The USO’s Show Must Go On

Sloan Gibson seeks to build a more sustainable business model at the USO.
Alix StuartJuly 2, 2010

For nearly 70 years, the United Service Organizations (USO) has entertained the troops, with shows featuring celebrities from Bob Hope and Marilyn Monroe to Robin Williams and Scarlett Johansson. But the congressionally chartered nonprofit supports the U.S. military in many other ways. Today there are 140 USO centers located around the world, in airports and war zones and near military bases, offering Internet access and prepaid phone cards for some 1.4 million active-duty soldiers and their families, as well as 1.2 million National Guard and Reserve members and their families.

Other morale-boosting efforts by the USO include customized care packages, housing assistance, and support groups, as well as a new program to help wounded soldiers get the appropriate closure from their experience after they return home from battle.

Although its services have changed with the times, the USO continues to rely on old-fashioned funding. With few large, consistent donors or corporate sponsors, the organization depends on one-off direct-response mailings for most of its cash revenues, leading to a lumpy and unpredictable revenue stream. Aiming to stabilize and diversify that revenue base is a former CFO of AmSouth Bank, Sloan Gibson, who is now president and CEO of the USO.

“Whether it’s the grandmother who gives us $35 a year or whether it’s Procter & Gamble, we’re about sustained relationships,” says Gibson. “We’re not interested in doing transactions. If the only reason people give money to us is because of the war, then when the war ends, what happens?”

Gibson, who attended West Point and spent several years in the Army before going into banking, took the helm of the USO in September 2008. One of his goals, he told CFO in a recent interview, is to grow the organization’s revenues from its current $250 million to $1 billion. The following is an edited transcript of the interview.

How do your years as a CFO shape the way you think about the USO?

When I first interviewed for this job, one of the things I heard repeatedly from the search committee was that they were looking for someone to help build a sustainable organization. If you look at the USO over its history, what you will find is perfect correlation between the USO’s financial welfare and the cycle of war and peace. So part of what we’re working on is building a sustainable business model to make sure that for decades and decades to come, the USO is there to support our troops and families, whether we’re at war or at peace.

Sloan Gibson

The USO’s total revenue last year was about $250 million. How do you make money, and what else counts as revenue for you?

If you look at the audited financial statements, the biggest [revenue] category is in-kind donations, and there are two very large components there. One is $70 million or more of donated media value. We don’t really pay for advertising, so if you ever see a USO ad on TV, it’s not something we paid to run, but we’re required to book the imputed revenue that’s associated with that. Another very large chunk there is the value of the celebrities who entertain the troops for us, which in 2009 was about $50 million.

We also have 1.7 million active donors, mostly from direct-response mail and a little bit online. Our mail revenue in 2009 was [about $50 million], up double digits over 2008. Online [contributions] were just under $5 million. We want to build online to be as big as mail: it attracts a different demographic and gives you a different average gift size. It also enables you to communicate more robustly with your donors.

Do you have a base of large donors you can rely on?

For 2009, major gifts and planned giving, including corporate giving, [totaled] about $15 million. I want to build up each of those camps. For example, a year ago, we didn’t have a major-gifts operation. So we might [ask] a donor for $100, and they might send us a check for $5,000, but all they would get from us would be an acknowledgement to give to the IRS. Now when that happens, we’ve got folks all over the country who reach out, thank that person for their donation, and look to build a relationship to see if we can turn it into a $50,000 or a $500,000 donation over an extended period of time.

On the corporate side, we’ve had some good corporate partners for a long time, but we weren’t out looking for any new business. We’ve turned that around 180 degrees. Now, we’re adding corporate donors almost every week. Procter & Gamble is one of our new worldwide strategy partners.

What are some of the ways that corporations partner with the USO?

Straight, outright philanthropy is great; we love it when somebody writes us a check. But we also work with corporations on cause-marketing efforts. For example, last year we did a joint promotion with Gillette, a good Procter & Gamble brand, inside the military’s commissary system. They sold a lot more razors, and we got a very nice contribution out of it. Coca-Cola [did a similar promotion] in launching its new Vault drink, [but in stores] all over the country.

[Donations in-kind are also helpful.] For example, last year we were getting ready to write a check for over $1 million because we needed phone cards to support the holiday season, so troops could call home. I wrote to the CEO of AT&T and [asked him] to please give us those cards, and they did.

Then there are some companies out there, like Lockheed Martin and Northrop Grumman, whose employees will volunteer to stuff care packages for the troops. So there are lots of ways that we engage corporations in the mission of supporting troops and families.

Do you rely much on an investment portfolio?

Over the past several years we’ve been able to set aside some funds, and in fact we just moved about $50 million over into a foundation. [We will] make sure that those funds only get called on if the organization is in extremes. It would be a disaster if I ever had to go to our board and say we need to draw on those funds. But it’s part of creating that sustainable business model.

What does the USO’s growth look like, both recently and going forward?

From 2000 to 2009, the USO’s total revenue support went from $37.7 million to $253 million. My hope is that we see more growth in the next 10 years, whether we’re in times of war or peace. I have this idea in the back of my mind about being a billion-dollar organization. When I threw that number out to folks as part of a visioning exercise, I asked Phil [USO CFO Philip Parisi] to calculate what our [compound annual growth rate] had been in top-line revenue and support for the past 10 years. I figured we’d have to grow at something like a 15% compound annual growth rate to get to $1 billion. Phil looked back and said, “We’ve been growing at 23%.” And I said, “Well, I guess we’d better slow down!”

What’s next for the USO?

We are about to launch a $100 million campaign to fund a long-term sustained program to support wounded warriors and their families. We’re going to build two spectacular state-of-the-art USO centers at the major medical facilities here in the Washington, D.C., area. And there are many programs we’re already pursuing and implementing beyond that [to] support wounded warriors and their families at various points, from the time they return from the battlefield until the time they are going back to their civilian communities ready for a happy and fulfilling life. We want to be in a position where we can help meet their most urgent needs all along the way.