RANT WITH US: What’s going on with the CSAC & Why it’s Important

In this post I will summarize and explain the situation going on with the Department of Consumer Affairs (DCA) and the California State Athletic Commission (CSAC). It will not be sexy, it will not be exciting but it is a very important story that not enough people are talking about in California. A very detailed explanation of the situation and back story can be found on FightOpinion.com written by Zach Arnold. I am attempting to summarize the points and bring clarity but if you want details and screen grabs read the articles on his site. All materials related to CSAC meets can be found at their website http://www.dca.ca.gov/csac/about_us/meetings/index.shtml.

In California there is the CSAC, which is comprised of a total of 7 commissioners with John Frierson being the chair of the commission, Commissioner Frierson has ties deep political ties which could explain how he ended up in the position he’s at. There is also an Executive Officer, George Dodd, who is not actually on the commission itself but merely an advisor to the commission, handles the day to day business and who works with the DCA in that regard. The CSAC reports directly to the DCA as do many other professional organizations. The DCA is supposed to be the state’s governmental consumer watchdog group, to make sure certain professions in the state are regulated and that proper care is given to how these professionals receive their licenses and maintain these licenses. The DCA is a product of the state government and is filled with political appointees of the governor. Here are the mission statements for both organizations: Mission Statement – California State Athletic Commission The California State Athletic Commission is dedicated to the health, safety and welfare of participants in regulated competitive sporting events, through ethical and professional service. Mission Statement – Department of Consumer Affairs The Department of Consumer Affairs (DCA) is responsible for promoting and protecting the interests of millions of California consumers by serving as a guardian and advocate for their health, safety, and economic well-being and by promoting legal and ethical standards of professional conduct. The Department helps to promote good business practices and to ensure that California’s consumers receive quality services by establishing minimal competency standards for more than 240 classifications involving approximately 2.5 million professionals. The Department is also an important advocate on consumer and business issues. In general, the DCA’s Boards and Bureaus provide exams and licensing, enforcement, complaint mediation, and education for consumers. There are currently 23 boards, a commission, and 3 committees under the broad authority of the DCA. Any combat sports happening in California will be under the jurisdiction of the CSAC. That means all events are subject to the rules and regulations of the commission EXCEPT for one caveat, tribal land is not considered part of California and therefore any events on tribal grounds are not subject to oversight of the commission.

So what is going on with the CSAC and why is it important?

At the June 4, 2012 committee meeting the commissioners got visibly and audibly blindsided by an insolvency letter handed down from the DCA. Essentially up to this point all reports from the DCA and Executive Officer (EO) Dodd were that the commission was doing well and that there were no financial issues to report. On May 31, 2012, The Thursday before the next CSAC meeting, the DCA sent an insolvency letter to EO Dodd CCing the rest of the commissioners basically saying that the fund (the commissions bank account) could become insolvent (broke) as early as June of this fiscal year. Well this completely caught all the commissioners off guard and left them questioning how in the 2 months between meetings they could have gone from good reports from the DCA to an insolvency letter. The answer to this is simple, when preparing the budgets the DCA along with EO Dodd uses projections and they had projected that revenues would stay about the same. Well that did not happen and in fact revenues went from the $1.9m level down to $1.2m level but the projected expenses remained constant, thus creating this overspending issues.

During the meeting EO Dodd took a verbal lashing from the commissioners and at one point was asked what his plan was to cut spending and fix the issue. His response was that maybe they go from having 6-7 inspectors at each event back down to 3 because the commission only needs one inspector on each corner and one looking over the back area. Well later during one of the public comment portions of the meetings we got to hear directly from one of the inspectors and he basically shot this down explaining that inspectors are required to review hand wraps, post fight drug testing, post fight medical issues, licensing issues plus many other odd clerical jobs. A clear way to look at this is if 3 inspectors are working an event and one is dealing with medical paperwork because a guy got knocked out and another is dealing with a fighter who is having trouble urinating in a cup after the fight for a drug test, there will not be enough supervision for the next fight. It is just unreasonable to think that 3 people can do all the work that the commission expects these inspectors to do and still maintain a high level of service.

The comment from the inspector on hand tabled the conversation and was not brought up again until the end of the meeting where one of the commissioners said “It was brought to my attention that the DCA reported at our last meeting that we were doing fine and now we are caught short.” He then later followed up with “You’re the boss, you took the hit today, but you know somebody at the least meeting gave us a report that things were doing very well…” said to EO Dodd which is actually a preview of what was to come. This was the first sign that the commissioners understand that while EO Dodd is in charge he is overseen by the DCA and that they had all the same information he had and they deserved blame here too.

The CSAC was created to be a self supporting regulating board and by law the fund cannot go negative as they do not receive any funding from the government nor are they supported in any portions of the budget for the state. Should the fund balance go to zero the commission would cease business and would disband. This would then leave no regulating board to review combat sports and we would not see any more regulated events. If the events weren’t regulated there would no longer be big shows in the state of California, in fact you would only see events on tribal land. So the CSAC becoming insolvent is a pretty big deal.

How exactly did the commission get to this point though?

This is where FightOpinion.com’s Zach Arnold goes into great detail and analyzes the data pretty thoroughly but let’s see if we can summarize it. One of the biggest things to note is that over the years the way the DCA has reported the CSAC fund to the commissioners has changed pretty dramatically. Go back to fiscal year (FY) 2009 (California’s year ends in June) and look at how the DCA prepared the financial data you can see that there is a lot of detail in the numbers, you see not only the main accounts but you see the sub-accounts underneath. This is important because since then the only information that was reported is the main accounts, all details have been stricken out which would make it difficult for the commissioners to understand and find issues with the numbers or even plan for the future.

There are two areas that need to be focused on in budget reports, the inspector costs and the in-state travel. The focus should be on these areas because they are the normal places for fraud and because insider information was leaked to Zach Arnold, as he details on his website. Basically what is being claimed is that the DCA is pushing their favored inspectors, those whom also work with them, rather than some of the other inspectors who are not also government employees. This is important because government employees are contracted to get certain benefits and therefore end up costing the CSAC more money to employ. An outside inspector would be treated as an independent contractor and would just get paid his hourly rate for his travel time and hours worked, no travel costs, per diems, lodging, food, etc, just the hourly rate. Whereas a governmental employee who also works as an inspector would get travel expenses, lodging, per diem, and food, PLUS because they are a full time employee of the state their hours worked as an inspector would be considered overtime so they get time and half for their hours worked, which includes the travel time. Also their pay rate is based on the higher of their government hourly rate or the hourly rate of an inspector. Essentially if the inspector is a government employee this is a sweet deal and since they already have contact with DCA officials, who are more likely to get the inspector jobs? It is clear how the cost of an inspector can go up quickly when certain inspectors are chosen.

The other issue that stems from this is a combination of the travel and inspector costs issues, is the choice of inspectors to be used based on geographical location. Let’s say we have 16 qualified inspectors, broken up evenly into 4 categories, Northern California governmental and nongovernmental employees and Southern California governmental and nongovernmental employees. Let’s say for this month there are 2 planned shows where the commission needs 8 inspectors, one show is in Southern CA and the other one is in Northern CA the next week, logically you would allocate the 8 Northern CA inspectors to the Northern show and the 8 Southern CA inspectors to the Southern show irrelevant of their governmental employment status. However this is not the case. In most circumstances it has been determined that the DCA through EO Dodd will favor using the governmental employees and covering the costs to have them travel up and down the state at a higher cost. This is one of the points in a lawsuit filed against the DCA by one of their inspectors, that they are using favoritism in the choice of inspectors covering shows rather than using logical geographical location.

There is clearly an Overspending problem in the CSAC so who is going
to take the fall?

Well this was clearly answered when the CSAC set a teleconference which quickly turned into more of a meeting on June 26, 2012. Pull down the agenda for this meeting it was supposed to a quick budget update from the DCA and then a closed door session to discuss the “Continued Employment of the Executive Officer”. It was reported that EO Dodd, in anticipation of this meeting, had already cleared out his desk and would be stepping down. Well this turned out not to be the case. Numerous promoters and supporters turned out to the meeting in South El Monte to show support for EO Dodd and while the DCA had apparently thrown all their weight on the CSAC to fire EO Dodd the commission went against their recommendations and put him on probation instead. As was reported by FightOpinion.com the DCA sent 12 representatives to the meeting to lean on the commissioners and ensure that EO Dodd was fired at an estimated travel cost of $7,500. The DCA wanted EO Dodd to take the fall and make a clean break, they even had a replacement waiting but the CSAC had other ideas so now it will be interesting to see how this plays out for the next 3 months with EO Dodd on probation and having to work with the DCA who just tried to get him fired.

So where does that leave us now?

There is still an overspending issue in the CSAC and so far we have yet to hear reasonable methods to solve this problem with real numbers included. In the materials released in connection with the June 4, 2012 meeting there was a budget for FY 2013 included which included the planned spending cuts. This budget is a complete joke because there is clearly no intent to follow through nor reasonable attention paid to how the commission could actually operate under the circumstances outlined. The first part of the plan has already been enacted, the commission has laid off 5 staff members which they say will save them close to $300,000 in salaries and benefits. The next part of the plan is to cap the costs of inspectors from $299,279 to no more than $150,000 mainly by only having 3 inspectors at each show rather then 7, cutting down travel costs from $287,098 to no more than $100,000, cutting the general expenses from $41,435 to $5,000 and they are putting a cap on the attorney general costs from $95,697 to $30,000. This all sounds ok on paper because it balances the budget but we must ask ourselves if it seems reasonable given past spending and if these cuts will diminish the commission’s ability to function properly. This seems to be more of standard government political budgeting then real budgeting. It is not working and the DCA and EO Dodd need to sit down and work out some real numbers and come up with a real plan, which must include a method of raising revenues as well as spending cuts.

Look at the insolvency letter in the June 26, 2012 meeting materials there are actually a couple of legitimate suggestions that the DCA/Dodd are supposedly discussing. “Limiting travel by Athletic Inspectors at events to regions outside of their headquarters” is exactly what should be done, the question is will the DCA and EO Dodd actually follow through and stop giving their buddies kickbacks? The other two suggestions we should look at are “Developing a minimum gate tax, in regulations, to ensure that the Commission is not expending more money than is being collected in revenue while regulating events” and “Performing a strict count out of ticket sales and attendance at the conclusion of each event and requiring proper documentation from promoters regarding ticket sales as well as count of complimentary tickets to ensure proper revenue collection”. Why aren’t these already in place? A minimum gate tax sounds like a smart idea if implemented correctly. The key here is to make sure that the promotion is actually covering the expenses of the event. CSAC is supposed to be a self-supporting entity anyways. This means the events it regulates should bring in enough revenue to cover its costs. This clearly isn’t happening here, so the commission needs to start billing back the promoters for the actual costs. Along with cutting costs it is imperative that the commission bring in adequate revenues as well so that the level of service provided is not diminished. Some people will get mad about a tax but the fact is that it is really just taking the current “tax” and adjusting it such that enough revenue is brought in to cover the costs.

This is not the sexy story that we are normally used to hearing in the media but it is a very important story, especially for those of us in California and the local promotions here. The Zuffa entities, the UFC and Strikeforce, can survive without putting on shows in California but what about the local promotions, can they afford to move their entire businesses to another state? Can they afford to go to tribal land? If promoters do move to tribal land, who looks after fighter safety because in the end isn’t this what really matters most when we talk about the commissions and its purpose?

@tapout2taxes

Rumble young man Rumble