Note: Marian Goodell, the Org's CEO, confirmed for me that my conclusions are essentially correct, and called out this article as worth reading during her address to open the Virtual Theme Camp Symposium the morning of 3/28). She's also replied to a bunch of people in the comments below.
I see a lot of Burners online asking why the Org doesn't simply cancel BM 2020 and roll DGS tickets over to 2021? Cancel the event, and come back in 2021 in full force while making everybody whole who bought tickets this year. Sounds simple and good right?
The general feeling seems to be that they must be greedy a-holes to not promise refunds or rolled-forward tickets if they cancel it, but it really isn't that simple, which is what this post is about. The Org faces a very tough financial situation, which I'm going to lay out for you as best as I can. I think it's helpful to understand where they're coming from as you form an opinion about how they should handle it Burning Man 2020.
What Is the Problem With Just Rolling Tickets Over To 2021 or Refunding?
The first thing to understand is that whether they refund DGS (and FOMO) tickets already purchased or whether they roll them over to next year doesn't matter much in the sense that those two scenarios are more or less the same financially. Rolling tickets over is possibly a little better for them than refunding, since money now is better than money a year from now, and refunding would require re-selling the same number of tickets already refunded, which incurs additional costs from whichever company they select to run the ticket sale.
In both cases, the Org only gets revenue from one full ticket sale, while having to operate for two years on that one year's revenue. More on that below....
The Burning Man Org's Finances
To start with, I'm using info here that anyone has access to. None of this is private or privileged. It's all published online in their Form 990 that they file with the IRS every year. It's the equivalent of a tax return for their non-profit. The last Form 990 we have available to us is 2018's, as the form for 2019's fiscal year wouldn't have been filed or published yet.
Let's look at their revenue first, as this is very straight-forward.
Total revenue: $46.6 million.
Now let's look at the costs they incur each year, and try to estimate what portion they could save this year if they cancelled Burning Man. If you'd rather look at the spreadsheet I used for this, you can find it here.
So, by the above very rough estimates, it would cost them about $20.8 million ($44m-$23.2m) to run for a year w/o laying off permanent staff and with cancelling Burning Man. However, since I have no insight into how far ahead they have to lock in some of the BM expenses, and since some surely are locked in, I'm adding 20% to that figure to account for those expenses they can't get back in case of a cancellation.
That gives us a figure of $24.96 million to run the Org for a year if they cancelled Burning Man.
That is a revenue shortfall of $21,260,000 based on:
Cash on Hand
Of course, the Org also maintains an operating reserve of cash, like any responsible organization would. At the end of the 2018 year, the Org had about $14m in cash or short-term investments.
(This may sound like a lot, but for an organization that spends $44m/year, it's not. A typical guideline for a nonprofit might be to maintain a cash cushion equal to 3-6 months of operating expenses. $14m for the Org is just under 4 months of average operating expenses.)
However, they also had $3.5m in accounts payable, which effectively reduces their functional cash on hand to $11.5m.
Some of these numbers are likely different at the end of 2019 vs the end of 2018, but we these are the numbers we have.
The Org's Cash Shortfall If It Cancels 2020 is likely to be in the range of $10 million.
Since I'm estimating a $21.2m revenue shortfall based on the above numbers, and since the Org had approx $11.5m in (cash-payables) on hand in their last 990, that means that even if they used up their entire operating reserve, they would still be in the hole $9.76 million dollars.
Even if their entire staff could work for free for the year, that would barely cover it and still leave them with no cash cushion.
I think it goes without saying that if they have to cancel, the Org will have to make staff cuts, but those cuts would have to be deep and hard to make much of a difference, and then what? You can't just decimate an organization and expect it to come back swinging at full strength a year later. Institutional knowledge and expertise is lost when that happens. At best, layoffs blunt the cash shortfall some, but there's no way they can lay off enough people to fix the problem.
Conclusion and Possible Solutions
I hope this has helped shed some light on the tough financial position the Org is in. Nobody saw the corona virus coming, and no, they don't have insurance that's going to save them if the BLM forces them to cancel because of corona.
I'm not advocating for any particular outcome here. It doesn't affect me personally - I'd decided last fall I was taking this year off after 10 years in a row, and pushed our camp's DGS allocation off to next year as a result, so I'm not sitting on a ticket or planning to buy one this year.
I'm just trying to show that it's not so easy to say, "Just roll the tickets over to 2021" as if that doesn't cause enormous financial difficulties for the Org.
Even if they depleted their entire cash cushion (which is a terrible idea unless there is literally no other choice), they'd still need to come up with about $10 million from...somewhere.
So where could that money come from? Here's what I can come up with:
Anyway, that's what I've got on the subject. I hope it's helpful as you decide how to feel about however the Org ends up handling what I think is near-certain cancellation of the event.
I'll tell you one thing: I don't envy their position right now. I think they have very tough decisions ahead.
I'm Dr. Yes, a 10 year burner. I run this site, was on the '15 Temple team, lead a theme camp called Friendgasm, and make Burning Man videos. Just say yes, folks, and help keep Burning Man weird!