Labor Day has come and gone and another school year has begun. As summer ends (and I hope it’s been a successful and busy one at your stores), here at ABA we are busy finalizing the draft of the next year’s annual association budget. So — at the suggestion of our Board of Directors — my letter this month is a timely opportunity to share some information about that process, specifically about the ABA endowment. Because so much of our budget is dependent on the endowment — and in view of questions that have been asked at Town Hall meetings at BookExpo America and the Winter Institute, as well as at other meetings and forums — I wanted to share with you some of the unique circumstances that created the endowment and to explain its very important role in our budget process on an ongoing basis.
The goal of the annual ABA budget is to provide the resources necessary to appropriately fund member programs and services that fulfill the Ends Policies formulated for bookstore members by the ABA Board. In her President’s Letter last month, Betsy Burton wrote about the importance of the Ends Policies and noted how the Board at its July meeting modified them to put additional focus on our need to work to ensure diversity in our industry and, also, to more fully articulate the importance of authors as our valued industry partners. At its upcoming meeting in September, with these and the other Ends Policies in mind, the Board will review the proposed association budget for the 2016 fiscal year — a budget that will in large part depend on that critically important part of ABA’s finances: our endowment.
The creation of the endowment was the result of a unique set of circumstances for a trade organization, events that occurred now more than 20 years ago. Because many current ABA members hadn’t yet entered bookselling then — and because all of us can forget some things over the course of two decades! — it is hardly surprising that many are not clear about the original purpose of the endowment. I thought it might be helpful to review both its genesis and the vital role it does play in ABA’s finances.
The ABA endowment was established in 1994 with the proceeds of the sale of 49 percent of ABA’s interest in our annual convention and trade show. Before that, the “ABA Convention” was solely owned by the association. (In fact, we created the show way back in the early 1900s!) We managed the entire event — from the sale of exhibition space on the show floor to negotiating with dozens and dozens of hotels, to the choice of authors for trade show autographing and everything in between. By the early ’90s, after assessing the growth prospects for trade shows, it was clear that member bookstores would be far better off if ABA focused on what it did best — advocating on behalf of indie bookstores, creating educational programming and other member programs and services — and, at the same time, found a way to retain and amplify the financial benefit of the show for members.
That was the goal of selling a minority interest in the show to Reed Exhibitions, and, after four years of co-ownership, the ABA Board decided that the very positive results already realized warranted a full divestment of the convention and trade show. Reed purchased the remaining 51 percent of the show from ABA in 1998, and those funds were added to the ABA endowment.
The proceeds from the sale of the trade show were invested following the adoption of a detailed investment policy to direct and guide the management of the endowment. That policy is regularly reviewed by the Board in conjunction with ABA’s financial advisor, and while there have been policy adjustments along the way, it has served ABA very well. (Here’s a link to the current investment policy on BookWeb.org.) Currently, the market value of the ABA endowment is approximately $27.5 million, of which $4.75 million is pledged under collateral agreements to secure letters of credit to fund our annual operations.
Obviously, that’s a lot of money, but it is critical to understand that it was the Board’s goal that the income derived from both the endowment and an annual royalty payment from Reed would replace the income ABA previously had earned from owning and operating the convention and trade show. Selling the show also freed ABA from the rigors of managing such a large event and allowed the association to concentrate on providing services to members and reducing our reliance on trade show operations to generate revenue.
Given the size of the endowment, it’s understandable that there are questions among members about ABA’s strategy for best utilizing those funds for member programs and services. In some conversations, members have said that they think the association is unduly cautious — that ABA is “sitting on the endowment” when it could be better serving the members. I do not think that is the case for two important reasons.
The first is that the funds in the endowment are working throughout the year to produce the approximately $1 million dollars that ABA would have received from its full ownership of the convention and trade show had we not sold it to Reed. And, importantly, under the Board’s direction, the association is realizing that income with much less risk exposure while freeing up staff and financial resources to better serve members.
The second reality regarding the endowment is that at multiple key points along the way, the Board has consistently voted to make substantial capital investments from the endowment into programmatic development (for example, ABA’s antitrust litigation, the creation of our e-commerce service for bookstores, and launching the Winter Institute and the Children’s Institute, among other initiatives). The Board has done this judiciously and with a keen awareness of its long-term fiduciary responsibility, but it has always worked to balance the goals of immediate need and ongoing growth of the endowment, which has allowed ABA to expand its services to members and fulfill its Ends Policies, as established by the Board.
While the execution of any long-term strategy is never perfect, I think the results of the Board’s governance and management of the ABA endowment have proven over the past 20 years to have served ABA very well. Based on the active participation of member stores, the input and insight of the Booksellers Advisory Council, and, of course, the Board’s leadership, ABA has been able to maintain its level of service to members in both good and bad investment climates. As some of you may remember, in 2009, during the height of the most recent national economic downturn, ABA actually was able to reduce members’ dues by half. Today, in this period of increasing indie vitality, the endowment continues to provide the essential financial foundation for our programming. And the resources of the endowment also make possible key capital investments, as has been the case for such technology as IndieCommerce, which has recently completed a comprehensive upgrade and which will be receiving continuing planned improvements.
I hope the above background sheds a bit more light on this specific aspect of your association’s governance, and how we manage the endowment. If you have any questions about this — or any other association matter — please e-mail me. ABA always strives to be as transparent to our members as we possibly can.
My ABA colleagues and I are looking forward to seeing you at the upcoming fall regional trade shows. And, please, do come by the ABA Booth at your show to say hello.
Oren J. Teicher
CEO, American Booksellers Association
P.S. As reported in this issue of BTW, please, be sure to take note that we opened registration for the upcoming Winter Institute yesterday. If past experience is any judge, Wi11 will fill up quickly. So, if you are planning on attending, register as soon as possible so you will not be disappointed!