Double whammy for Comic-Con: $8 million loss and threat of state tax exemption

April 9, 2022

Comic-Con is at risk of losing its nonprofit status, state says, just days after the tourism giant signed up with IMG in a licensing deal amid a reported loss $8 million in 2020 hit by COVID.

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In a letter dated Friday*, California Attorney General Rob Bonta warned organizers of the San Diego Comic Convention that the 501(c)(3) nonprofit organization risks losing its tax-exempt status if it misses a deadline or does not obtain an extension from the IRS.

“A delinquent, suspended or revoked organization is not in good standing and is prohibited from engaging in any conduct for which registration is required, including the solicitation or disbursement of charitable funds,” Bonta wrote.

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It wasn’t immediately clear what losing nonprofit status would mean for the city or the super-popular event, whose annual attendance topped 130,000 a year for the decade before 2020 and generated revenue. hundreds of millions of dollars for nearby stores and hotels.

Comic-Con, which was supposed to have filed IRS Form 990 as of Dec. 31, did not immediately respond to requests for comment.

Neither will San Diego city officials, tourism authorities, or the San Diego Convention Center — which hosts the next Comic-Con in late July.

But last November 18, Comic-Con filed its annual registration renewal fee report, which said it had generated $3.97 million in gross revenue in 2020, when the pandemic forced the suspension of Comic-Con. Its gross expenditures that year were $11.98 million. (His total assets were $42.4 million.)

The letter to Comic-Con said he had until May 15 to file a state form. Bonta said if IRS forms are not sent to the state Register of Charitable Trusts within 60 days of April 7 or June 6, two things would happen:

On Saturday, a Notre Dame Law School professor pointed out that Bonta’s letter focused on the consequences for the state of not filing a full annual return with his office, including a copy of Comic-Con’s IRS Form 990. Con.

“These consequences for the state include monetary penalties and suspension of charitable status … and possible loss of the state franchise tax exemption,” said Lloyd Hitoshi Mayerthe forensic expert.

Failing to file Form 990 with the IRS in a timely manner also has implications for federal tax law, he said.

“The most immediate consequence is a financial penalty – $100 per day, up to a maximum of $50,000, for an organization the size of Comic-Con. … Failure to complete the required Form 990 for three consecutive years leads automatic loss of federal income tax exemption, but Comic-Con would have to miss its next two filings for that to happen.”

Bonta’s letter came three days after the agent was sent to corporate and Hollywood stars IMG announced that it will work with Comic-Con to “identify partners who can develop products, retail destinations and experiences for the millions of fans who are unable to attend the annual Comic-Con convention experience. Con”.

In a report, IMG’s Licensing President said: “More than 50 years ago, the founders of Comic-Con simply wanted to bring attention and recognition to the comic books and other art forms they loved. This in the process, they discovered a common interest in this and related science fiction, fantasy and broader genre than they could have imagined.”

Manager Bruno Maglione continued: “Today, this comic book culture is a mainstream entertainment culture thanks in large part to Comic-Con’s championing of this art form and its brilliant creators, and Comic-Con is the leading curator and guide brand in this space, enabling it to capture consumer attention and deliver consumer value in multiple ways.”

At least one Comic-Con watcher interpreted the announcement to mean that the group would franchise itself – create other Comic-Cons.

Writing on, Rich Johnston said, “San Diego Comic-Con may be the most well-known comic book convention in the world. But there’s only one.”

He said that during ReedPOPa for-profit businesshas great shows around the world, San Diego Comic-Con “remains pretty much where it is, with only WonderCon in Anaheim” as a spin-off from the organizers’ Comic-Con International and its new museum in Balboa Park.

“San Diego Comic-Con’s brand is big, but its actual physical footprint is small,” Johnston said.

Mayer, who has written extensively about nonprofits, says it’s hard to tell if Comic-Con is trying to franchise itself.

“Comic-Con could explore only licensing its name, other trademarks, and other intellectual properties for others to use for a fee, or it could consider establishing affiliates that could be considered like franchises legally (which would involve state franchise laws,” Mayer told Times of San Diego.

An IMG licensing agreement is OK under IRS nonprofit laws, Mayer says.

“A charity is permitted to hire a for-profit broker for a reasonable fee to explore the monetization of its name and other intellectual property, just as it is generally permitted to hire third parties to work on its behalf. name as long as the fees paid are reasonable,” he said via email.

A charity is allowed to license its intellectual property to others as long as it receives reasonable royalties in return — and those royalties are generally exempt from federal income tax, he said.

“The issues that arise with such deals tend not to be legal but public relations — for example, … an American Medical Association licensing deal that blew up,” he said.

In 1997, the American Medical Association signed an endorsement agreement with Sunbeam Corp., the maker of small home appliances. The AMA would receive significant royalties from Sunbeam in exchange for the use of its seal on Sunbeam’s home health care products.

But the deal to place the AMA’s emblem (a snake coiled on a stick) on health products in exchange for a percentage of sales has drawn opposition as a conflict of interest.

“Supporters argued, however, that the deal was a good way for the AMA to alleviate the association’s financial problems,” a Harvard Business School report said. “Furthermore, the agreement would benefit patients as it encouraged people to monitor their own health.”

However, the Sunbeam deal fell apart within days and AMA admitted “misjudgment”.

Notre Dame’s Mayer noted that most charities are reluctant to license their names and other intellectual property to others because of the potential public relations issues it can create.

“Often, a charity’s most valuable property is its name and reputation,” he said. “That said, many charities enter into licensing agreements, but are careful to limit these agreements to situations where their reputation will not be tarnished.”

Many private colleges and universities license the use of their names and logos to credit card companies who then market affinity credit cards to alumni, he said. But schools must approve mailings and other advertisements relating to affinity credit cards.

“What Comic-Con is exploring here seems to be more expansive than most charities consider, although Comic-Con hasn’t committed to anything yet,” Mayer said.

Mayer suspects the IMG deal is the result of Comic-Con’s financial losses during the pandemic.

“Licensing its name and other intellectual property is a legitimate way for a Comic-Con, as a charity, to earn additional revenue,” he said. “The biggest problem Comic-Con faces when it does this is making sure it doesn’t harm its brand by associating itself with shoddy products, retail destinations, or experiences. , inconsistent with its mission, or otherwise creating negative perceptions of Comic-Con.”

Many non-profit organizations have licensing agreements, including the American Heart Association (with its Heart-Check brand), American Red Cross, Boy Scouts of America, Girl Scouts of the USA, National FFA Organization and the National Wildlife Federation.

In IMG’s press release, Comic-Con spokesperson David Glanzer said SDCC began talks with IMG about six months ago.

“During these discussions, we realized that we could use our expertise to serve the ever-growing fan base in more ways, places and times than ever before.” He said. “In 2021, we launched the new Comic-Con Museum and now, with IMG’s expertise working with specialist partners to deliver authentic brand experiences, we can continue an exciting new phase for the Comic-Con brand. .”

Ricardo Yoselevitz, Senior Vice President of Licensing, said IMG will work with Comic-Con to “identify products and destinations that create new ways and avenues to engage this passionate community, while further strengthening the position of Comic-Con. Con as the main curator of this form of popular art and culture.”

He said, “Through its annual conventions, it’s clear that Comic-Con has become a powerful consumer brand without even trying.”

Updated 9 a.m. April 9, 2022

* An earlier version of this story said the letter was dated Thursday, based on information provided by the state attorney general’s office.

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