Comic-Con is at risk of losing its nonprofit status, the state says, only days after the giant tourism draw signed up with IMG in a licensing deal amid a reported $8 million loss in COVID-stricken 2020.
In a letter dated Friday,* California Attorney General Rob Bonta warned organizers of the San Diego Comic Convention that the 501(c)(3) nonprofit risks losing its state tax-exempt status if they don’t meet a deadline or get an IRS extension.
“An organization that is delinquent, suspended or revoked is not in good standing and is prohibited from engaging in conduct for which registration is required, including soliciting or disbursing charitable funds,” Bonta wrote.
It wasn’t immediately clear what loss of nonprofit status would mean to the city or the super-popular event, whose annual attendance exceeded 130,000 a year for the decade before 2020 and generated hundreds of millions of dollars for nearby shops and hotels.
Comic-Con, which was supposed to have filed IRS Form 990 by Dec. 31, didn’t immediately respond to requests for comment.
Neither did San Diego city officials, tourism authorities or the San Diego Convention Center — which hosts the next Comic-Con in late July.
But last Nov. 18, Comic-Con filed its annual registration renewal fee report, which said it had $3.97 million gross revenue in 2020, when the pandemic forced suspension of Comic-Con. Its gross expenses that year were $11.98 million. (Its total assets were $42.4 million.)
The letter to Comic-Con said it has until May 15 to file a state form. Bonta said that if IRS forms aren’t sent to the state Registry of Charitable Trusts within 60 days of April 7 — or June 6 — two things would happen:
- His office would notify the California Franchise Tax Board to disallow Comic-Con’s tax exemption. (“The Franchise Tax Board may revoke the organization’s tax exempt status at which point the organization will be treated as a taxable corporation … and may be subject to the minimum tax penalty.”)
- Late fees would be imposed for each month or partial month for which reports were delinquent. “Directors, trustees, officers and return preparers responsible for failure to timely file these reports are also personally liable for payment of all late fees.”
On Saturday, a Notre Dame Law School professor pointed out that Bonta’s letter focuses on state consequences of failing to file a complete annual report with the his office, including a copy of Comic-Con’s IRS Form 990.
“Those state consequences include monetary penalties and suspension of charity status … and possible loss of state franchise tax exemption,” said Lloyd Hitoshi Mayer, the legal expert.
Failing to file Form 990 with the IRS in a timely fashion also has federal tax law consequences, he said.
“The most immediate consequence is a financial penalty — $100 per day, to a maximum of $50,000, for an organization of Comic-Con’s size. … Failure to file a required Form 990 for three years in a row causes automatic loss of federal income tax exemption, but Comic-Con would have to miss its next two filings for that to occur.”
Bonta’s letter arrived three days after agent-to-corporate-and-Hollywood-stars IMG announced that it would work with Comic-Con to “identify partners who can develop products, retail destinations and experiences for the millions of fans not able to partake in the annual Comic-Con convention experience.”
In a statement, IMG’s president of licensing said: “Over 50 years ago, the Comic-Con founders simply wanted to draw attention and recognition to the comics and other art forms they loved. In doing so, they discovered a shared interest in this and related Sci-Fi, fantasy, and genre content wider than they could have possibly imagined.”
The official, Bruno Maglione, continued: “Today, that comic culture is 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 brand and guide in this space, allowing it to secure consumer attention and deliver consumer value in more ways.”
At least one Comic-Con observer took the announcement to mean that the group would franchise itself — spin off other Comic-Cons.
Writing on bleedingcool.com, Rich Johnston said: “San Diego Comic-Con may be the world’s best known comic book convention. But there is only one of it.”
He said that while ReedPOP, a for-profit venture, has big shows around the globe, San Diego Comic-Con “pretty much just stays 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 on nonprofits, says it’s hard to tell whether Comic-Con is trying to franchise itself.
“Comic-Con could be exploring only licensing its name, other trademarks and other intellectual property for others to use for a royalty fee, or it could be exploring establishing affiliates that might be considered franchises legally (which would implicate state franchise laws,” Mayer told Times of San Diego.
An IMG licensing deal is OK under IRS nonprofit laws, Mayer says.
“A charity is allowed to hire a for-profit broker for a reasonable fee to explore monetizing its name and other intellectual property, the same way it is allowed generally to hire outside parties to work on its behalf as long as any 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,… a licensing deal by the American Medical Association that blew up on them,” he said.
In 1997, the American Medical Association signed an endorsement deal with Sunbeam Corp., the maker of small home appliances. The AMA would receive major 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 serpent coiled on a staff) on health-care products in exchange for a percentage of sales sparked opposition as a conflict of interest.
“Supporters argued, however, that the deal was a good way for the AMA to ease the association’s financial troubles,” said a Harvard Business School report. “Furthermore, the deal would be beneficial to patients because it encouraged people to monitor their own health.”
The Sunbeam deal fell apart within days, however, and AMA admitted “errors in judgment.”
Notre Dame’s Mayer noted that most charities are wary of licensing 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 related reputation,” he said. “That said, many charities do enter into licensing deals but are careful to limit those deals to situations where their reputations will not be harmed.”
Many private colleges and universities license the use of their names and logos to credit card companies that then market affinity credit cards to alums, he said. But the schools get to approve mailings and other advertising relating to the affinity credit cards.
“What Comic-Con is exploring here appears to be more extensive than what most charities consider, although Comic-Con has not yet committed to anything,” Mayer said.
Mayer suspects that the IMG deal is a 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 obtain additional revenue,” he said. “The biggest issue facing Comic-Con when doing so is to ensure that it does not hurt its brand by becoming associated with products, retail destinations or experiences that are of poor quality, inconsistent with its mission or otherwise create negative perceptions of Comic-Con.”
Many nonprofits have licensing deals, including the American Heart Association (with its Heart-Check mark), the American Red Cross, Boy Scouts of America, Girl Scouts of the USA, the National FFA Organization, and the National Wildlife Federation.
In the IMG news release, Comic-Con spokesman David Glanzer said SDCC began talks with IMG around six months ago.
“In the course of those discussions, it hit home to us that we could use our expertise to serve the ever-growing fan community in more ways, places and times than ever before.” He said. “In 2021, we embarked on the new Comic-Con Museum and now, with IMG’s expertise working with specialist partners to deliver authentic brand experiences, we can pursue an exciting new phase for the Comic-Con brand.”
Ricardo Yoselevitz, senior VP of licensing, said IMG would work with Comic-Con to “identify products and destinations that create new ways and avenues to engage this passionate community, while further reinforcing Comic-Con’s position as the leading 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 at 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.