What can we learn from the near death of the Texas Observer?

I don’t come this week either to praise the Observer or to bury it, but rather to try to learn from what appears to have happened there. ... Here are some of the lessons I think we need to heed from the cases of the Observer and others.”

Richard J. Tofel

Republished with permission, from https://dicktofel.substack.com/

Last month, the Texas Observer, a nonprofit magazine with a distinguished history, most notably including the work of Molly Ivins and Ronnie Dugger, had a near-death experience. Its board suspended publication before reversing itself in the face of a GoFundMe campaign.

Along the way, the board chair and the chief fundraiser resigned, and it was revealed that the magazine had essentially spent its entire reserve and apparently misspent its largest grant, while the GoFundMe, even at nearly $350,000, brought in only enough to cover about 12 weeks of spending — assuming the Observer ends its print edition and lays off three of its 17 staff as part of a 30% budget cut.

I don’t come this week either to praise the Observer or to bury it, but rather to try to learn from what appears to have happened there. I want to do this because the Observer is far from unique. It is not, for instance, the only well-known news nonprofit currently hanging by a thread, while others have recently failed. Given the precarious macroeconomic outlook, it’s easy to imagine that more nonprofits are or will soon be on the brink.

Here are some of the lessons I think we need to heed from the cases of the Observer and others:

Nonprofits are sustainable, but only if managed for that

This sort of management is the responsibility of both the staff and the board. Both are responsible when a company fails. At the Observer, effective management was no doubt made much more difficult by turmoil that included churning through six top editors, temporary and permanent, over the last four years. A shared responsibility for management for sustainability requires, for instance, that information on finances must be regularly, fully and candidly shared. And then the information requires people’s attention.

Previous understandings may need to be re-visited — that’s part of how all organizations evolve. The Observer staff was likely correct that the magazine needed to adapt to a changing audience. (Texas was 61% non-Hispanic white in 1970; now that number is 40%.) But by the same token, a publishing company that is bleeding revenue probably can no longer afford an historical aversion to advertising and sponsorships.

Reserve funds are for emergencies, not business as usual

It’s best practice, when feasible, for a nonprofit to have at least six months of spending, and ideally a year, in a liquid reserve. The big question that arises if you can amass such a fund is when and on what to spend it.

The answer is that the reserve is there for emergencies. A recession is the classic example; history shows that these occur from time to time, but are relatively short. Spending down part of a reserve to get through such a downturn without layoffs (or at least too many of them) can make great sense. (But if you got PPP loans in 2020 and 2021 and saw them forgiven, those funds should have been exhausted before invading a reserve, or used to replenish the reserve if possible.)

Alternatively, the emergency may be organizational, rather than societal. A newsroom may be dealing with costly departures or bad publicity or some other transitory issue. Or it may have an opportunity to make a capital or other expenditure that will trigger new growth. But secular decline in revenues or audience or both is not an emergency — it’s a strategic problem — and trying to deal with it by spending your reserve only delays the day of reckoning, and makes things worse later. In the Observer’s case, the Texas Tribune reports, 90% of the available reserve was spent over the last two years, ahead of last month’s crisis.

In the long run, a fundraising board is essential

After more than 18 months in my new incarnation as a consultant, teacher and columnist, I feel even more strongly than I did when I was a nonprofit news manager that — absent some huge endowment — there is simply no substitute for a fundraising board. Large numbers of small gifts are wonderful, and heartwarming, and affirm the mission, but small numbers of large gifts are also critical, and actually make up a greater part of total revenues for nearly all successful nonprofits.

I understand that not all newsrooms can muster a board with this focus at the outset, but it seems to me an essential objective as soon as feasible. Board members who are contributing meaningful amounts of money seem to pay closer attention to how that money is being spent, which is an indispensable board function. And board contributors are generally both more willing and more able to help raise other revenues.

It also seems increasingly apparent that the converse of a fundraising board is one dominated by journalists and former journalists, very few of whom are in a position to make large gifts. Make no mistake: some of my best friends are reporters and editors, and every board responsible for a newsroom should have sufficient knowledge and experience to recognize and safeguard journalistic independence and integrity. But this should require just one or two current or even former news professionals (plus a group willing to listen to them).

With respect, I just don’t agree with the current editor of the Observer that boards consisting mostly of journalists can solve nonprofits’ problems. Nor do I think that analogizing the business of nonprofit journalism to that of organized labor makes sense. Yes, both are causes, and movements. But labor unions are funded mostly by their own workers — and thus need lots of them paying dues, often amalgamating the workers of many companies. News nonprofits are often small, fiercely independent, and need to pay their workers living wages, ideally competitive wages as well.

Mergers may be an answer, but at least one party needs to be acting from strength

No merger that I know of has been suggested in the case of the Observer, but this does seem to be a solution being mentioned more and more often in response to newsroom revenue challenges. In general, as I’ve said before, I think that’s a good thing. But successful mergers will rarely if ever flow from mutual weakness. At least one of the parties needs to be proceeding from some sort of strength. As you will recall from elementary school, negative one plus negative one does not equal two.

The possible loss of a publication like the Observer is a tragic story. It can also be a moment for reflection, and learning. We can all be heartened that the Observer’s readers stepped up with some interim relief when the magazine was threatened. But we would do even better if we took stock of the reasons that the Observer was endangered in the first place — and applied them elsewhere before it is too late.