April 9, 2022
Comedian-Con is susceptible to dropping its nonprofit standing, the state says, solely days after the enormous tourism draw signed up with IMG in a licensing deal amid a reported $8 million loss in COVID-stricken 2020.
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In a letter dated Friday,* California Lawyer Common Rob Bonta warned organizers of the San Diego Comic Convention that the 501(c)(3) nonprofit dangers dropping its state tax-exempt standing if they do not meet a deadline or get an IRS extension.
“A company that’s delinquent, suspended or revoked just isn’t in good standing and is prohibited from partaking in conduct for which registration is required, together with soliciting or disbursing charitable funds,” Bonta wrote.
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It wasn’t instantly clear what lack of nonprofit standing would imply to town or the super-popular occasion, whose annual attendance exceeded 130,000 a yr for the last decade earlier than 2020 and generated a whole lot of million of {dollars} for close by retailers and accommodations.
Comedian-Con, which was alleged to have filed IRS Form 990 by Dec. 31, did not instantly reply to requests for remark.
Neither did San Diego metropolis officers, tourism authorities or the San Diego Conference Heart — which hosts the following Comedian-Con in late July.
However final Nov. 18, Comedian-Con filed its annual registration renewal price report, which mentioned it had $3.97 million gross income in 2020, when the pandemic compelled suspension of Comedian-Con. Its gross bills that yr have been $11.98 million. (Its complete belongings have been $42.4 million.)
The letter to Comedian-Con mentioned it has till Might 15 to file a state type. Bonta mentioned that if IRS kinds aren’t despatched to the state Registry of Charitable Trusts inside 60 days of April 7 — or June 6 — two issues would occur:
On Saturday, a Notre Dame Regulation College professor identified that Bonta’s letter focuses on state penalties of failing to file a whole annual report with the his workplace, together with a replica of Comedian-Con’s IRS Type 990.
“These state penalties embody financial penalties and suspension of charity standing … and doable lack of state franchise tax exemption,” mentioned Lloyd Hitoshi Mayer, the authorized skilled.
Failing to file Type 990 with the IRS in a well timed vogue additionally has federal tax legislation penalties, he mentioned.
“Probably the most instant consequence is a monetary penalty — $100 per day, to a most of $50,000, for a company of Comedian-Con’s measurement. … Failure to file a required Type 990 for 3 years in a row causes automatic loss of federal income tax exemption, however Comedian-Con must miss its subsequent two filings for that to happen.”
Bonta’s letter arrived three days after agent-to-corporate-and-Hollywood-stars IMG introduced that it will work with Comedian-Con to “establish companions who can develop merchandise, retail locations and experiences for the tens of millions of followers not in a position to partake within the annual Comedian-Con conference expertise.”
In a statement, IMG’s president of licensing mentioned: “Over 50 years in the past, the Comedian-Con founders merely wished to attract consideration and recognition to the comics and different artwork kinds they liked. In doing so, they found a shared curiosity on this and associated Sci-Fi, fantasy, and style content material wider than they may have probably imagined.”
The official, Bruno Maglione, continued: “At present, that comedian tradition is mainstream leisure tradition thanks largely to Comedian-Con’s championing of this artwork type and its sensible creators, and Comedian-Con is the main curator model and information on this area, permitting it to safe client consideration and ship client worth in additional methods.”
A minimum of one Comedian-Con observer took the announcement to imply that the group would franchise itself — spin off different Comedian-Cons.
Writing on bleedingcool.com, Wealthy Johnston mentioned: “San Diego Comedian-Con stands out as the world’s greatest identified comedian guide conference. However there is just one of it.”
He mentioned that whereas ReedPOP, a for-profit venture, has large reveals across the globe, San Diego Comedian-Con “just about simply stays the place it’s, with solely WonderCon in Anaheim” as a spin-off from the organizers’ Comedian-Con Worldwide and its new museum in Balboa Park.
“San Diego Comedian-Con’s model is large, however its precise bodily footprint is small,” Johnston mentioned.
Mayer, who has written extensively on nonprofits, says it is arduous to inform whether or not Comedian-Con is attempting to franchise itself.
“Comedian-Con may very well be exploring solely licensing its identify, different logos and different mental property for others to make use of for a royalty price, or it may very well be exploring establishing associates that may be thought of franchises legally (which might implicate state franchise legal guidelines,” Mayer advised Occasions of San Diego.
An IMG licensing deal is OK beneath IRS nonprofit legal guidelines, Mayer says.
“A charity is allowed to rent a for-profit dealer for an affordable price to discover monetizing its identify and different mental property, the identical means it’s allowed typically to rent outdoors events to work on its behalf so long as any charges paid are cheap,” he mentioned by way of e-mail.
A charity is allowed to license its mental property to others so long as it receives cheap royalties in return — and people royalties are typically exempt from federal earnings tax, he mentioned.
“The problems that come up with such offers have a tendency to not be authorized however public relations — for instance,… a licensing deal by the American Medical Affiliation that blew up on them,” he mentioned.
In 1997, the American Medical Affiliation signed an endorsement deal with Sunbeam Corp., the maker of small dwelling home equipment. The AMA would obtain main royalties from Sunbeam in change for the usage of its seal on Sunbeam’s dwelling health-care merchandise.
However the deal to put the AMA’s emblem (a serpent coiled on a workers) on health-care merchandise in change for a proportion of gross sales sparked opposition as a battle of curiosity.
“Supporters argued, nevertheless, that the deal was a great way for the AMA to ease the affiliation’s monetary troubles,” mentioned a Harvard Enterprise College report. “Moreover, the deal could be helpful to sufferers as a result of it inspired folks to watch their very own well being.”
The Sunbeam deal fell aside inside days, nevertheless, and AMA admitted “errors in judgment.”
Notre Dame’s Mayer famous that the majority charities are cautious of licensing their names and different mental property to others due to the potential public relations points it might probably create.
“Usually a charity’s most useful property is its identify and associated status,” he mentioned. “That mentioned, many charities do enter into licensing offers however are cautious to restrict these offers to conditions the place their reputations won’t be harmed.”
Many personal faculties and universities license the usage of their names and logos to bank card firms that then market affinity bank cards to alums, he mentioned. However the colleges get to approve mailings and different promoting referring to the affinity bank cards.
“What Comedian-Con is exploring right here seems to be extra intensive than what most charities take into account, though Comedian-Con has not but dedicated to something,” Mayer mentioned.
Mayer suspects that the IMG deal is a results of Comedian-Con’s monetary losses throughout the pandemic.
“Licensing its identify and different mental property is a professional means for a Comedian-Con, as a charity, to acquire extra income,” he mentioned. “The most important challenge going through Comedian-Con when doing so is to make sure that it doesn’t damage its model by turning into related to merchandise, retail locations or experiences which are of poor high quality, inconsistent with its mission or in any other case create unfavorable perceptions of Comedian-Con.”
Many nonprofits have licensing offers, together with the American Coronary heart Affiliation (with its Coronary heart-Examine mark), the American Purple Cross, Boy Scouts of America, Woman Scouts of the USA, the Nationwide FFA Group, and the Nationwide Wildlife Federation.
Within the IMG information launch, Comedian-Con spokesman David Glanzer mentioned SDCC started talks with IMG round six months in the past.
“In the middle of these discussions, it hit dwelling to us that we may use our experience to serve the ever-growing fan group in additional methods, locations and instances than ever earlier than.” He mentioned. “In 2021, we launched into the brand new Comedian-Con Museum and now, with IMG’s experience working with specialist companions to ship genuine model experiences, we will pursue an thrilling new part for the Comedian-Con model.”
Ricardo Yoselevitz, senior VP of licensing, mentioned IMG would work with Comedian-Con to “establish merchandise and locations that create new methods and avenues to interact this passionate group, whereas additional reinforcing Comedian-Con’s place because the main curator of this type of standard artwork and tradition.”
He mentioned: “By way of its annual conventions, it is clear that Comedian-Con has turn into a robust client model with out even attempting.”
Up to date at 9 a.m. April 9, 2022
*An earlier model of this story mentioned the letter was dated Thursday, based mostly on info supplied by the state Lawyer Common’s Workplace.
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