There was a recent article on Bloomberg News suggesting that the next financial crisis could start in Silicon Valley and “Fintech”. Fintech is a broad term, but touches all races who use online registration with the movement of over $1 Billion per year thru the 100 or so race registration systems. Here are some of the key thoughts from the article:
The fintech revolution has created an environment ripe for instability and disruption. It does so in three ways. First, fintech companies are more vulnerable to rapid, adverse shocks than typical Wall Street banks. Because they’re small and undiversified, they can easily go under when they hit a blip in the market. Second, fintech companies are more difficult to monitor than conventional financial firms. Third, fintech has not developed the set of unwritten norms and expectations that guide more traditional financial institutions.
Many race registrations are happening by transactions going to the race registration company, and then payments are made from that company to the race. This is risky since the company may use that cash and delay payments of the money to races to pay their own salaries and other costs.
This is not a problem when a company is growing, as most race registration companies have over the past 5 years between shifts away from legacy vendors and the general increase in the number of races and registrations. There is more money coming in the door each day, so there is plenty of money to pay past races.
However, in a shrinking market, this can be a death spiral. Fewer races and fewer registrations means less cash coming in. This leads to downsizing of staff and more delayed payments to customers, especially if the company was funding operations with the “float” of race funds (the two weeks it takes many companies to pay out).
And, we are in a shrinking market as reported in our recent Registration Market Analysis. The number of races on RunningintheUSA.com fell by 4%. And the number of races on all vendors (except RunSignUp) we could get a hard count for the number of races in October fell from last year (ask your registration company for accurate numbers – these are what we could find by searching public calendars):
Races should be asking their vendors for financial statements and details on how their race funds are held, in addition to race and registration growth. RunSignUp is transparent on this issue, and has made large investments in becoming a Payment Facilitator. This means each race (and charity) becomes their own merchant with their own bank account. RunSignUp can not even use your money if we wanted to! The financial statement you want to ask for is their Current Ratio – in simple terms how much money the registration company has in the bank vs. what they owe races.
There are already signs of a shrinking of the number of registration vendors. The recent announcement of RaceIt being shuttered in November took many by surprise. They will likely not be the last – the margins and economics in this business are difficult, especially when combined with the need to stay on the cutting edge of technology. We do not mean to be fear-mongers, but races need to protect themselves against getting caught in the type of credit squeeze discussed in the Bloomberg article.