Early returns are in: Associations lost more than $1.5 billion in revenue through the first year of the pandemic. And the total will only grow as more tax disclosures become available. However, lower meeting expenses, cost cuts, investment gains and insurance payouts helped ease the impact on the bottom line.
CEO Update’s analysis looks at the revenue numbers publicly available to date for 1,009 associations with fiscal years ending from June 30, 2020, through March 31, 2021. This represents the first collective glimpse at the financial damage COVID-19 wreaked on much of the association sector. More IRS data covering the first year of the pandemic remains to be tallied but is not yet publicly available.
Of course, some associations were hit harder than others: Some saw program services revenue plunge 80% or more, mainly reflecting the impact of canceled in-person meetings. The program services category—which includes association revenue-generating programs—drove much of the revenue decline.
About a quarter of associations in this analysis appeared unscathed or even showed gains in revenue. Reflecting the importance of advocacy in 2020—as policymakers scrambled to boost the economy, define essential businesses and impose limits on certain activities—the U.S. Chamber of Commerce reported a 33% increase in revenue in calendar-year 2020, to nearly $230 million. The Chamber funds operations primarily through ongoing fundraising.
With the race to develop and approve vaccines last year, the Pharmaceutical Research and Manufacturers of America reported a 9%, or $47 million, increase in revenue in 2020 and increased spending by $45 million. Its nondeductible lobbying and political expenditures rose 29%, or more than $34 million, to nearly $153 million in 2020.
For most groups, the worst-case scenarios they sketched early in the pandemic did not materialize.
A sea of red ink
But red ink spilled over most of the association space. Seventy-six percent of the associations reported declines in revenue in their latest tax disclosures. That figure hovers around one-third of groups in normal times. The median change in total revenue for the 1,009 groups was -10.9%, but that is muted by the fact that many of the groups’ fiscal years represent just the early months of the pandemic.
Among the group of 479 associations with fiscal years ending between Dec. 31, 2020, and March 31, 2021, the median total revenue change was -14.7%. Association revenue typically shows a positive median annual change of 3% or 4%. The median is the point at which half of associations would show a bigger change and half would show a smaller change.
To maintain cash flow and continue operations and advocacy, many groups slashed expenses, tapped the cash and securities in their reserves, took low-interest loans against those reserves, and, if eligible, applied to the various pandemic stimulus programs funded by the federal government during 2020. They also wrangled with insurance companies to collect meeting-cancellation insurance payouts, but these funds were often slow in coming.
The top-line revenue losses are an important metric, but Nat Bartholomew, head of the associations industry group at CliftonLarsonAllen, said the impact on association bottom lines was more limited. That data is more difficult to ascertain from the public nonprofit tax return, the IRS Form 990, that associations are required to file. CLA provides accounting and other services for 2,900 associations.
“I’ve seen some (clients) that have a better bottom line than they would have otherwise,” he told CEO Update. “Their net income is higher. Even though they canceled the multimillion-dollar show, they were able to cut costs because they weren’t paying food and beverage and weren’t paying hotels, they weren’t paying travel. …
“They went out and got federal funds, they got great returns on investments. Maybe they even got insurance proceeds. And they rode it out. They did OK on the bottom line,” Bartholomew said.
According to its 990, the CFA Institute was likely the hardest hit in dollar terms on revenue, which fell a whopping $222 million, or 57%, for the fiscal year ending Aug. 31, 2020, because of canceled in-person Chartered Financial Analyst program exams. But CEO Margaret Franklin told members in the group’s annual report that the financial impact of the canceled exams was mitigated by staff reductions and other cost cuts and by tapping reserves; the remaining investment portfolio then rebounded to nearly its previous level because of market gains and dividends.
About the report
The 1,009 groups included in this report represent about half of the approximately 2,000 national associations that CEO Update tracks through its Association Intelligence database. These trade groups and professional societies all reported annual total revenue of at least $1.7 million in the years before the pandemic hit in early 2020. Many very large groups filed their disclosure documents for calendar year 2020 close to the IRS deadline of Nov. 15, 2021, and thus revenue data is not yet available. In addition, the IRS is far behind in processing the returns and publishing the data on its website. When it becomes available, the total revenue drop for groups tracked by CEO Update is likely to be much larger. Because of the delays in processing, this report is based mostly on top-line revenue changes, which are available more quickly, and less on an analysis of complete 990s.
It’s not possible from the 990s to discern the extent of association staff and compensation cuts, at least in the first year. Based on 473 full 990 disclosures covering fiscal years ending June 30, 2020, through March 31, 2021, the median change in salaries, other compensation and employee benefits was 4%, which may seem surprising given widespread layoffs, salary cuts and freezes and benefit reductions. But that reflects severance payments as well as increases in compensation agreed to pre-pandemic, Bartholomew said.
“I saw lots of severance, unfortunately,” he said. “I saw, definitely, suspended wage increases, suspended hiring, furloughed employees and so forth. But the (compensation line on the 990) won’t have necessarily been impacted just yet,” he said.
Bartholomew said the cuts will show in future years, in number of employees disclosed on the 990s. That is an imperfect data point as it just shows the number of W-2 forms the association filed, which can be artificially high based on staff turnover.
“You’re looking at inflated numbers, but that number is going to drop, and it’s going to take a while to recover,” he said.