A Word on the AAS Journals Finances
Kevin Marvel American Astronomical Society (AAS)
A post on social media recently made a claim that the AAS journals generated a 53% surplus in 2019 based on a reading of the AAS Statement of Activities (under the 2019 Financial Report section) published in the Society’s Annual Report. That would be quite spectacular if it were true, but it is not.
Statements of Activities are a small part of the annual audit of the AAS and are accompanied by many pages of supplementary tables, footnotes, and explanatory texts. Although they are a standard table published by many nonprofits, they rarely tell the complete story and simple math cannot be applied to them to determine profit and loss for a given area of activity. This short explanation is meant to shed some light on the actual financial situation for our journals.
First off, generally accepted accounting principles require us to tally certain revenues and expenses in certain ways in the Statement of Activities and in our accounting. In addition, we have traditionally accounted for certain revenues and expenses in particular ways in our financial processes and presentations, and we continue these for uniformity of comparison year to year.
For example, interest, dividends, and market value fluctuations of reserve funds specific to certain activities (e.g., the publication of our journals in perpetuity) are booked in the revenues line under publications. If we have an up year in the market, there is usually a large plus-up in the line; if a bad year, then a loss is included. In 2021 (all numbers I cite here are for fiscal year 2021), this accounted for an 8% increase relative to the base operating revenue generated from subscriptions and author charges for a total of ~$9 million. However, that 8% or just over $700,000 doesn’t leave the portfolio or get used for any other activities. It increases the overall reserves for the journals and grows our cushion against uncertainty for the future, including future market fluctuations, like the downward turn we are now experiencing.
Secondly, on the expense side of things, we only tally direct publishing expenses in the Journals line of the Statement of Activities. This includes the cost of our editorial team (just over $2 million a year), the cost of our peer review system, and the costs of publishing with the Institute of Physics Publishing, our publishing partner (just under $3.5 million) a year. However, we have three additional expenses that allow us to publish our journals, but they appear in other places in the Statement of Activities.
Just over $1.2 million of the General Programs line includes salaries for publishing, management and finance, and administration staff time directly supporting the journals. An additional ~$940,000 covers indirect costs, which we recover internally from all revenue-generating programs and activities. This amount represents the journals’ share of the indirect expenses total for the Society. This pays for the physical infrastructure of our offices, utility bills, staff time not directly supporting the journals, and general office support costs like postage, notepads, etc. This indirect or ‘overhead’ is something that all research organizations recover in one way or another from the revenue-generating activities they undertake.
Finally, we have to book depreciation and development expenses for the journals in the Other category along with other similar expenses for other Society activities. This amounts to about $130,000 for 2021.
Taken together and ignoring the investment income and market fluctuation we book in the Revenues line, the AAS journals had operating revenue of $8,287,096 for 2021 and total expenses of $7,955,789. This leaves us with a $331,307 surplus, or 4%, obviously far less than the 53% surplus claimed by the social media post. By the AAS Board policy, that amount is rolled into the journals’ reserve funds. When the reserve balances got too high in the opinion of the Board, we then adjusted or held fixed subscription rates and author charges for a year or two, sustaining losses while doing so, until such time as the Board feels we have appropriate reserves.
Some might argue that the indirect expenses and direct costs of non-publishing staff (e.g., Finance and Administration) are unnecessary and add cost to the operation of the journals, but without this support, the journals could not, in fact, operate at all. These costs fundamentally enable us to publish some of the greatest journals in our discipline on an ongoing basis and must be incurred.
Finally, the AAS purchased Sky & Telescope magazine from a bankruptcy auction in 2019. Unfortunately, up until bankruptcy paperwork was filed by the prior owners, subscriptions were being taken for the magazine and money was collected, including some multi-year subscriptions; and those funds did not transfer to the Society to pay for the cost of production and delivery of the subscriptions, the money vanished into bankruptcy. However, as we wanted to engender goodwill with the subscribers, we made the strategic decision, with the Board's approval, to fulfill those subscriptions anyway. This would lead automatically to several years of financial loss, which we made up with draws from the Society’s operating reserves, not the journals’ reserve funds. Thankfully, as we have brought the magazine into regular operation, subscription revenues have grown, the legacy subscriptions are retiring, and people are renewing. Within several years, the magazine should once again be at break-even or making a small surplus each year. We continue to seek economies of production where we can while bolstering the editorial team to continue to produce the high-quality content our readers have come to expect.
I don’t have any insight into the details of the finances of other journals, but I would hesitate to claim any deep knowledge of how they operate without a careful review of their audits, if available, and substantial conversation with their management team. Many organizations do use surpluses from their journals to support and supplement their other ongoing activities (e.g., meetings, outreach efforts, diversity programs, etc.), the AAS has not and has no plans to do so going forward. We do occasionally fund necessary strategic initiatives, which must be approved by the Board and cannot be for ongoing, recurring expenses such as salaries of permanent staff.
Delving into accounting statements must be undertaken carefully and summary tables always have a substantial story to tell beyond just the numbers presented. A full picture of the operation of the AAS — or any organization — requires reviewing in detail the full audit report, with its explanatory text and supplementary tables and information along with conversation with the finance and administration and management of the Society, which we are always happy to do.