SCDF seeking to break free from ‘vicious cycle of debt’

May 22, 2015

~ Structural change crucial, hard data now the focus ~

PHILIPSBURG--St. Maarten Carnival Development Foundation (SCDF) said on Thursday that the event threatens to become trapped in "a vicious cycle of debt" that must be broken with decisive business decisions and initiatives.

"After all the revelling and good times the general population had for what many have called the best Carnival ever, the festival is still a very expensive affair that continues to come up short financially," an SCDF press release read.

SCDF, a private foundation, had said for months that it planned on transitioning to a new business structure after Carnival 2015 to ensure the financial viability of St. Maarten's largest annual event, and it has begun moving to this new structure since the closing of Carnival 2015.

"The organisation of Carnival is not the issue. We believe everyone can attest to the fact that we have one of the best festivals in the Caribbean that is only getting bigger annually. But so are the expenses. And unless we change our approach business-wise, we will never get out of this cycle of constant debt."

The foundation said it was currently engaged in its "annual post-Carnival dance" of trying to raise additional funds to meet some financial obligations in the next month or so.

By the numbers

When talking about Carnival, SCDF said, people, from the highest levels in government to the everyday man on the street only look at the number of people who attend Carnival events and conclude that the foundation must be doing well.

"This however, presents an unrealistic image (financially) and does not take into consideration the expenses."

According to SCDF, Carnival 2015 carried an operating budget of approximately $700,000. In previous years, that number was well over $800,000.

To the dismay of Carnival stakeholders in certain areas of Carnival, SCDF managed to "cut some fat" from the 2015 budget, but still ensured that it could execute key activities.

"Judging from Carnival 2015 and its success you would never imagine that we were hurting, but we were and we are," the foundation explained.

Of that $700,000, government contributes just $195,000, entirely from the budget of the Ministry of Tourism, Economic Affairs, Transport and Telecommunication (TEATT), meant for marketing only.

"In other words, government subsidy is for one specific thing, nothing else. The SCDF has to raise the remaining $500,000 for its operations on its own through its private sponsors and gate revenue," SCDF continued. "And this is something we never manage to do.

"There is no way, unless we change our business approach drastically, that the foundation can raise half a million dollars every year with the type of expenses we have. No way. The consequence of this is we depend on the patience and cooperation of our major contractors and service providers to allow large outstanding debts to roll over year after year. This, of course, puts us in a disadvantageous position in terms of negotiating."

The expenses related to major service providers alone were, approximately: sound and light $70,000; security $50,000; garbage collection $40,000; cleaning services $30,000; coming up to almost $200,000.

"Then there are the other numerous expenses related to Carnival, including but not limited to prizes, contributions to musical bands, musical artists, pest control, rental of Festival village spaces, daily operations in the village ..., etc., that total some $250,000.

"There are so many other incidentals and other financial aspects mentioned here that we are obligated to fund. It is not an easy task," SCDF said.

On the income side, SCDF relies on corporate sponsors and gate revenue. For Carnival 2015, it had approximately $120,000 in corporate sponsorship. An additional $60,000 came from promoter fees, $50,000 from booth fees and about $40,000 from the gate revenue of its local shows.

Of the $500,000 the foundation would need to raise just to break even, it manages to raise approximately $300,000 on its own.

"Don't buy into for a minute some of these major companies on the island that proclaim they contribute thousands to Carnival on an annual basis. In some cases they contribute a mere $3,000 but expect you to sell your soul and give away Carnival so that they can exploit it for their bottom lines, totally under-valuing Carnival."

About 90 per cent of SCDF's major corporate sponsorship comes from TelEm, Princess Juliana International Airport SXM, International Liquors and Tobacco (ILTT), Motorworld and NAGICO. Everyone else contributes less than 10 per cent to the budget.

"Through some creative financial management, the foundation manages to end each Carnival with a debt of just under $100,000, but as time goes on and services become more expensive we cannot continue to allow this kind of debt to linger. Eventually, it will swallow us up and so will our creditors," SCDF said, adding that it sometimes almost had to beg its creditors not to stop their specific services while Carnival was going on, or to refrain from liens and the like.

"Also consider that in 2014, without explanation or notice, Government cut its subsidy from NAf. 500,000 to NAf. 350,000 two months before Carnival was scheduled to begin. What that did was leave us with a marketing hole that we had to fill with operational funds.

"Two months before Carnival, commitments were already made for the same marketing initiatives that Government was responsible for funding. By cutting the marketing subsidy, we had to compensate that year with funds meant for operational matters. That is a hole we are still fighting to get out of."

In addition, the Government foundation that runs Festival Village, signed an exclusive deal with TelEm, apparently with the blessings of Government, that effectively banned any and all of that company's competitors from any presence in the Village.

SCDF said, "Although TelEm has been a terrific main sponsor, that agreement which was signed, again without consultation of SCDF, cost the foundation approximately $70,000 in sponsorship because now no competitor of TelEm is allowed in the village. Without presence in the village, those companies saw no reason to contribute to Carnival, since the foundation could not assure some kind of return for their investment. We have yet to recoup those lost funds."

The plan

SCDF said it "can confidently talk about the under-valuing of Carnival, because it is finally armed with hard data. The observation that business as usual could not be tolerated anymore was made three years ago by current President Mike Granger, who understood that something had to be done, but did not have any statistical data to support any action."

SCDF said it had conducted market and economic analyses that now served as the premise for its new direction forward. "Now we have the economic data and subsequently a better way to value Carnival financially. Before it was simply guesswork and people used to laugh us into accepting pennies. Hard data wasn't the focus. It is the focus now."

SCDF has little faith in any sort of increase in Government subsidy after what has occurred over the past few years. Moreover, it doesn't view Government's contribution as dependable, as the country's constant budgetary constraints often put Carnival and a few other entities first on the chopping block. This, it was stressed, is not conducive to sound planning and budgeting.

Therefore, SCDF has embarked on an ambitious plan with its corporate partners that will generate the funds required to get Carnival out of the "vicious cycle of debt."

"We admit that before our corporate sponsors could have been approached with this ambitious plan we had to show them the strength and value of Carnival to their specific companies.

"Across the board, while we might not have been generating lots of income, some of our corporate sponsors were. The growth of Carnival even in the current financial state is evident to everyone. Look at what we manage to stage for the world. Imagine what we can do when we are not burdened financially.

"In our new approach there will be benefits to key Carnival stakeholders and financial self-reliance which we've strived for for years. There will also be changes to certain long-time business relationships that we've maintained amicably, but which are not structured in a beneficial way to the foundation.

"New revenue streams will be created which could be bolstered by the SCDF getting control of the Festival Village to host well-planned, year-round initiatives. But that is a whole other discussion."

SCDF said it was assuring Carnival-lovers that nothing would be done to hamper or harm the festival itself. "In fact, plenty will be done to enhance it, to instil more culture, bring back aspects that have been lost and further establish St. Maarten's Carnival as the best in the Northeastern Caribbean.

"To do that, however, financial changes are crucial. We believe it is past time that we stop talking about it, and simply do it."

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