the DMA in its annual report and tax return agreed in the 2001-02 fiscal year, but there were discrepancies between its reported figures for expenses and budget deficit.
