Finance under the Big Top

Inside the ring at the Big Apple Circus, there's never a dull moment, but there's no clowning around for chief financial officer Tom Martin.

Lisa Yoon, CFO.com

December 17, 2004

When he was planning to be a tax accountant, Tom Martin never dreamed that he'd "run away" to join the Big Apple Circus, a New York-based nonprofit dedicated to kids and families, where he's been chief financial officer since 1997.

Martin began his career as chief accountant and then controller at Mercy College. After taking finance positions at the State University of New York and the Pratt Institute, he landed a featured role as chief financial officer of New York's Metropolitan Opera, where the organization's prestige proved invaluable when he dealt with banks, insurance companies, and other parties. When he decided to throw his hat into the one-ring Big Apple Circus, he knew he'd be stepping into an exciting opportunity — but in a very different business environment. Tom Martin spoke recently with CFO.com assistant editor Lisa Yoon.

You've spent your whole career in the nonprofit sector. Was that a conscious choice?

My career was never supposed to look like that. I was going to be a tax accountant, and after college I planned to work at [what was then] a Big Eight firm. I wanted to specialize in taxation because I thought there would always be work. But a semester before I graduated, one of my cousins who taught business law at Mercy College asked me if I'd be interested in working for the college's treasurer. I thought that might be a good transition to the "real world."

So when did you know that you were in nonprofits for the long haul?
[At Pratt] I realized I was tagged as part of the non-for-profit world. I knew I wouldn't be moving to a profit-making organization unless a friend offered to do me a favor. The two business sectors are very different.

When you left the Metropolitan Opera for the Big Apple Circus, you must have sensed a palpable change in the business environment; the clowns were more Emmett Kelly than Pagliacci. Was there a difference?
Yes, it was noticeable. For example, when we toured Chicago, I couldn't get credit from the vendors. I was insulted because I take pride in being professional and working for an organization with solid financials. We're a $20 million organization; we have certified financial statements and bank references. But in the minds of some vendors, the word "circus" conjures up images of carnies that set up a tent, collect pre-sale revenues, run out of town at midnight, and leave unpaid bills.

Did you run into the same prejudices with insurance companies? Do they understand your business?
When insurance is cheap and the market is competitive, we don't have much of a problem. But when the insurance market gets tight, that's when we run into the same story again. Underwriters say they are unsure of what a circus is, or that they don't have a positive perception of a circus as a viable business. Because insurers don't always understand our business, they assume we're a higher risk and don't want to do business with us during a tight market. Even if I forced them to give me a bid, the price would be outrageous. Marsh is our broker, and they have to do a lot of extra work to convince some of these insurance companies to write coverage.

Is it a nightmare to insure the performers?

Actually, all of our performers are independent contractors. The only aspect the circus covers is their workers' compensation. Part of the reason that we don't provide coverage to performers is that we're too small; we don't have a Ringling-Brothers-size staff. We tried to buy insurance for some of our part-time performers but found that we couldn't purchase coverage for a reasonable price.

How about raising capital — is that a challenge?

When I first arrived, it was frustrating, mainly because the organization was smaller than I was used to. When I was at the Met, nine out of ten years we had a surplus [of cash reserves]. The Met had a $160 million budget, a $160 million endowment, and a lot of power behind the name. So when we needed new capital or an increased line of credit, it wasn't too difficult.

What's different about raising capital at the circus?

I'll give you an example. Five years ago, we launched a theatrical production — a stage version of the circus — that was a financial flop. As a result, I had to go shopping for capital, and it was tough. Our longtime backer was ready to provide $1 million, but we needed $2 million, and I presented a plan to repay the investment in three years. Still, they wouldn't commit to more than a million. Luckily, we found a banker that provided the second million, but only after several others declined. At that point we had zero endowment [compared with $1.8 million today], and there was nothing to fall back on. It was cash in, cash out. I must have sent out 20 proposals during that period.

Was there anything to learn from the experience?

We've changed our financial picture. Now we put aside an additional $200,000 in cash, or more, each year to build up our reserves. I just refinanced a mortgage a month ago. We have only one debt left on the books; and I recently paid down another $300,000 debt. Also, I haven't borrowed money to help manage working capital in three years — which we did every year before that.

Is treasury management very different at a nonprofit, compared with a for-profit company?

I don't know, because I've never worked in the for-profit sector. But again, we never really have great surpluses to manage. Long term, we're managing our endowment, which currently is invested in fixed-income vehicles. We place it with money managers and then review the managers' results against certain benchmarks. As for the operating cash, we just transferred $500,000 from our operating fund to our short-term investments for operations. With this type of investing, we watch the balances, and we manage our obligations, such as payroll. The excess cash is place in short-term investment vehicles. I think that's pretty standard in both nonprofit and for-profit worlds.

Where do you invest the cash?

Mostly in money-market type investments — very safe, we don't want to lose any of our operating capital. At the Met, we would invest in a broader range of vehicles, including emerging market, foreign, and small-cap funds, which at the time was adventurous. All of the funds were large-cap, fixed income, or government bonds. At the circus, we're strictly money-market funds. As a result, we're not losing anything, but we're not making a heck of a lot either. Again, we are an organization that doesn't have a large financial cushion, so we are a little more conservative.

You also head up marketing at the circus. How did that happen?

[I ran marketing] on an interim basis for a year, and when a new hire didn't work out, I decided to take on the job permanently. Because the department is run by a CFO, we take a more practical look at marketing. For instance, we're a lot more analytical about our sales data than before. I guess we give up a little on the creative side, but I have two excellent marketing managers whom I really rely upon for that side of the business, and the executive director participates in creating the marketing plan. However, the finance staff manages areas such as ticket inventory. As a result, we look at the sales data a lot more closely that the previous marketing staff — for example, when we're applying discounts or special promotions.

Traditionally, marketing and finance butt heads. How do you manage to keep the peace?

I know it's a natural clash — that operations inherently fights finance. But I think it's wrong to say that the two business units can't get along. The key is communication. When I tell operations that they only have a set amount in their budget, and they balk, I try to sit down with them and work out a spending plan that makes the most out of the funds we have. It usually works.
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