The 2020 IRS report filed by the Daily Memphian suggests that it is facing serious financial stresses as a result of a convergence of negative budgetary trend lines.
These trend lines in 2020 converged to produce an operating deficit of more than $2 million in the digital newspaper’s second full year of operations, about 50% more than CEO Eric Barnes projected a year ago in a post here about the Daily Memphian’s 2019 IRS report.
This year’s IRS report suggests that without a significant infusion of money, the newspaper faces serious financial challenges with trend lines running in a number of problematic directions.
According to the IRS reports, when 2020 is compared to 2019:
- Revenues fell from $3,486,773 to $2,890,536
- Salaries increased from $3,245,120 to $3,660,733
- Total expenses rose from $4,849,691 to $4,952,213
Operating Loss Crosses $2M
In addition, paid subscriptions are not growing at the hoped for rate. The sustainable budget for Daily Memphian was based on 25,000 subscribers paying $10-11 per month, publisher Eric Barnes said last year. At the time, he wrote in an email to me that the newspaper had about 15,000 paid subscribers and “hitting 25K is ‘only’ a matter of adding 3,000 new subs over the next three years. That seems doable to me.”
However, those 3,000 new subscribers didn’t happen in the last year. It was more like 1,200 subscribers, based on what he wrote in a recent column that the newspaper had 16,200 subscribers.
All in all, it’s little wonder that the operating loss climbed from $1,362,918 in 2019 to $2,063,677 in 2020.
Meanwhile, the increase in operating losses drained the Daily Memphian’s fund balance from $3,481,261 to $1,521,584. It’s a dramatic fall, considering that the newspaper had startup funding of roughly $7 million when it formed three years ago.
One more year of its average deficits would completely wipe out the millions of dollars that it began with and give it only a few options for raising the kinds of money needed to continue. Already, it’s requesting readers’ donations and marketing two-year subscriptions which appear to be a way for immediate cash infusion. In addition, staffers have been told that the subscription rate is going to increase and some discounting of subscriptions may begin. Other options are rightsizing its operations and its salaries or convincing the donors who put the Daily Memphian in business in 2018 to come up with millions more.
Salaries reported in the report were $217,320 for executive editor Ronnie Ramos; $164,566, including a $14,566 bonus, for CEO Eric Barnes (he is also paid by The Daily News); $153,000 for Chief Technology Officer Jason Israel; $153,000 for sports columnist Geoff Calkins; $147,024 for art director Justin Rushing; and $132,600 for managing editor James Overstreet. In comparison with some for-profit newspapers with a similar subscription base, salaries at the nonprofit Daily Memphian are particularly generous.
Matching Aspirations And Budgets
Daily Memphian proudly states that it is the largest digital only local newspaper in the U.S. (with a reported 52 employees – the Texas Tribune is significantly larger but with statewide coverage), but it appears to be finding it a challenge to match that ambition with an aspiration to break even, a goal it had hoped to reach by about year five.
In a statement filed with the IRS in 2017, total expenses for 2019 and 2020 were projected to be $3.1 million and $3 million. They were instead $4.8 and $5 million.
In 2017, it was also projected that salaries for 2019 and 2020 would be $2.1 million and $2.2 million. They were actually $3.2 and $3.7 million.
The same IRS statement projected the 2020 operating losses at $1.2 million, which was off by 75%. The actual loss was $2.1 million.
IRS reports are by nature a look backward at the past and provide little to consider what Daily Memphian intends to do in the future to operate in the black. Based on 2020 numbers, the paper is spending an average of $95,000 a week while only taking in an average of $56,000 a week.
If the spending by Daily Memphian has continued at this rate, it is likely dealing with a lack of cash and a depleted fund balance that are forcing some tough questions about the budget whose answers shape the future of the newspaper itself.
For most nonprofit organizations, the financials would conjure up the possibility of an experiment that simply did not work out as hoped or the possibility of retrenching to reduce costs; however, we are told that these are not possibilities for the Daily Memphian.
Approaching the original financial contributors again seems the obvious step, but many of them signed on with the expectation that support would not become a continuing request for money because the Daily Memphian would be operating in the black, closing in on 25,000 subscribers backed by robust advertising.
Starting a new newspaper, particularly at a time when they are vanishing by the day or being consumed by hedge funds, was never a sure thing. The Daily Memphian is a long way from operating in concert with the business plan it rolled out to investors when it was just an idea, and what it does now may be one of our community’s most interesting developing stories.
Here’s the blog post from eight months ago about the Daily Memphian and its 2019 IRS report: “Daily Memphian Faces Deficits As It Seeks Financial Sustainability.”
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