It should be FAN charities

In December, the White Sox received an award from MLB for the ACE program for inner-city ballplayers, funded by White Sox Charities. In reading several reports on the presentation event and viewing a video of parts of speeches by Ken Williams and Jerry Reinsdorf, I thought something was missing. Williams and Reinsdorf were very big on praising themselves, but the articles gave no mention of them saying where the money really came from — White Sox fans. And not indirectly, like, fans bought tickets and the Sox donated part of their profits — directly from fans.

That led me to look at some publicly-available data on White Sox Charities, which in turn led me to send a long list of questions to the organization, beginning with a request for a full recording or transcript of the event, in case Williams and Reinsdorf really did give the credit due to fans but articles just left that information out, and including a request for a lot of detail on information gleaned from their 2019 IRS Form 990 (the last year for which 990s, which are public record, are available, as the IRS is way behind on non-profit filings).

I waited until after the holidays to make the request so as not to communicate with an empty office. Then, after two weeks with no response, I tried again. That time, I learned the request had been shunted to White Sox Public Relations, which was bad news; as we all know, the job of that office is to ensure no member of the management ever actually has to relate to the public. Sure enough, they blew me off by saying they were busy preparing for Spring Training — this was on January 25 — and didn’t have time to answer questions, even ones I pointed out only should require a few keystrokes in response. They promised to send me their 2021 Community Impact Report — but didn’t even do that.

Because of the response failure, some of what is in this article will be conjecture, but I’ll point out when that’s the case. Incidentally, the White Sox Charities site does include the line “Powered by our fans” ... before going on to praise their corporate efforts. Meanwhile the White Sox Wikipedia page gives no such credit, just praises Reinsdorf and Eddie Einhorn for their philanthropy.

That doesn’t begin to cover the truth. And it sure doesn’t mention how Reinsdorf and buddies could well be making a personal profit off White Sox Charities.

But first, some praise.

THE GOOD

It’s not all bad that the last year of Form 990 available is 2019, because that’s the last pre-pandemic year, and thus more financially normal. And White Sox Charities did a lot of good that year.

According to that form, they made about $1.3 million in grants, the biggest being $315,000 to youth baseball, presumably almost all or all of that for the ACE program for inner-city youth, ACE (Amateur City Elite). While we fans have long since learned not to trust much of anything White Sox brass say, it seems likely they’re telling the truth about the 28 ACE alumni drafted by MLB clubs, the 250 who have received college scholarships, and the 98% high school graduation rate. Excellent work, indeed.

That was the only area with direct involvement. The rest are all pass-throughs, sort of like a self-appointed United Way, without the United Way’s good points.

Other major grants were $200,000 to the Chicago Sports Alliance fund, which works against gun violence; $180,500 to Chicago Baseball Cancer Charities; $100,000 to Push for Excellence, which promotes social change and equality; $78,107 to the Jackie Robinson Foundation; $39,000 to the Food Depository, with sizable chunks also going to Boys and Girls Clubs, Veterans, Advocate Charities, Children’s Hospital, the Jesse White Foundation and even the YMCA of the Chesapeake (in honor of Harold Baines).

Add to that the small donations of in-kind items sent along to other non-profit organizations who request something for door prizes or auction items at their fundraisers.

All nice.

Now on to the bad.

Or. the first of the bad.

WHAT WOULD YOUR MOM SAY IF YOU GOT 63% ON A BIG TEST?

Well, that’s what White Sox Charities got on the big test of Charity Navigator, an organization that evaluates non-profits on everything from overhead expenses to who runs the show. Thousands of individuals and foundations and such rely on Charity Navigator when making decisions whether to donate to a given charity, and, yes, 63% is really, really bad: Two stars out of a possible four, and barely that.

White Sox Charities lost some points on document retention, conflicts of interest, whistleblower protection and such, but the big zap was the composition of the board of directors — zero points out of a possible 25. Why? Because Jerry Reinsdorf is a Control Freak with capital C and F, not only when it comes to the baseball team, but to its charity, as well.

Every single member of the board is on the White Sox payroll. That’s not illegal, but it’s extremely bad policy, and you should never trust a charity where everyone in charge is beholden to a single for-profit entity.

And it’s even worse than that. On the 990, it states, “Jerry Reinsdorf is the Sole Member of Chicago White Sox Charities, Inc. and has the power to elect the board of directors.” So it’s not just sucking up to Reinsdorf — he’s king and court, judge and jury, ruler of all he surveys. And that is very, very bad policy, one which means there is absolutely no oversight of what the king is up to ... and, as a result, no reason to spend your charity money there.

Other baseball teams aren’t guilty of such egregious practice, and are rewarded by Charity Navigator. Among those I found (I searched for many but not all, some I couldn’t come up with, and some are not rated), the Cubs (about three times as large a charity) score 97%, the Twins, Dodgers, Cardinals and Braves a perfect 100%, and the Yankees 88%. The only team of those I found remotely as bad as the White Sox was the Mets (66%), also dinged for makeup of the board — but in fairness, that was under the prior team ownership.

(For non-sports comparison of a pass-through charity, the United Way of Metropolitan Chicago scored a 96%.)

But it gets worse.

DO JERRY AND FRIENDS PERSONALLY PROFIT FROM WHITE SOX CHARITIES? COULD BE

The IRS Form 990 is full of enough numbers to make the most ardent baseball stats junkie smile, both with regard to how charities spend their money and how they amass it. The charitable part of White Sox Charities expenses is listed in the first section, and WSC is quite good on the overhead side.

They list just $169,000 in salaries, to 21 people. Unless they are keeping orphans locked in a basement somewhere and paying them in breadcrumbs, that presumably means most of the employees are very much part-time. The best guess is we’re talking about folks selling 50-50 chances at games. That would be nice to confirm, so I asked, but, of course, didn’t get an answer. Charges for office expenses and accounting and such are equally modest.

It’s the income side where things get quite interesting, with $2,161,517 net income and a fascinating breakdown of where that came from.

The 990 shows White Sox Charities ran two fundraisers in 2019, a gala and a golf outing, and lost money on both. The Statement of Revenue shows a net loss of of $91,406 from those, thanks to $458,822 in direct expenses.

But by far the biggest chunk of income came from what the IRS terms “gaming.” The 990 shows $2,100,969 in gross gaming income, with prizes of $838,637 given out, and a net of $1,128,956 after other expenses are included. That can’t quite be all from 50-50 pots, or the prize amount would have to be higher, so a fair amount has to have been from raffles and such. I asked, but, of course, go no answer.

Part VIII, Statement of Revenue, shows total revenue $2,161,517, the amount not coming from fundraisers or gaming being “gross sales of inventory” with a gross of $450,121, but cost of goods sold at $427,921 leaves a net of just $22,200.

WHICH GETS US TO THE REALLY QUESTIONABLE PART

One segment of Part VIII asks how much of the income comes from related organizations — that being the White Sox themselves. That section, called “Contributions, Gifts, Grants and Other Similar Amounts,” a total of $1,086,199, with $412,737 coming from related organizations (the White Sox), $408,937 from “all other contributions” (probably when you buy stuff at auctions and such), and the rest from fundraising events.

So far, so good. But here’s the tricky part — $421,972 is in the form of non-cash contributions. Non-cash contributions are notoriously, shall we say, “enhanced” by donors, especially rich ones, so as to get huge tax breaks that may or may not be warranted. The 990 doesn’t specify how much of the non-cash amount is from the related organizations, but unless you think the fact the non-cash donations are only slightly more than the White Sox contribution is just an amazing coincidence, it sure looks like at least the vast majority, and probably all, of what the team tossed in was in merchandise — listed elsewhere as “collectibles.”

Asked about and not answered, of course.

That’s not unexpected, what with auctions and gift packs to other non-profits’ fundraisers and that sort of thing. But it sure makes the amount gifted by the White Sox look much smaller than the numbers showed. And it sure does open up questions of Jerry Reinsdorf and buddies making a profit from White Sox Charities.

How could they be profiting? With apologies to Elizabeth Barrett Browning, let me count the ways.

Ticket giveaways are the easiest way to see how they profit, and tickets have double benefits for the stockholders. The tickets are only allowed to be used for select games, which means no games when there’s the slightest possibility will sell out — no Opening Day, no Cubs, no Yankees, no end-of-season, do-or-die showdowns. Thus, the White Sox give up nothing at all. But they sell the recipient parking, food and drink, with probably an extra beer or two since the tickets were free, and maybe a souvenir, and rake that all in.

But that’s just a start.

The 990 filing says the dollars attributed to non-cash contributions are based on fair market value, which would be the equivalent of retail. That’s normal, but the White Sox don’t even have to be like rich folks donating art and find an appraiser who will be, shall we say, “generous” in producing a value. That’s because they get to set the fair market value all by themselves — they literally own the store.

They get the “collectibles” wholesale or even virtually free, or just have them around, and they sell them retail. And as anyone who has ever priced team collectibles can attest, they don’t just have some typical retail markup of 100%.

No, sirree. Were the White Sox to appear on Shark Tank, the incredible markup they get on collectibles would make even Mr. Wonderful glaze over with admiration. Five times what they paid for it? Ten times? Twenty? Fifty? The sky’s the limit.

Now, with MLB merchandise there are strange rules and divisions that lead to cuts for the commissioner and the licensees and even a little for players, so it’s not all gravy, but most of it sure is. Which makes for a very nice (perfectly legal) tax scam.

For purposes of illustration on how this means Reinsdorf et al. can profit from their donations, let’s be really generous with what the stuff they give to White Sox Charities really costs them, and say that of the $412,737 in non-cash contributions they actually ponied up $100,000. Naturally, though, they get to deduct the full market value from their taxes.

Owning a professional sports team is a wonderful scam because of the ridiculous special tax breaks involved, which means it’s possible to make a whole lot of money while showing a lot of loss for tax purposes. That’s one of the reasons billionaires love to hop right in.

Even better, most teams, like the White Sox — as reported on the 990 — are constructed to pass through these artificial tax losses to the owners so they can count them against profits they make in other businesses. The top federal individual tax rate in 2019 was 37%, which, coupled with Illinois income tax, meant that three out of seven dollars of taxable income went for taxes.

So, in our very generous (to them) demonstration, Jerry and his buddies saved $178,000 in taxes, or $78,000 more than the stuff they donated actually cost them. It was probably a bigger gap, but we’re being kind here.

Best reports are that Reinsdorf owns just less than a fifth of the team, so he personally saves more than $15,000. That’s obviously not even pocket change to a billionaire, but for a man who has dedicated his life to avoiding taxes (and to grabbing tens of millions in taxes others pay to jam into his own pockets, but that’s another story) a win is a win. His teams can’t win, but he can beat the tax man, yet again.

And he gets to do it while being given credit for being a great philanthropist. Win-win.

IN SUMMARY

White Sox Charities does good work. But if you want to be impressed, don’t look behind the curtain.