The end of August is always an interesting time for FRYS as the organization’s fiscal year-end concludes at the end of the month, which on the surface does not seem like a big deal but once the unrelated business income tax is thrown into the equation, a big deal it becomes.
At the surface level, the unrelated business income tax does not seem so scary as it simply refers to income a non-profit organization makes outside of its course of registered business. For FRYS, that is improving the quality of life for the Faribault area youth, so think the Rotary Camp, Strive, Warm Our Community, etc… Managing a highly successful charitable gambling operation falls outside of FRYS’ mission, qualifying those profits as “unrelated business income.”
Here's where things get tricky. FRYS is required to spend down/donate all profits in-excess of $1K or be taxed on that income at an egregious rate of around 40% or so. But how is FRYS supposed to know how much income the month of August will produce and therefore how much in profits are available to be donated until the books have been closed? Well we do not know and will not know until the books have been processed in mid-September, requiring FRYS resident tax expert Dave Beranek and the charitable gambling team to make a guesstimate. Unfortunately, that guesstimate will be made a little easier after the month of July, and not because the calendar has turned over once more but let’s not get ahead of ourselves before digging into the July data.
Prior membership memos raised the question whether or not e-tab players were angry with the State of MN’s charitable gambling apparatus due to changes coming to e-tabs in summer 2024. In short, the answer appears to be no as e-tabs sales roared to an impressive $141K (second highest on record) but the margin was soft at 14.3% (average = 16.5%), resulting in gross profits of $20K.
On the other hand, paper tabs experienced a pullback from last month as sales summed to $59K, which is right around the average for the 2022/2023 campaign of $61K. Everyone was a winner for paper tabs at Boxers - gamblers & FRYS - as the gross profit margin was 17.8% compared to the 2022/2023 average of 17.6%, so about as average as a month can be imagined was the case for paper tabs during July.
Bingo of course is the last of the major gaming experiences at Boxers and Bingo produced just over $14K in sales for July for gross profits of $2K.
All of the above resulted in net income of…….wait for it...... $654 for the month, the lowest positive monthly total FRYS has recorded (depending on taxes, some months have been negative but all positive months have been above $2K at a minimum). The $654 net income does not move the needle from a taxation perspective (UBIT is profits greater than $1K) but more importantly, not much to donate to local causes. The primary culprit for the weak profits was $12K in receipts tax that was illustrated last month of coming down the pipeline for July.
Chad