2006 Treasurer’s Annual Report
My job as your treasurer is to oversee a financial operations team that consists of the NGAUS Committee on Finance, the Special Building Committee as well as the association’s full-time financial department.
This team helps me to ensure we adequately balance operating expenses with incoming revenue while providing you, our members, with the best bang for your buck. I can assure you that your membership dollars have been well spent during my two terms as treasurer. Our team not only effectively manages the budget but it also safeguards assets and exercises internal controls and processes to ensure that our fidudary responsibilities to you are met.
I hope this brief financial overview reassures you that NGAUS and its affiliates continue to have responsible fiscal guidance and management. Should you desire a more detailed look at the NGAUS financial position, I invite you look at the financial statements on the “Member’s Only” section of the NGAUS Web site at www.ngaus.org.
2005 Financial Report
At the close of every year, the association’s financial records and statements undergo a strenuous, multilayered audit and review. The independent accounting firm of Argy, Wiltse and Robinson of McLean, Va., conducted the audit. The NGAUS Committee on Audit, chaired by Lt. Col. Darrell Loyd of Kansas, reviewed the 2005 audited financial statements and recommended their approval to the board of directors, which accepted and approved the audit. Below is a synopsis of the 2005 audited financial statements.
Consolidated Operations
As NGAUS treasurer, 1 not only oversee the financial affairs of the association, which includes the operation of The National Guard Memorial building, I also oversee financial affairs for NGAUS affiliates: the National Guard Educational Foundation (NGEF) and NGAUS Insurance Trust (NGAUS-IT).
Each entity has its own identity, operating budget and governing board. However, for financial reporting purposes and because of the relationship NGAUS shares with these entities, the operations are incorporated into one set of financial statements, which are referred to as “consolidated operations.”
The 2005 audited financial statements reflect a collective boost in revenue of $105,731 over 2004. This increase is mainly attributable to higher experience rating refunds, contributions, and building (e.g., tenant lease payments) and magazine advertising revenue. Although overall revenue increased, annual membership dues, investment earnings, conference booth sales and affinity/insurance royalties decreased.
Consolidated operating expenses increased $314,303 over 2004. Significant contributors to this increase included the funding of all staff positions, Web site redesign, special contributions to hurricane relief funds, investment fees, NGEF general operating and museum-related expenses, state affinity payouts, overdue computer modernization, the legislative action plan, magazine production and travel expenses.
NGAUS
The “Statement of Activities” on page 96 reflects the 2005 NGAUS audited financial data, inclusive of building operations. It shows a $3.15 million change in net assets, otherwise known as a net gain. The association’s 2005 revenue totaled $12.48 million, an increase of $101,000 over 2004. Significant revenue changes in 2005 included increased building, magazine advertising, corporate associate and insurance revenue netted against decreased annual membership dues, exhibit booth sales and overall investment earnings.
Association general operating expenses totaled $9.33 million in 2005, an increase of $341,000 when compared to 2004. Increased expenses were realized in Web site redesign, hurricane relief fund contributions, investment fees, magazine production, travel and salaries.
The NGAUS 2005 “Statement of Financial Position” on page 96, otherwise known as a balance sheet, reflects total assets and/or liabilities and net assets (equity) of $40.35 million-the worth of our building after depreciation represents a little more than half of this total.
Revenue and expenses from The National Guard Memorial building are included in the association’s figures above. The board of directors reappointed the Special Building Committee to work with the finance committee to keep the NGAUS leadership advised of building issues and to recommend ways to ensure its continued optimal performance as the foundation of NGAUS fiscal viability. A key facet of its job is ensuring building operations are funded only with building revenues.
Brig. Gen. Herman “Butch” Kervin of South Carolina, building committee chairman, reported at the July board meeting that the building and the land it occupies on Capitol Hill have a book value of $31.9 million, before depreciation, as reflected in the 2005 annual audit.
“When the market value for the building is calculated,” he said in his report, “the worth of the building escalates substantially to close to $58 million. With such a valuable asset, NGAUS is well positioned on its asset side to weather economic turbulence in the foreseeable future. As our real estate management experts from Donohoe (a private Washington, D.C. property-management firm that handles the building’s day-to-day management) will confirm, the building is performing as well as can be expected, and the prospects for continued solid performance in the D.C. market are very good.”
for the book mark: - Federal Deposit Insurance Corporation’s RECON - Brief Article
www2.fdic.gov/recon If you’re looking for economic data, this is the site for you. The Federal Deposit Insurance Corporation’s RECON: Regional Economic Conditions site - once the domain of bank examiners to help them track changes in local economies - is now available to the public. With this user-friendly site, just point and click to find tables and charts of data on employment, income, wages, and home sales, among other variables. Data is available for states, metro areas, and counties. For example, you can get information on Philadelphia’s total payroll and government employment growth for the past 20 years and compare it to the state of Pennsylvania and the U.S. You can use the drop-down menus to take a gander at graphs, tables, and maps depicting economic conditions and how they have changed over time. This site also computes location quotients and offers an annual state-level measure of economic diversity. An added attraction: A “shopping cart” feature lets you assemble a series of charts and tables, and then print these out at the end of your session.
www.tdcj.state.tx.us/statistics/stats-home.htm The Lone Star State’s Department of Criminal Justice Web site provides visitors with all sorts of stats on its criminals and incarceration rates. This includes data on death row inmates, probation, prisons, financial and health services, substance abuse, felony punishment, and risk management in the prison population. You can also click to view scheduled executions, and even gender and racial statistics for death row offenders. Curious about who’s on death row? Read the profiles of current and executed inmates, documenting their crimes and vital statistics.
www.africa.com If you’re looking for resources on all things African, this site is the mother lode. Need stats on Kenya’s population and employment rates? Search by country or continent to find information on this and much more, including daily news articles and colorful relief maps that you can click for a closer look into geography, climate, health, religion, history, business, government, sports, and travel and tourism. The site also provides a wealth of links to African embassies; political, conservation, and health organizations; business and education sites; and media, among others. As a bonus, Afri-facts provides quick and interesting tidbits on the continent and individual territories. For your memory bank, Africa forms nearly a quarter (22 percent) of the world’s total land area.
26th Annual Franchise 500
Maybe you’ve already read about it in the media, heard about others capitalizing on it or watched it happen firsthand–but will this finally be the year you get in on the franchising boom yourself? If so, you’re in the right place. Entrepreneur’s Franchise 500[R] is the world’s first, best and most comprehensive listing of franchises–or, as we like to think of it, a great place to start on your path toward franchise success.
To help you in this important quest, we’ve polished and perfected our ranking procedure over the past 26 years to come up with a top-secret formula for identifying the top franchise opportunities on the market. This year alone, we’ve spent countless hours of research and analysis for a singular purpose: to arm you with the best, most up-to-date franchise information possible.
Only franchise companies that submitted full Uniform Franchise Offering Circulars (UFOCs) or Alberta, Canada, disdosure documents were eligible to receive a listing in the magazine. And only those companies whose information Entrepreneur verified from these disclosure documents are eligible to be ranked–giving us the top 500 franchises.
Franchisors ranked in the Franchise 5000 are listed in red. Rankings are to the left of their names. Companies whose information was verified by Entrepreneur, but which were not ranked in the top 500, are listed in descending order under those that received a ranking in the top 500. Companies not eligible to be ranked–because they’re too small (franchises must have a minimum of 10 units, with at least one being a U.S.-based franchise), are not seeking new franchisees in the United States, or were in Chapter 11 at the time the rankings were compiled–are listed alphabetically.
We consider numerous factors in our ranking, some of which are weighed more heavily than others. The most important ones include financial strength and stability, growth rate, and size of the system. We also consider the number of years in business and length of time franchising, startup costs, litigation, percentage of terminations, and whether the company provides financing. Financial data was audited by an independent CPA firm. Every company with verifiable data receives a cumulative score. The franchises with the highest score become the Franchise 500[R].
These factors are objective, quantifiable measures of a franchise operation. We do not measure subjective elements such as franchisee satisfaction or management style, since these are judgments only you can make based on your own needs and experiences. All companies, regardless of size, are judged by the same criteria.
The franchisor’s growth over the past three years is shown by the number of both franchise and company-owned units for 2002, 2003 and 2004. Another key column lists the total startup costs necessary to open the franchise (including the initial franchise fee). This figure is affected by real estate and construction costs (if applicable), inventory, location, type of business and many other variables. For easy reference, the initial franchise fee is listed separately. Additional costs such as royalty fees, usually expressed as a percentage of monthly gross sales, are also listed separately. The remaining information is self-explanatory. The category “Where Registered” shows where a franchisor has either registered to sell, or plans to register this year, in states where it is required (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Wisconsin and Washington). “Available U.S. Regions” and “Seeking Foreign?” show where franchisors are planning to expand.
Some companies provide financing of their franchise fees or their total startup costs, or even offer equipment-leasing options for franchisees. The “Type of Financing”‘ category details the kind of financing provided by each franchise company. We’ve also noted whether the franchise can be operated from home, whether it offers a kiosk/ express option, and which companies are seeking multiple units only.
Remember that the Franchise 500[R] is not intended to endorse, advertise or recommend any particular franchise(s). It is solely a research tool you can use to compare franchise operations. Entrepreneur stresses that you should always conduct your own independent investigation before you invest money in a franchise. Read the UFOC and related materials carefully, get help from attorney and CPA in reviewing any legal documents, talk to as many existing (and former) franchisees as possible, and visit their outlets. The best way to protect yourself is to do your homework.
French state to pay Air France and insurance companies for dead hedgehog on runway
AIRLINE INDUSTRY INFORMATION-(C)1997-2005 M2 COMMUNICATIONS LTD
An administrative court has ordered the French state to pay EUR3.2m to Air France and five insurance companies for failure to clear a runway.
A dozen seagulls were pulled into an Air France aircraft’s turbine and made the aircraft skid to an emergency stop in March 1998. The seagulls were eating a dead hedgehog on the runway at Marseille’s airport.
The court ruled that the state-employed airport staff member who was responsible for clearing the runway of dead animals had failed to carry out his duties, The Associated Press reported.
Aircraft Carrier Personnel Mishap and Injury Rates during Deployment
This cohort study assessed all reported injuries experienced by the personnel of a U.S. Navy aircraft carrier during two consecutive 6-month deployments. These nondisease injury cases were collected by the ship’s Safety Department from ship’s Medical Department reports and showed 291 total injuries (3.05 injuries per 10,000 person-days) and 412 total injuries (4.39 injuries per 10,000 person-days) among 5,101 personnel during two cruises, slightly higher than the recordable mishap rate for general U.S. industry (which uses a different metric). Junior personnel experienced one-half of the mishaps but represented only 31% of the manpower. Slips, trips, and falls were the most common causes of accidents on the ship, similar to general industry. The incidence densities and causes reported should be similar to and representative of those for other large deck ships in the U.S. Navy and can be used in developing risk-reduction strategies for targeted populations, to meet the Secretary of Defense requirement to reduce injuries by 50% in the next 2 years.
Introduction
Aircraft carriers in the U.S. Navy are the largest warships in the world.1 With their embarked air wings, carriers are deployed worldwide to serve a variety of roles in peacetime and during global crises. Carriers are manned by >5,000 personnel, with the exact complement depending on the class of ship and specific employment. There are hundreds of details and jobs associated with operating this small city 24 hours per day, 7 days per week, at sea, such as food preparation, production of electricity, steam, and fresh water, propulsion and auxiliary systems, and operation and maintenance of all of the weapons, communications, navigation, and assorted systems, as well as the numerous complex aspects of flight operations.
In general U.S. industry, it is estimated that >6 million workers are injured each year, with insurance, health care, lost time, and worker replacement and retraining costs of $121 billion.2 The military has the potential for similar injuries but has a much smaller manpower pool to draw from and a longer logistics tail during deployments. Military training, recreational, and work injuries are the most significant source of loss of manpower, hospitalizations, and reduction of readiness.3
During the period of 1980-1993, active duty Navy personnel suffered 4,607 deaths attributable to unintentional injuries (59.4 deaths per 100,000 population), with an all-cause mortality total of 7,485 (96.5 deaths per 100,000 population). Unintentional injuries include disease, illness, suicide, homicide, deaths attributable to hostile action, and miscellaneous causes.4 As of October 3, 2003, there were 383,890 active duty personnel in the Navy, i.e., 55,317 officers and 328,573 enlisted personnel. There were also 185,550 Navy Department civilian employees and 152,464 Ready Reservists.5 The average age of the enlisted personnel in the Navy is 27 years (51% of all enlisted personnel and 44% of the total force are below this age). On average, officers are approximately one decade older (35 years of age) than enlisted personnel6 (D. Thao, unpublished data).
This is an analysis of a U.S. Navy aircraft carrier’s mishap and injury database covering two 6-month deployments to the same general operating areas, in 1999 and 2001. The purpose was to determine trends in injury types, causes, and basic demographic features. The information described here may assist U.S. Navy leaders and safety managers in developing risk-reduction strategies. The Secretary of Defense set an ambitious goal for all U.S. military services to reduce all-cause mishap and accident rates by 50% in the next 2 years.7 President George W. Bush followed up the Department of Defense goal with a similar goal for all U.S. federal agencies to reduce accidents and injuries by implementing the Safety, Health, and Return-to-Employment initiative. President Bush established four specific workplace goals, each of which is relevant to this research and discussion, namely, lower injury/illness rates, lower lost-time injury/illness rates, timely reporting of injuries/illnesses, and fewer lost days from work injuries and illnesses.8
After establishment of the Occupational Safety and Health Act of 1970, the U.S. military adopted many safety and injury prevention programs similar to those of the civilian workforce. Several U.S. presidential executive orders later broadened the requirements for the military to more fully comply with all aspects of the Occupational Safety and Health Act. The Navy Occupational Safety and Health Program does include numerous points that are unique to the Navy operational environment.9 The U.S. Naval Safety Center is charged with overall safety program oversight for the Navy.10 The Safety Center wrote specific program instructions for the Navy, including ashore (OPNAV5100.23F) and afloat (OPNAV5100.19D, CH-1) Navy Occupational Safety and Health Program manuals.9
New U.S. Naval Safety Center reporting criteria that are not reflected in this study went into effect in October 2002, requiring the reporting of all injuries that cause ?1 lost workdays.9 Until the start of 2003, most injuries were never reported or recorded off ship unless they met certain criteria, as defined by the Naval Safety Center. Direct comparison of the incidence densities of total injuries between ships is impossible even today, because of the lack of a central reporting repository that tracks all injuries, including non-lost time cases. In the past, direct comparisons were normally made only for reportable categories (e.g., class A mishap fatality rates).11
So, what’s the difference between aircraft time sharing and fractional ownership?
Most people are familiar with time sharing in the real estate context. You purchase an undivided interest in a condo in Maul that allows you to use it for a specific week or two out of the year. Real estate time sharing has become increasingly popular as an investment vehicle as recreation property values continue to appreciate. Additionally, as an owner of a real estate time share, you can trade your week or two in Maul for an equal amount at another location by participating in a time sharing swap program. Pretty cool-So does aircraft time sharing mean the same thing?
Actually, when people speak of buying a “time share” in an aircraft they are usually referring to what is commonly known as a fractional program, such as NetJets, CitationShares, Flex Jet or Flight Options. With a fractional program, you buy an undivided interest in an aircraft, typically a 1/16, 1/8 or 1/4 interest. The ownership of a fractional interest in an aircraft entitles the owner to a specified number of hours per year (based on 800 max hours for the airplane per year). So for example, if you buy a 1/16 interest that would entitle you to use your aircraft for 50 hours per year. With the purchase of a fractional interest in an aircraft, the owner pays an acquisition cost (which is approximate price for the aircraft multiplied by the fraction purchased) and gets added to the title on the aircraft at the FAA registry.
With up to 16 different owners per plane, what happens if everyone wants the plane on Thanksgiving? Luckily, the fractional companies provide and manage interchange programs that allow owners to trade their time on their aircraft into a common pool and to use a corresponding amount of time on available aircraft that are part of the interchange pool. In this way, unless every owner in every plane wants to use the aircraft on Thanksgiving most if not all of the owners will be accommodated.
As in the real estate time sharing context (where owners delegate maintenance, cleaning, utilities, etc. to the time sharing company), aircraft fractional owners delegate all aircraft management responsibilities to the fractional program operator. This means that the fractional program operator, NeLJets for example, provides flight crew management, trip scheduling, ground support, catering, ground transportation, and all maintenance on the aircraft. The owner’s responsibility is to pay a monthly management fee and an hourly occupied hourly fee for each hour that a program aircraft is used by the owner. Since a fractional interest is an owned asset, it can be depreciated it if it is used in the owner’s business. There are limitations to the deduction where there is personal use of the aircraft interest by the owner or his or her guests so careful tax planning in advance is imperative. Further, since buying a fractional interest in an aircraft is, for many people, a material transaction some due diligence on the fractional company as well as legal and tax planning for the ownership structure is in order, but that’s a whole other topic.
Now back to the “time sharing” issue–so, is there such an animal as aircraft time sharing? Actually, there is. But it’s nothing like real estate time sharing or fractional interest ownership of aircraft.
Time sharing an airplane is defined by the FAA as an “arrangement whereby a person leases his airplane with flight crew to another person, and no charge is made for the flights I conducted” other than reimbursement of certain permitted charges. The reason for the limitation on reimbursement is that the FAA considers any carriage of persons or property for compensation to be a commercial operation requiring the provider to be properly certificated by the FAA. This means that you can’t hire your friend’s aircraft with crew to fly you to Tahoe and pay a market-price hourly fee, unless your friend is a charter operator in possession of an FAA air carrier certificate. But what if your friend wants to let you use his plane with crew and you just reimburse him for fuel, catering and some other incidentals? That’s where time sharing comes in.
Recognizing that owners may want to provide transportation to their affiliates or friends and will want to be reimbursed for its use, the FAA permits an owner to lease out its aircraft, subject to certain limitations on aircraft size, citizenship and company structure, and to be reimbursed for an amount no greater than two times the fuel, oil, lubricants and other additives; plus any travel expenses of the crew, hangar and tie-down costs away from the aircraft’s base of operation, insurance obtained for the specific flight, landing fees and similar assessments, customs and similar fees, catering, ground transportation and flight planning and weather contract services. As long as the reimbursement is no greater than the above permitted amount (and provided that none of the limitations on aircraft size, citizenship and company structure apply), then the carriage qualifies for time sharing treatment as long as the parties enter into a proper time sharing agreement.
Capacity returns: with cargo insurance capacity now plentiful, buyers are beginning to look at the fine print in their contracts, from concealed-losses clauses to so-called delay coverage
It’s been four years since the aviation markets plunged, along with the World Trade Center on Sept. 11, 2001, and insurance capacity for air freight is available once again, for a reasonable price, of course. The mad scramble to find fair coverage is over. And that means actuaries and underwriters have a little more time on their hands to look more closely at agreements to make sure that–well–insurance carriers are carrying their load.
One area that is gaining significant attention is coverage for concealed losses or theft of cargo, says Patrick J. Murphy, managing director, New York Marine & Energy Division, at Marsh Inc.
Aircraft leasing company flying into rough skies
The legal and financial troubles that have engulfed American International Group Inc. have trickled down to the insurance giant’s prosperous Century City-based aircraft finance unit, the No. 1 player in aircraft leasing.
AIG’s International Lease Finance Corp. unit is expected to have a tough time navigating Wall Street’s fickle credit markets due to the accounting improprieties uncovered after the departure of AIG’s former chief executive, Maurice R. “Hank” Greenberg.
In the past few weeks, every major credit ratings agency has downgraded AIG, affecting some $26 billion of the company’s senior debt. Last month, Fitch Ratings put International Lease Finance on “ratings watch negative,” after AIG delayed the filing of its annual report, while Standard & Poor’s placed the aircraft lease company’s corporate credit and senior unsecured debt ratings on “CreditWatch negative,” citing AIG’s negative ratings.
In the short-term, the credit downgrades will make borrowing more expensive for International Lease Finance, which was founded in 1983 by Steven UdvarHazy, the son of Hungarian immigrants, and his two partners–the father-son team of Leslie Gonda, a Hungarian Holocaust survivor, and his son, Louis Gonda.
International Lease Finance, which owns a fleet of more than 800 commercial aircraft, has relied heavily on its relationship with AIG and the clout the insurer once brought to the capital markets. That alliance helped International Lease Finance leapfrog ahead of its closest competitor in revenues, General Electric Co.’s GE Capital Aviation Services (though the GE unit leases more planes worldwide). The two companies also have different strengths: International Lease Finance excels in the foreign market, while GE’s unit dominates the domestic sector.
While analysts and government regulators are only beginning to pick apart the complex interactions between AIG and its various financial and insurance units, questions have been raised about transactions between International Lease Finance and General Re Co., the reinsurance unit of Berkshire Hathaway, which is run by billionaire Warren Buffett.
The New York Times. citing an unidentified senior executive of AIG, reported last month that International Lease Finance purchased an insurance policy from General Re that had the effect of reducing International Lease Finance’s debt by hundreds of millions of dollars while also guaranteeing to General Re that it would not incur any losses on the insurance.
New York Attorney General Eliot Spitzer and other government regulators are looking closely at insurance transactions to see whether they transfer risk: if the seller of the insurance does not incur risk and the transaction simply masks a financial problem for the buyer, it is not considered a legitimate insurance deal.
Last week. the FBI said it has been looking for nearly a year into problems of accounting and other corporate fraud schemes at insurers.
International Lease Finance officials were traveling last week and were not available for comment. Officials from AIG and General Re did not return telephone calls for comment.
How Much Is Your Customer’s Trust Worth?
Identity theft, while once thought to be a minor issue, could dry up multichannel contact center sales. Companies must determine their data privacy and protection strategy to gain and retain customers’ trust. Without their customers’ trust, companies are bound to lose just about everything.
Who knew the crime of the century would be attacking the very same data companies have been working for years to collect, organize and use? Data thieves, that’s who. In fact, the theft of the very information that is the lifeline of contact centers and CRM operations is now more profitable than illegal drug trafficking, according to U.S. Treasury Adviser Valerie McNiven.
Could Identity Theft Dry Up E-commerce?
As a leader in your company’s contact center and (IRM practices, you’ll know that cyber crime has come front and center. While companies are strategizing how best to utilize customer data, thieves are learning new ways to steal it. Consumers are learning that the danger they are in is growing exponentially.
What is the impact of data theft to your company, your customers, their trust and subsequently your bottom line? It’s insurmountable, unless the need for data privacy and protection moves from the server room and the legal beagles to a corporate-wide customer strategy in which every employee is responsible for protecting customer data. Cîartner’s recent study about online security shows customer confidence is rapidly eroding. If customers’ confidence continues to erode, how many of them will be willing to buy on the Web, disclose personal information or offer credit card information to contact center agents when placing orders on the phone?
The Role Of The Media In Alerting Consumers
Why is identity theft a hot topic right now? Part of the reason is that criminals have gotten much better at data theft. Another key component is the increasing awareness on the part of consumers. Several years ago, when the Ponemon Institute interviewed consumers, most did not fear identity theft. They did not know how prevalent it was or the effects it could have on their lives should they fall victim. As such, they did not pay much attention to it or demand changes from companies.
However, this is all about to change. Identity theft stories appear almost daily on every major cable news program and newspaper. It’s even discussed in publications such as Parade Magazine and Popular Mechanics. Via this saturation coverage, the media is obliterating the naïveté of consumers, driving the heightened outrage of customers and the need for change.
In researching further, we found that part of the reason customers have not put more pressure on companies to do something is that they were under the impression that credit card theft, for example, would not affect them very much. I he facts, however, are astounding. Consider the following:
* According to the FTC study, nearly 10 million consumers were victimized by some form of identity theft in 2004 alone. That equals 19,178 people per day, 799 per hour and 13.3 per minute. Consumers have reportedly lost over $5 million, and businesses have lost an estimated $50 billion or more.
* Between 2001 and 2002, identity theft was about 11 to 20 percent, but increased by 80 percent in 2003, according to a Harris Interactive Study.
* Gartner reported that phishing scams have affected 2.4 million Americans, costing consumers, banks and merchants $929 million.
* The Secret Service and the FBI recently busted Shadowcrew.com, an online shopping bazaar for identity theft criminal organizations where thieves from all over the world bought and sold credit card numbers and identity documents.
* And while many credit card consumers thought that zero liability meant zero damage when their cards are stolen, all are quite surprised when they learn the truth. When a card is stolen, it can take years of paperwork and lost time and result in embarrassment, limited access to loans and the ability to buy property or qualify for a new job.
The Data Decision: To Protect Or Not Protect
With the most recent report of identity theft in which the VA’s office reportedly lost the social security, name and address information of 26.5 million veterans and as much as 80 percent of active military service members via a stolen laptop, we are again reminded of how vulnerable we are. The list of companies reporting data theft, including ChoicePoint, Bank of America, T-Mobile, DSW Shoes, LexisNexis and the University of California Berkeley, just keeps growing. Why? Because most companies, when building their databases, did not foresee the danger of data theft or this new type of crime. With each evolutionary step we take to improve business comes a parallel challenge. In this case, the challenge is protection.
The Emotional Impact Of Customer Data Theft
One of the most surprising findings of the California Public Interest Research Group and Privacy Rights Clearinghouse study, “Nowhere to Turn: Victims Speak Out on Identity Theft,” has to do with customer trust. While the financial impact of I.D. theft is certainly great, the worst is the emotional impact the situation creates. Stress, emotional trauma and damaged credit reputation were among the most difficult aspects to deal with. Victims reported feeling violated, helpless and angry. Consider if that is how most of your customers feel when they have trusted you with their data.
Marketers Express Hope for Sweeps, Even in Wake of AFE “Curtailing”
When confirmation came during DMA Circulation Day that American Family Enterprises has been reduced to a skeleton crew and some test programs with an uncertain future, few in attendance at the late-January event seemed surprised. (See page 17 for specifics on AFE’s status.)
In the wake of the prolonged sweepstakes crisis and AFE’s 1999 filing of Chapter 11, followed by its decision to get out of sweeps entirely last September, most consumer marketers seemed to agree that the news was sad but anticlimatic. The industry has had three years to absorb the shock of seeing the stampsheet mailings of AFE’s American Family Publishers and those from Publishers Clearing House reduced almost overnight from one of its biggest subscription sources to virtual trickles.
According to knowledgeable estimates, during the pre-crisis peak years of 1995 and 1996, American Family Publishers’ sweepstakes mailings produced about 20 million subscriptions per year.
The highly public crisis centering on the stampsheet agents also spurred major publishers to make large investments in non-sweeps package tests and shift to less profitable and renewable sources, in order to get out of sweeps as rapidly as possible: Time Inc. once relied heavily not only on its AEE division but on its Guaranteed & Bonded sweeps programs. Now, according to some sources, Time is the last Time Inc. title to use sweeps–and it, too, may drop the incentive. Sweepstakes pioneer Reader’s Digest and its sister titles have also worked overtime to significantly reduce dependence on sweeps business.
Yet, sweepstakes continue to show signs of life within the publishing industry, as well as within other types of direct marketing. Sweeps and fast-50 promotions continue to be used by quite a few smaller publishers (consultant Gordon Grossman counted 39 titles using them as of 1999) and by one or two larger ones, including American Express Publishing.
And now that the public furor has calmed down, some executives predict that sweeps will make a fairly rapid comeback. “It would be difficult to exaggerate how serious the sweepstakes crisis has been for circulation marketing,” said Ken Godshall, senior VP, partnership marketing and new business development, Time Inc. Consumer Marketing, during DMA Circulation Day. Noting the news from AFP, he also confirmed that “almost every Time Inc. magazine has withdrawn from sweepstakes marketing and returned to non-sweepstakes direct mall of one kind or another.” Nevertheless, he said, “I predict that sweeps will make a comeback in the next couple of years. It will be on a new footing. It will be fun and simple. It will almost certainly come from a company other than Time Inc.”
Like other consumer marketers, Godshall also points to a notable improvement in results of this year’s major PCH winter mailing as a heartening sign.
“I’ve been encouraged by PCH’s recent performance in the mail, and have high hopes that they will not only rebuild their direct mail business on a sounder footing, but connect it intelligently with the online presence they’ve developed in PCH.com,” he said.
As of early February, results were still coming in from the January mailing, which had about a dozen segments, according to PCH executive director, public relations Pete Pedersen. However, Pedersen confirmed that the mailing has yielded “significantly more subscriptions than we’d planned on.”
Pedersen acknowledged that current mailing volumes are still far smaller than in pre-crisis days. However, he points out that this year’s plan was based on last year’s plan, “and while weren’t able to reach those goals last year, we’re exceeding them this year.” Pedersen also noted that PCH significantly increased its prospect mailing in the second half of 2000 and is adding a mailing of “pretty good size” in this year’s first quarter.
“People assume that we’re happy to see what’s happened at AFE, but we’re not, because they were a strong competitor and it’s a negative for the publishing industry,” Pedersen said. “But it has no effect on our business. We continue to be committed to sweepstakes. We believe that sweepstakes are not only viable, but a strong marketing tool.” Pedersen says that improved creative and lists are helping results, but that he attributes the upswing “mainly to the absence of negative publicity.”
Veteran circulation executives also point out that sweepstakes have demonstrated their resiliency on other occasions in the past. While nothing ever approached the cataclysmic nature of the late-’90s crisis, stampsheet efforts have been periodically challenged almost since their inception.
Response dipped and recovered after each such challenge (including a PCH agreement in the early ’90s to adjust its creative to settle actions by the attorneys’ general of 14 states). The difference this time around, however, is not only the severity of the repercussions, but the industry’s apparent awareness that promotions can never again be allowed to edge over the line between salesmanship and misrepresentation.