By the time you read this it may be old news, though it happened yesterday. (I miss the good old days, when scandals would last a year or two.) But it’s not every day that misuse of financial data is on the front page.
Actually, it should be on the front page today, but it isn’t. That’s because the media missed a big part of this latest scandal – and the part that would really nail down the case.
I’m speaking of the President’s decision to host next year’s G7 Summit at his own resort. This reeks of double-dealing, and the media got that part. It also may be a violation of the U.S. constitution, which has been reported (here, as well). But Team Trump has, thus far, gotten away with an interesting argument – that the lodging and catering of the massive event are being offered “at cost”, so therefore no profits are being made, hence it’s all fine.
[Editor’s note: The day after this post was published they backed down in the face of widespread outrage. Modestly, we are not taking full credit, though the timing is curious.]
If "the “no profit” statement were found to be false, then the President – even by his own logic – would be using his office for profit and adding to his criminal record, which has been growing at a brisk pace.
His team’s argument is almost surely false. How do we know this?
Photo by Jon Tyson via Unsplash
The resort is in Miami, the event is in June, and this Trump resort would otherwise be partly or mostly empty. To the extent it was utilized, it would be at off-season rates. Seasonal businesses generate profits during peak season. Very few of them make any profits at all in the off-season, and the challenge there is to lose as little as possible. If you were to plot the average cost per hotel bed against average revenue per hotel bed by month over the course of the year, you’d see revenues soar above costs in peak season and dip below costs in the off-season. Shoulder seasons are closer to break-even. This is the pattern for essentially every hotel in Florida.
The basic challenge is that hotels and resorts have high fixed costs, regardless of the season. Things like building maintenance, utilities and groundskeeping are just as high in the summer (actually, in the case of Florida they’re somewhat higher) compared to the winter. Other fixed costs include the bare minimum staff needed just to keep the place open, the kitchen running, and so on.
Have you been to Florida in June? It’s not peak tourist season. Hotels and resorts fight to attract a minimal population of conventioneers and tourists that really like humidity. Demand is down, supply stays the same, therefore market prices come down. Way down. This is an intentional part of the business model. Such resorts are designed to lose tolerable amounts of money in June in order to be available to make a lot of money over the winter. Occupancy also goes down; the Trump resort in question has historically operated at 40% occupancy in June.
If we take the average cost when the resort is full and compare that to the highest market-supported revenue in June, the Trump Resort would surely lose money. If, alternately, they charge a group a price equal to the cost in June, they’ll make a huge profit relative to what the market would bear. That’s the relevant comparison here, not simply comparing costs and revenues for the event itself, which is what the argument appears to be based on. To deconstruct it that way is to miss the true story.
The effect of hosting the Summit on the resort would therefore be that they’d reduce planned summer losses and increase overall profits for the full year. That is the true story. It would also raise the profile of the resort immensely, which amounts to massive free advertising, preseumably resulting in future profits.
So, in summary, The Prez is self-dealing, intending to profit from holding public office and lying about it by misrepresenting financial data.
Not hugely surprising at this point. And not as uncommon as it should be. I once had a boss who used to say, “Figures don’t lie, liars figure.” We worked in government, and I privately suspected he thought of that more as a job description than a clever quip.
However, this is a blog about nonprofit management. I find it a rare exception that nonprofit folks deliberately manipulate financial figures. More common, however, are innocent errors and omissions that have the net effect of telling a story that isn’t accurate. In other words, similar outcome, just without the malevolent intent.
Examples include:
Overstating the performance of a fundraising event because significant costs are ignored
Misunderstanding the financial performance of programs and activities because only direct costs are considered
Underpricing grants and contracts because the importance of core operating functions are undervalued
Misjudging the constraints that restricted income put on financial position.
I won’t say that the system is rigged (though I know someone else who will when he loses his next election) but will concede that it’s far from easy to get the financial data we need. Even audit reports don’t adequately shed light on the most critical financial questions most organizations face. There are many nuances in nonprofit management, and it’s easy to end up with the wrong story without any intent to deceive.
But the purest purpose of financial data – and any data, for that matter – is to shed light on the truth. It is possible to get there, it just takes some diligence in uncovering it, even when that picture may not give immediate joy. Contrary to what Jack Nicholson once said, you can handle the truth.
That’s a specific case of a larger theme of these times: dedication to finding the truth is more important than ever.