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Elmo Just Got Laid Off!!! Oh the Humanity! What About the Kids?

Monday, March 20, 2017

Well.... Word on the street is Elmo just got laid off due to Donald Trump's cuts in funding for public broadcasting.  Our furry little friend - my kids used to dance to his song about the number five - was caught off guard when called into human resources to be notified of his pending unemployment.

As you might expect - and anyone who has been laid off can commiserate - Elmo had quite a few questions.  But the one that echoed through the corporate halls of Sesame Workshop was Elmo's plaintive query:

What about the kids?

Wait... what? 'Sesame Workshop'? What's that? I thought Elmo worked for PBS! No?

OK, let's be serious now and do a little homework. I'll do my best to quell the snarky voice and report the facts.

To their credit, Sesame Workshop makes their latest Form 990 tax filing available on their website.  I have marked it up with highlights and comments, which can be found here.

So, let's look at what we find and ask Elmo's poignant question: What about the kids?

To start with, Sesame Workshop claims tax-exempt status under 501(c)(3). As we look into their finances, a slight but very significant conflict in what is stated on their website vice what is in their filing will prompt an important question.  But more on that later...

For 2015, Sesame Workshop booked just under $95 million in revenue.  They had $96.7 million in expenses and thus showed a slight loss for the year.  The greatest share of expenses are salaries - $54.7 million.

Overall, reporting assets and liabilities for 2015, Sesame Workshop shows $274.5 million in assets against $53.9 million in liabilities.  Big Bird, Elmo, and crew are worth $220.6 million dollars.  Somehow I think Elmo will be just fine.

When a non-profit reports its finances, "Program Service Revenue" is one of the main line items, and includes government grants and contributions.  Sesame Workshop reported a total of $23.7 million in Program Service Revenue - $3.7 million of which came from government sources.  If we only count Program Service Revenue, government support amounts to 16 percent.

But Program Service Revenue is only one revenue line item.  Most of Sesame Workshop's revenue is listed under "Other Revenue" - and in that category 'royalties' are reported at a whopping $37.4 million.  In other words, Big Bird, Elmo and crew are raking in 10 times more in royalties than they are getting in government support!

Even more to the point: With a total of $94.9 million in revenue, against $3.7 million in government support, a paltry four percent of Sesame Workshop revenue comes from government support.

But what about the kids?

Sesame Workshop had a transition between CEOs in 2014.  Between the two, the total salary and benefits for the year was $733,360.  In all fairness, this is consistent with other CEOs in the New York area.  But if Elmo is going to ask "what about the kids?"... well... what about them when the CEO is making three-quarters of a million dollars?

Across all directors and officers, Sesame Workshop pays $4.6 million dollars. If Elmo is asking "what about the kids?" in the face of cuts to government support, and that government support is a full million dollars less than what directors and officers are paid in salaries - well..., indeed, what about the kids?

The most interesting part of the filing, though, is the running five year average non-profits must maintain to show that more than 33.33 percent of their support comes from the 'public'. This is an important metric because it determines whether or not a non-profit is a 'private foundation'.

Private foundations have more stringent reporting requirements.  They are required to pay an excise tax on investment income - of which Sesame Workshop has a significant amount.  Greater scrutiny is applied to large donors to make sure they are not in turn benefitting from self-dealing.  For this reason, they are required to disclose the identities of major donors.  Sesame Workshop's Schedule B lists the amounts of these donations (the largest single donation being $4 million, but not the identities of the donors.

In their 990 filing (Schedul A, Part II), Sesame Workshop calculates their public support at 35.87 percent, just slightly above the required threshhold.  But, in the graphic shown here taken from their website fiscal year 2015 (tax year 2014) revenue by source is shown to be 31 percent from "corporate, foundation, and government support."  The rest of their revenue is shown to be from "distribution fees and royalties" (29 percent) and "product licensing" (40 percent).  Under these numbers, Sesame Workshop no longer qualifies as a publicly supported charity.  They are a private foundation subject to taxation on their investment income, and much more detailed reporting, including the identities of their major supporters.

One has to ask, with respect to the taxes they are apparently not paying: What about the kids?

And finally, a stroll down memory lane.  My mother-in-law from Malaysia used to laugh along with the boys as Elmo sings about the number five.  I guess Elmo got rich rapping...

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