Good Day FRYS Membership, Today’s membership blast brings welcome news compared to the guidance that was offered in last month’s communications. Let’s get right to it! Charitable gambling profits for the month were a robust $13.2K, driven by the annual Rotary Raffle that yielded a gross profit of $13.4K (raffle ticket sales = $18.4K). The inclusion of the Rotary Raffle in June’s financial performance was overlooked in prior notices, so this was a welcomed surprise compared to last month’s unwelcomed surprise of a hefty tax that brought profits into the negative. Turning to the primary function of the charitable gambling operation of pull-tab sales, total pull-tab revenue turned in a surprising $166K in June compared to $145K in May for an increase of 14% month-over-month. This growth in sales halts a three-month trend of declining sales activity going back to March, which was certainly not expected given recent history and Dawn’s statements of declining activity in the summer months, of which June certainly qualifies. While sales surprised on the upside, luck was not on FRYS’ side as the gross profit margin on e-tabs hit a record low of 9.7% for the month compared to the historical average margin of 15.1%. To put that into dollars, e-tab gross profit for the month was $9K. If performance was average for the month, gross profit would have been around $14K on e-tabs, so a couple percentage points of gross margin loss make a sizeable difference. Unfortunately, paper tabs also ran well-below historical trend with a gross profit margin of 15.7% compared to the historical average of 17.9%. Anecdotally, the deviations in gross profit margin month-over-month are significantly larger than what I expected heading into the gambling experience, which makes forecasting monthly performance with any degree of precision a wild gambit. Looking forward, the growth in sales was a welcomed change in June as that helped eat away at the aggregate gross profit tax that FRYS is subject to (gross profits aggregate to build a tax that progressively accumulates regardless of performance in any single month); however, if the Rotary Raffle would not have occurred, profits for the month would have been right around $0. Expecting July’s performance to continue with positive sales momentum is unlikely as July had Independence Day which brings many folks to cabins, lakes and away from Boxers. As such, a return to tighter profits in July is expected. In other FRYS news, a general contractor for the Rotary Camp has been located and will be able to complete some of the camp repairs prior to FRYS’ fiscal year-end of August 31. The first set of repairs, focusing on external projects, is the smaller of the two in terms of costs but more pressing from a safety standpoint. Some might ask why the fiscal year-end of August 31 is important. Due to tax law, FRYS is subject to unearned business income tax (UBIT) on profits that exceed $1,000 and are not donated back to the community. Per Mr. Dave Beranek’s understanding, FRYS is going to be hit with some level of UBIT this year due to this being the first year of charitable gambling as startup funds to get the operation up and running are subject to the tax. Since this is not an email on tax law, readers shall be saved the juicy details of how UBIT applies to FRYS in full (if wanting to know more, please ask myself or even better, FRYS’ resident tax expert, Mr. Beranek). The last update of the day pertains to FRYS’ partnership with Faribault Baseball Association to sell pull-tabs at the MN Town Ball State Tournament. FRYS is scheduled to sell pull-tabs over the long Labor Day weekend. Chad Wolff of Faribault Baseball, Brenda DeMars and I are meeting this afternoon today to discuss details and establish the operating plan to bring FRYS new cash flows that can be invested in community youth. The charitable gambling team thanks you for your support in this process. Even with our many successes, this is still year 1 of the operation and the rules of the road are still being fully synthesized, such as navigating UBIT. An experienced team approaches year two with positive perspectives! Much appreciated, Chad |
