Board Meeting Minutes; Special AHRMA Meeting 11-30-2022

Hey AHRMA!

This is an introduction to the November special meeting minutes that we are sharing with all of you along with a synopsis of the state of AHRMA.

In 2019 and early 2020, there were opportunities on the horizon for AHRMA. Vintage racing was gaining in popularity, and it was noticed by potential major sponsors. AHRMA formed a plan and built an infrastructure designed to capitalize on opportunity. As a result, our sponsor dollars doubled and were poised to triple.

Then the world was hit with COVID in 2020 followed by high fuel prices and serious inflation starting with the 2022 season.

Gradually corporate sponsors that were lining up for the MotoFests began to back pedal.

AHRMA’s infrastructure (such as live-streaming races, social media efforts, extensive travel, magazine upgrades, paid ambassadors, etc.) may have been right for the circumstances of that time, but clearly need to adjust for today.

So here we are, starting 2022 with 200k in accrued losses and an ambitious and costly event schedule that our members asked for based on the polls we sent that penciled out based on the belief that the members would show up and support the program. That did not happen in ‘22 yet AHRMA was already committed and contracted to this aggressive plan and as a result we ad ded more debt to the books.

Let’s talk Debt! AHRMA had accrued $200k in losses heading in to the ‘22 season part of which was offset by a $100k loan taken out in ‘21. As we hit mid ‘22 the low turnout across the board began to compile our losses and it became apparent that at our current burn rate we would need another loan. Another $200k was secured mid-season to make it through our schedule.

Let’s talk Loans! AHRMA has $350K in outstanding loans. These are unsecured low interest loans that have been made by generous and patient members who are able to afford to wait until the AHRMA is able to repay. In business terms our debt to revenue ratio is at the limit. A bank would probably not extend the loan and probably call it in, forcing AHRMA in to a corner. Fortunately, we do not have that situation with our debt structure as these are UNSECURED, that means the lender has no recourse if AHRMA were to default. We do not plan to default period.

Let’s talk recovery plan! Your board is hyper focused on the correction plan for ‘23, we have cut the costly events across the board. Only 1 MotoFest not 3, Laguna. Why have any MotoFests? The Corporate sponsors we retain are due to the MotoFest model. Barber is the model we look at, they take in over $4M at the gate every year, this does not include the millions they make off the rest of the action there that are estimated to be north of $10M.

For ‘23 your AHRMA team has been working on being more streamlined, to live and race another day. Count on it!

Brian Larrabure
Western Trustee & Chairman

Brian Larrabure (Chairman of the Board), Arthur Kowitz (Treasurer), Al Anderberg, Mike Dixon, Jim Korn, Albert Newmann, Rob Poole, Beno Rodi, David Rutherford, Luke Sayer, Kelly Shane (Secretary), Tim Terrell

Craig Grantham (Executive Director), Cindy McLean (Communications)

Call Meeting to Order (Chair) 6:03pm Eastern

 A detailed review of the expenses and revenues related to the 2022 AHRMA Road Racing program and projections for the 2023 Road Racing program. (Craig Grantham)
“News of the Day”

Jim thinks the most important thing to address is that we no longer have a road race director. He wants to make sure there’s enough time to discuss the RR director issue.Arthur feels that the financials would lay a good foundation for the RR director discussion.

Arthur reviewed the financial statement third and fourth Quarter revenue vs. expenses, including travel expenses. These numbers are as current as we possibly could make them. For 2022, we are in the red again.Arthur gave an overview regarding accounting processes. We are using accrual accounting.

Arthur – Income from membership used to go to the overall fund rather than membership for Off-road credited to Off-road, and Road Race to Road Race, etc. It’s the same with sponsorship, and other income sources. Arthur tried to get previous Executive Directors to allocate the funds appropriately so that every discipline gets what they deserve. That way, several months down the road we can look at any discipline and understand clearly who is responsible for what.

Jim asked about a dictionary and expense allocation. One of the things he’s seen is regarding where expenses are allocated – and that there was a lack of knowledge as to what goes where. Arthur said this is currently under construction and we are working towards accomplishing this. Why don’t we have the specific definitions for the allocation buckets completed? This should be one of the first tasks completed when developing the P&L? Can you give me a percentage of how complete this task is?

Arthur – the task definitions are 46% complete.

Craig delivered the chart of accounts with descriptions next to each item. This should be helpful as a starting point.

Arthur – we had to build an accurate cash flow from scratch. The bookkeeping was not formal enough to do what we wanted to do; the bookkeeping needed to be formulated first.

Al – how do we compare this with the 2021 financials posted on the website today?

Arthur – it’s been informal since the beginning of the year. The previous E.D. was tasked with doing this and was not able to accomplish it and ultimately said he did not find the time to do it. Craig and Lisi have been working through all the finances to establish consistency across the year. Prior bookkeeping may not have been as primitive as “shoebox” accounting, but it wasn’t much more sophisticated than that.

Brian offered to email out the details from the last clear financials that are from year end 2018 to anyone of the trustees who expressed interest.

Jim struggles with understanding where we were last year vs. this year and it makes it difficult to articulate to members without having cost allocations clearly defined and one-to-one comparison. The major contention between The Road Race Director and Craig was the travel expenses. 12 months into this leadership and yet we are not able to understand exactly where we stand. How do we have trust that the expense items are going into the right bucket?

Craig – comparing year over year, next year we’ll be able to do that easily. The system for previous years was so different that it’s almost impossible to do a true comparison but there is enough data to use and compare travel. We pretty much know where things need to be allocated.

Arthur – some items are obvious where they get allocated, and there’s still a bucket of general expenses or even income that still need to be defined.

David – To clarify, all buckets are identified in the chart of accounts – and we are currently working on allocations, correct?

Arthur, correct – we are sorting it out. Cash or Accrual accounting discussion – both are legitimate accounting methods. However, it’s not legitimate to mix the two. For Cash Accounting, Revenue and expenses are recorded when cash is received or spent. For Accrual Accounting, revenue and expenses are recorded when cash is earned or incurred. Problems arise when you mix the two. Prior to 2022, Cash Accounting was being used. We have switched over to Accrual Accounting as that gives us a better idea as to anticipated revenue and expenses which will improve our ability to plan.

Craig – We’ve received updated audited financials from our CPA firm, BRK that we have used for years for audited financials. We submitted the 990 form by the deadline. Craig shared snapshots to review – this is all for 2021. For total program management (as shown on page 11 of our audited financials for FY21/22) we made a little more than we spent across all disciplines.

Backup breakdowns were included in Craig’s presentation.

Jim Korn – A little confusing. Our fiscal year starts in December and ends in November. Under the 2020 IRS Form 990 (covering the past year ending November 2021) we are showing a total end of year net revenue loss of -$84K.

Craig – It will align with the 990.

Events results by discipline – this continues to evolve as we get more information. The 1st half of the fiscal year was shown at Barber, second half shown here shows black vs. red performance. The ones that are red with grey headers are easy to fix. We had some really good events during the second half of the year for RR. Blackhawk, Gingerman, Tally and Barber were all good events. This does not have “general and administrative” commonly referred to as “G&A” expense shown.

Jim – Where do we stand on expenses?

Brian – The negative net income we currently show is mostly the loans?

Craig – if we didn’t have the loans in place we wouldn’t have been able to complete the season.

Jim – I’m confused. Craig, we used the loans to offset the losses. We actually incurred the losses but had loans to cover the shortfall.

Craig – correct.

Arthur – confirmed

Craig – we really needed the loans to continue operation. These loans came during the Q2 and Q3 time period. We would have ceased operations without the loans.

David – What happened to the debt we started the year with?

Craig – that was rolled forward into our fiscal year 2021/22 on the balance sheet. We didn’t have the debt we currently have on day one, it increased as we went through the season.

Jim questioned the debt notes.

Discussion on loans, debt, and carryover. Total loans stand at $350k. That includes both 2021 ($100k) and 2022 ($250k). Debt held by AHRMA $350k (same as total loans).

Craig – We have ongoing cashflow that comes in with events and other income. Our balance in our bank account includes everything that has come in. We’ll get income on a monthly basis from membership and events.

Jim – we have a shortfall going into next year.

Craig – when we get the final P&L I can come back to the group and give line by line review.

Arthur – we were able to take overage of Benevolent Fund so we weren’t cash depleted. We did take the transfer from the Benevolent Fund and can access additional credit from our investment accounts to assist in cash flow.

Jim – questioned the specifics of our debt situation. We have a shortfall going into next year. I am still confused, let me just summarize what we have been shown. Last fiscal year, our public Form 990 shows we carried forward a loss of $84,272 which when added to the losses shown by Craig for this year is $50-70K higher than our current debt obligations shown by Craig. These may be covered by the transfers we made from the Benevolent fund, but I don’t know since the total accounting picture is not clear for this year. I still do not understand our solvency situation and find it very difficult to answer members questions regarding our financial health even in generic terms given the lack of clarity here.

Arthur – we cannot answer this here but will provide a summary chart which will answer these questions.

Albert – We need events to stand out on their own to identify money losers.

Brian – Our fiscal year just ended. In the normal course of business it would take around 30 days after closeout to get clarified numbers. We are projecting the year end without having all the data.

David – somewhere the amount withdrawn from the Benevolent Fund should be listed as income for ’22.

Arthur – It’s not actually income according to the accounting system. Not income, it’s an asset.

Brian – show us the loss for the previous years

Jim – We ended prior fiscal year with a loss. I need to be able to talk intelligently to the membership regarding our financial situation. What is the current financial health of AHRMA? I don’t see it based on what has been currently shared.

Arthur – 2 components – cashflow: money in/money out, and the balance sheet: assets / liability. The dynamic between the cashflow statement and the balance sheet. To answer this, we need a copy of the balance sheet at the beginning of the period and balance sheet at the end. This would create the full picture.

Jim- I would like to answer the question when asked by a member rather than say “I don’t know”.

Craig
Travel expenses for 2022 increased by 25% average per event year over year.

Jim – made a statement about the gross increase and expenditures.

Jim stated that you can’t compare 2021 with 2022 as we had 2 additional events so the average wouldn’t be comparable.

Craig responded that the expenses had been adjusted (removed Daytona), so that there were 11 events in both 2021 and 2022 to be measured. With apples-to-apples comparison across 11 events, the average per event travel expenses did increase by 25%.

Arthur asked that the trustees please hold questions so the review could be completed.

Craig
Compensation for RR director – this is the highest paid position at AHRMA.

For next year, there will be only 10 events, Daytona, Colorado and Thunderhill have been removed. If we did not adjust the number of RR events Expenses would exceed our profit. RR travel expenses have historically been high.

We really need to increase entries. If we could do that we could be in the black. Other ways to get revenue – merchandise, gate, camping, etc. We can be in the black for 10 races because we are going to venues that have been positive for us or that we have a plan for improvement. We will do our best at getting into the black.

Expenses were presented, 2018 vs. 2021 vs. 2022
Expenses did not increase appreciably from 2018 to 2021. In 2022, there was an average 25% per event increase – 2022 didn’t have oversight. We made misguided decisions, gave all team members the same travel expenses, specifically mileage. There has to be ways to improve expenses and how to process the expenses.

Examples that stood out as particularly high in 22 vs 21 for certain workers were reviewed.

Mike Dixon wanted to know why the increases reviewed happened.

Craig – RR director’s purview to manage expenses. As RR director previously stated to the Board of Directors, she didn’t want to make decisions on who got what and that the team members would be treated equally.

Select examples of expenses that need better management:

Thunderhill & High Plains events expense reports (1 trip, 1 staff member each example):

1. Daily rate & expenses $4,500 (including rental car/gas @$3000)
2. Mileage only ~$4,600

Laguna Seca Events (1 trip, 2 staff members each example)

1. Daily rate & expenses ~$4,750
2. Daily rate & expenses ~$5,600

Craig- Next season we need to make sensible choices – we should consider regional resources where possible.

Brian – Travel expenses need to get back to where we were in 2021, how do we get back there?. For all of our critical workers, we need to figure out a more affordable way to get them to events.

Arthur – have we compared how each of these were compared to previous years?

Brian compared notes with a MotoAmerica official – MotoAmerica workers get a fair flat fee based on their positions. We have expenses in 22 going on that hadn’t gone on before, then put on the gas pedal early on this year. Can we do what other similar organizations do in order to control the expenses?

Craig – we are not interested in cutting out critical team members. We need to put heads together to agree to a process towards reducing expenses.

Brian we won’t have a member experience if we don’t do something. We need to a) sustain and b) support member experience.

2. Qualifications, skillset, and experience requirements for the next AHRMA Road Racing Director.

• 100% focus, this is a full time job
• Budgeting / Planning
• Oversight
• Financial management
• Communication

Opportunities:
• Administration a critical piece of what we are doing.
• Team player
• Documentation – agreements and AHRMA Policies
• Efficiency
• In the process of searching for a new road race director – will be starting the search over the next couple of days.

Brian – search process:
• Put out ad / job description
• Take in interested resumes
• Process run at the EC level – one or more EC members review and thin out resumes
• Final candidates forward to ED
• ED finalize interviews
• Create offer/secure acceptance
• ED informs BOT

Arthur – make sure things happen –we have a responsibility to see beans are being counted in a fiscally responsible manner.

Jim – Selection process and replacement of RR Director position is as it was last time we did this. More concerned with the interim processes that need to go on in order to hit the ground running for next race season. We have a number of RR contracts currently not implemented / signed. No idea given current discussion regarding travel expenses and what the mood / tone is of the AHRMA team. What staff will we have available to conduct road races? None of the events are set up for registration in MSR. All needs to be set up before entries can be accepted.

Brian – Spoke with Dan May / Jim Korn. The meetings need to continue for RR planning. Jim said Bill Doran is staying on, Jim will continue, Dan will continue.

Brian – in light of the expenses and things we need to make changes for next season. We are hoping to talk to the AHRMA RR team and see if they are willing to help us get back to 2021 rates. This is a fast moving ball.

Arthur – in the course of the RR committee meeting – if you need someone to run with a task or two Arthur offered to help out

Brian – let’s get through meeting tomorrow and see what we can formulate.

Craig – we can get contracts finalized well ahead of next year’s schedule.

Luke – The way I see it is that RR next year will either make us or bankrupt us. Am I mistaken in that?

Brian – kind of a mistaken conception. We didn’t get here because of a bunch of bad road races. AHRMA had a lot of new overhead that collected over time. This debt didn’t just happen this year. We had an off-road director spending a significant amount of money that wasn’t being spent before. Had a previous Flat Track director given a very significant increase. In 2022 we reduced that overhead significantly in both areas. 2023 programs are for the majority are planned to be low cost and low risk. For 2023, Laguna Seca is going to be a much lower price (currently renegotiating our contract), as is New Jersey. The entire RR program should be in the black.

Arthur – it won’t be all black or all white – the question is what shade of grey will 2023 be.

Luke – We made changes with different off-road director, dirt track director and if we don’t have good RR events, it will be a problem. Without someone at the tip of the spear, we aren’t going to get there.

Brian – we’ve been through this a couple of times. As long as the underlying foundation is there, we’ll be fine with an average interim director for a few rounds if need be. We had good turnout for the process last year, several VERY good candidates that were highly qualified. We went with the Candidate we did because of personality – although new to the job, she showed the spirit to take on the task. A very complicated process / job. The Task list we were working on a seasoned RR director would readily understand how to execute and delegate as needed.

Luke – best predictor of future performance is past performance. Haven’t seen evidence of good past performance.

Brian – When AHRMA hired the 2021 RR director, we didn’t get many applicants for the $ amount we offered at that time. By raising the bar financially, it drew more qualified people for the position for 22.

Discussion regarding previous road race directors’ compensation.
Craig – compensation amounts are strictly confidential.

Jim – before we go to closed session request 3-4 minutes and a motion he’d like to make.

David – Asked that for the purposes of the minutes that all of the financial information regarding salaries will be kept confidential.

Rob – Who knows what’s going to happen in the coming year with the economy. I don’t think it’s going to be even as good as this year. I think the Road Racers will have to step up. We talked about offering a RR license. We can get all the race officials at the races the way we’d like if we were charged more. $100 for a road race competition license wouldn’t be that much.
Albert – I agree

Brian – yes. Now Offroad is sustainable. We will use the tools and information we have to effectively plan ahead for RR.

Jim Korn:
There’s been a lot of things that have happened in the last 3-4 weeks leading up to the sitting RR directors desire to leave. Jim thanked David Rutherford for his efforts as mediator with the RR director and Craig. He did a yeoman’s job to get it to a workable situation which didn’t work out. Thank you. I believe, listening to what I’ve heard today, regarding the importance of the Road Race director position most of the board members don’t have an appreciation for what the position entails. This looks to be more like a $200k job position. I’ve lobbied aggressively to try to save The Road Race Director and keep her with us and came down to the decision between the RR director and Craig. That was an easy decision, keep the RR director and let Craig go. The organization would suffer less if Craig is let go and the RR director is kept. I’m disappointed that we were not able to reach a successful resolution here. I don’t have a lot a lot of confidence that AHRMA can move forward at the ED level and EC level with current leadership.

3. Motion to remove Craig as Executive Director

Jim made a motion:
Convene another special board of trustees meeting to be conducted within the next 7-10 days and the subject will be whether or not to move forward with Craig as our Executive director. Tim Terrell seconded.

Brian – the RR directors job description that was put out publicly is an internal working document not for public consumption. The way the RR director quit and then got public with it was unprofessional. It was very disruptive. Once these other actions are taken, how do you un-ring that bell? The point you made regarding how difficult the job was is very true. By the same token, you don’t understand how difficult Craig’s job is and how much work it takes. Same perspective. You don’t see how much effort it takes to do these things.

Tim – One of the reasons the RR director acted in that matter was because of perceived lack of communication with Craig. Tim-he didn’t feel he had that with the Muddy Creek event. I heard the RR Director constantly complain that the communication was not real time. When we acknowledged her resignation, it should have been done before it went public and that’s why she published her resignation on Facebook.

Brian – The RR Director shared her resignation and job description with staff the same day her resignation was submitted to the Board. We published the RR director’s departure announcement that same day, that’s not acceptance? The entire resignation letter and internal job flow outline was posted on social media by the RR Director the day after we sent out the press release and member notice of her resignation.

David – with respect to your motion Jim, what you are proposing is that we go forward into 2023 without a RR director or an Executive Director. I can’t believe that that would be the best thing for AHRMA. I understand your concerns and views, but you should think about the consequences to AHRMA.

Brian – There’s nothing to prevent us to add items to the agenda of this meeting such as a motion to vote on an action– Brian confirmed with Kelly.

Craig – in response to communications there may be times that things are busy. I won’t take responsibility for the RR Director cutting off all contact with me for the majority of the year. It was not a workable or professional stance. You can’t just decide you won’t communicate with people you work with.

Kelly – We can’t have the tail wag the dog. No matter the perceived importance when they refuse to work with management they need to go. If this organization capitulates to the RR Director after she poisoned all the wells and burned all the fields on her way out the door this organization will go down.

Albert – I agree with Kelly. I wanted to collect my thoughts before saying anything. Poisoning the well – damage that has been done can’t be undone. When I was at Diamond Don’s I had no problems with Craig unlike Tim. Craig has come up to speed. What new ED would possibly accept that position with us? In addition, we’ve read emails she’s sent out not sure she could work with anybody in management at this point. That being said, I appreciate what she did.

Arthur – We got financial processes that we were unable to get out of the last 2 ED’s – I was event coordinator for Daytona – I was supposed to work with the interim RR Director and discussed how we would divide the work. And she unexpectedly resigned as interim RR director with little to no explanation in 2021 only a few weeks ahead of the 22 Daytona event, leaving us all scrambling to fill the position

Jim – I continue to have a lot of questions as to where we stand regarding the financial health of this organization. Craig has not done well forming interpersonal relationships. Responsibility for the financial situation belongs with the Treasurer.

Jim Motioned: I ask for Craig’s resignation from the position he currently holds with AHRMA.
Tim – second.

David offered to recuse himself from voting having been a mediator between the RR Director and Craig, but was told by Brian that he had a right to participate and no other Trustees objected.

Votes: 8 no / 4 yes (JK, TT, LS, MD)

4. Review of the AHRMA member misconduct policies. (CLOSED SESSION)

Kelly motioned to adjourn, Arthur seconded.

*Providing these special meeting minutes is not a precedent on AHRMA to provide future special meeting minutes which is left to the sole and absolute discretion of the AHRMA Board.