Abstract: an example of how to read charity filings, using Edge.org

1 The problem

Recently, on #lesswrong:

epitron> and you’re right, Edge was a bit better back when people wrote essays, and the mailing list of smart people critiqued them
epitron> i guess we can chalk this up to the fall of journalism. or more likely, the way the financial system broke (which Lanier talks about)
gwern> Edge seems quite profitable, publishing prestigious pop intellectual books
epitron> o_O edge doesn’t look very profitable to me. they just redesigned their website, after like 15 years
gwern> the videos, the dinners, the books…
epitron> I think advertising pop-science books by contributors is the only way to bribe them to contribute
epitron> hmm apparently Brockman has a thing for videotaping conversations with smart people. he’s been doing it since the 60′s
epitron> and publishing books is not a very profitable venture
epitron> maybe it’s somewhat lucrative if you already have an audience who’s waiting to buy up the next book… so that you don’t have to advertise it
epitron> actually, Edge is a nonprofit. They have to publish quarterly reports, don’t they?

Yes! That’s quite true—Edge Foundation, Inc. is in fact a non-profit, and a 501(c)(3) charity to boot. So we can answer these questions.

2 The solution

But how are we to do this?

As in previous examples, we have to know where such filings can be found. We ask the great Google: “501c3 filing”, and it tells us: GuideStar.org. To quote Wikipedia:

“Anyone who is interested in reviewing a nonprofit’s recent Forms 990 can register at Guidestar.org and download them for free.”

We register (it’s the normal signup form), and now we can search and look at the Form 990s.

2.1 Which charity?

‘Edge’ turns up 5,933 results; ‘Edge.org’ turns up 0; ‘Edge Foundation’ turns up 354. We’ll start with that last one. There turn out to be 4 or 5 ‘Edge Foundation Inc’ on the first page, so here we have to either look at every one or apply some outside knowledge.

In this case, as Epitron mentioned, the Foundation is powered by book agent Brockman, and where is the American book industry famously concentrated? In New York City. Exactly 1 of those 4 is in NYC. If we look at the filings, this is in fact the right Edge Foundation.

2.1.1 The filings

GuideStar has 3 Form 990s available for free:

We’re only really interested in the current situation, so we look at the 2010 filing.

2.1.2 Overview

Tax filings have a bad reputation for being impenetrable, but like programming, they’re fairly logical; you need to pay attention to the labels and follow the lines with your eyes, and then they’re pretty clear.

The first page contains all the highest-level figures and give us the overall look at what kind of charity this is.

Income¹: $159,000
Expenses²: $191,000
Net assets³: $192,000

Just from these 3 numbers, what might we infer? (As in the Girl Scouts essay, it’s a good idea to pause and reflect. What does one expect, what is one looking for?)

It’s a small charity, people-wise
Even if they are accepting relatively nominal incomes for NYC, like $50k, there simply cannot be more than 2 or 3 employees. And if they work for free, there still can’t be more than 30 or 50, simply because there would be the usual corporate/business overhead for the computers, utilities, insurance, etc. Girl Scouts’s NYC headquarters might spend $159k just on legal advice or investment fees. However, Edge is something like twice as large as another charity whose filings I’ve read through, the Lifeboat Foundation, so there’s always room to get smaller.
Expenses > Income
Wikipedia says Edge was incorporated in 1988⁴, which suggests Edge has a regular cycle of increases and decreases in its net worth. 2010 would seem to be in a ‘decrease’ part of the cycle. This is support for the book publishing theory—donations tend to be more consistent than the occasional delay-filled infusion of royalties from a published book.
Edge has built up a substantial cushion of assets—an entire year’s revenue.

Like above, this suggests a regular excess of revenue. It’s also possibly interesting from an organizational point of view: why such reserves? It’s not as if Edge maintains an expensive infrastructure where the slightest disruption is disastrous (eg. the power grid). This suggests maybe Edge simply can’t think of any way to responsibly spend it. There is only so much one can spend on a fancy dinner/banquet before it is obscene, and Edge’s participants tend to the meritocratic, and might object to overly lavish settings. Of course, this could just be a warning sign of some skulduggery.

2.1.3 Income

After page 1, we’ll skip around a little. I’m interested in where their money is coming from. We have to skip all the way down to page 12 before we see anything about their income. Baldly on line 1 of Part XIV-A on page 12, we see ‘Book contract’ and $83,777.

Well, that explains a lot! It’s not listed as royalties, and it’s a fairly regular looking number, so we can probably infer that this money is a book advance, and a remarkably high one—Edge has produced many books by this point, so this advance would not be gambling but a good indicator of how much the publisher thinks they will sell. At a dollar or two in royalties per book, that implies sales in the scores of thousands; perhaps not best seller list, but a very good show indeed

That leaves ~$75,000 of the $159,000 unaccounted for. We continue skimming until we hit page 15, the second page of ‘Schedule B’/‘Schedule of Contributors’. There are two entries:

‘Enhanced Education’, $50,000 Address is in the British Virgin Islands; this is interesting, inasmuch as the British Virgin Islands are one of the leading corporate havens and the listed address is shared by a great many other non-profits.
‘Parasolholdings’, $25,000 This strange entry doesn’t list a real address—just ‘c/o Edge Fdn’. Googling doesn’t help at all; there are a number of ‘Parasol Holdings’ worldwide, none of which have much information online. (One New Zealand entity provides copious filings… all of which say nothing whatsoever beyond the shareholders’ names & addresses.)

Bingo. So Edge’s entire income is derived from its book contract and two odd-looking donators.

If we check the 2009 filings, Enhanced Education donated $53,000 that year, but Parasolholdings did not; instead, $25,000 came from ‘J.E. Safra’ (again ‘c/o Edge Fdn’). This is more helpful; a J.E. Safra was the father of billionaire Edmond Safra, but this seems to be a red herring (that J.E. is dead) - retrying the Google search as ‘edge safra’ leads us straight to a biography on Edge.org:

‘Jacob E. “Jacqui” Safra, a Swiss investor, is the Chairman of Encyclopedia Britannica, and owner of Spring Mountain Vineyards, a large wine-growing estate located in Saint Helena, California.’

Well, that settles Parasolholdings—it’s some sort of tax dodge or corporate cutout for Jacob. Nothing wrong with that. Enhanced Education remains a mystery; it does not show up in Google, GuideStar, or a few other places I checked.

2.1.4 Expenses

We backtrack to the beginning. The first hit is page 6, where we find the employment data: Part VIII, 1. Remember the observation that the expenses could not support many employees? It is borne out, with Edge having just 3 employees, each working a quarter of an hour a week, for free. (The secretary, Katinka Mason, doubles as the book-keeper too.) Very laudable.

Page 7 tantalizes us with Part IX-A, lines 1–2, but they prove a bust:

‘Development of communication vehicles for the literary world over the Internet’, $172,999
‘Publication concerning Internet communication vehicles’, $13,144

The first is just the canned mission statement you would have noticed elsewhere in the filing. The second is opaque; expenses somehow related to the book advance? Page 8 tempts us with a different number, the expenses at $178,226 (different from the just quoted #1), but no more details.

Page 10 gives us interesting details like the founding day of Edge.org, and expenses from 2010–2007:

2007: $123,672
2008: $99,217
2009: $98,249
2010: $178,226

Notice the cyclical trend here—high to low to high. Maybe this is the explanation for the cash reserve previously mentioned: there might be a $20,000 and then an $80,000 surplus in the two belt-tightened years, that would make up at least half of the reserve.

Back to page 1 for the detailed expenses:

Accounting fees: $5,227
Other professional fees: $14,700
Depreciation & depletion: $13,144
“Travel, conferences, and meetings”: $100,861
Other expenses: $57,438

Page 18 and page 20 finally give us some meaty details about the Edge.org setup. On an ‘unadjusted cost or basis’, Edge spent:

$1,299 on ‘equipment’
$70,038⁵ on ‘computer software’ (must be a Microsoft shop)
$55,034⁶ on ‘computer equipment’
Total: $126,371

Of that, a percentage becomes the depreciation & depletion above. And the ‘Other expenses’? From page 20, 2010-only:

Web hosting: $8,993
Web newsletter: $6,000
Miscellaneous: $902
Video hosting: $4,500
Interview transcription: $4,068
Software and hardware: $14,092
NYS Dept of Law filing fees: $50
Office supplies: $1,333
Website development: $17,500
Total: $57,438

While Edge spent a fair bit on all the technical stuff and on the basic overhead of a corporation, it spent even more on ‘meetings’ - all the dinners and functions that make up the grist for the mill-website. Which is pretty much as one would expect.

Some of the expenses seem on the high side; Edge.org seems to be a fairly undemanding website, something which could be hosted very cheaply on a cloud service like Amazon AWS (and one that could be done almost entirely as a static site and hosted even more cheaply on Amazon S3) - a hosting bill of $750 a month seems a bit high to me, especially when that isn’t even the cost of hosting videos, a separate $375 a month. The hardware expense of $55,000 seems extremely high if they are just purchasing laptops, but would make sense if these were purchases of cameras or big audio-visual rigs; there’s no way to tell just from the filing. The software expenses, though, seem amazingly high; with costs like $70,000, it might be worthwhile to investigate the gratis or Free options for video processing (what I assume they are paying for—if that’s just for things like Microsoft Windows or Microsoft Word…).

3 Final thoughts

So what picture has emerged? From the numbers, I read Edge as this: ‘a pretty well-run quasi-public social club for interesting people that has really nice dinners and which turns them into profitable books to pay for it all’.

4 Other examples

Looking at financial filings for charities can be interesting from the points of view of sustainability and efficiency. Here are some links where people attempt lay analysis similar to the foregoing:

ALCOR: Mike Darwin, “The Armories of the Latter Day Laputas, Part 5”
JSTOR
1. myself
2. Andrew Gray
SIAI: “SIAI—An Examination”, Brandon Reinhart

Part 1, line 12 ↩
Part 1, line 26 ↩
Section ‘I’, above Part 1 ↩
21 August 1988, apparently, since that’s the date listed in 1a of Part XIV on page 10; but I’m getting ahead of myself. ↩
This is adding up 5 entries. ↩
Sum of 2 entries. ↩

Case Study: Reading Edge’s financial filings