James Doti: The success of the OC Marathon is capitalism in action

Apr 08, 2023

In early May, five of my econometric students joined me in running the half marathon at the 19th SDCCU OC Marathon Running Festival. We billed ourselves as "Team Econometrics" and proudly proclaimed that we were the only econometrics-running team in the whole world.

What made this run extra special was that it took place on a beautiful Sunday morning on one of the most picturesque courses in the nation. The point-to-point half-marathon course starts in Fashion Island and continues down MacArthur Blvd. to Corona del Mar. Running along the coast, it heads back inland to the Back Bay with gorgeous views of the Upper Newport Ecological Reserve. Then it swings east to finish at the OC Fairgrounds, a fun place to celebrate and hang out.

It wasn't always so.

The first time I ran the OC Marathon, the hilly course seemed to go on forever through gloomy industrial areas and dusty hinterlands. The finish line seemed to be located in the middle of a desert. When I heard the non-profit OC Marathon board was up to its running shorts in debt, I wasn't surprised. Who’d want to run such a dismal course? Not many.

The well-meaning board members and others who created the OC Marathon Foundation to support various kids’ programs as well as run the marathon were fully aware that its course left much to be desired. But it wasn't capable of dealing with the jurisdictional complexity of getting the eight local governmental approvals needed for approving a more scenic coastal run, nor did it have the financial incentives needed for creating and running a successful business enterprise. The non-profit OC Marathon Foundation had little option other than considering bankruptcy and leaving vendors who were owed $300,000 unpaid. Enter Scott Baugh and Gary Kutscher.

This dynamic duo created a for-profit corporation and recruited investors who understood concepts like incentives, ROI, cost controls, and strategic planning. These new shareholders, who now had skin in the game, had a financial incentive to take on the risk of buying out the moribund OC Marathon. They did so by investing enough capital to pay off $300,000 in debts and providing seed funds of $150,000 to keep alive the charitable kids’ programming still run by the Foundation.

Baugh and Kutscher then set out to establish an economically sustainable marathon, generate profits for its shareholders, and still have resources available to continue making charitable donations to kids running groups and youth programs. Baugh was tasked with handling the political approval for the eight governmental jurisdictions. That task also involved dealing with the federal government that initially denied the Back Bay run because of the possibility of disturbing the mating habits of the light-footed clapper rail.

Kutscher handled operations, including sponsorships. Now that the bottom line financial performance was critically important to a for-profit enterprise, Kutscher's responsibilities in running an efficient enterprise and generating revenues took on heightened importance.

Other charities sponsored by OC Marathon include World Vision, Project Youth OC, John Wayne Cancer Foundation, Project Independence, Outreach to the World, UCI HD-Care, and the American Cancer Society.

How did all this happen?

The fact that a for-profit enterprise succeeded while a non-profit failed seems counterintuitive. But that's the beauty and wonder of Adam Smith's "Invisible Hand." The lure of profits acted as an invisible hand in incentivizing investors to contribute financial resources and take on the many risks involved in running a business. Profits also served to induce owners to invest the time and talent needed to create a product that succeeded in the marketplace.

The fact that Scott Baugh, Gary Kutscher, and their fellow investors/entrepreneurs did indeed succeed meant that they created a marathon that produced value for their customers. The proof in the pudding is the 18,000 people who crossed the finish line with arms raised in triumph.

James L. Doti is president emeritus and professor of economics at Chapman University.

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