Minnesota net endows itself with sale of mail-order firm
Originally published in Current, April 6, 1998
By Jacqueline Conciatore
With the $120-million sale of for-profit sister company Rivertown Trading to Dayton Hudson, Minnesota Public Radio (MPR) gains a secure subsidy while ridding itself of a longtime public relations problem.
The Minnesota Communications Group--parent of MPR and the for-profit Greenspring Co.--announced March 23 it was selling the catalog business to the Minneapolis-based retail giant, parent of department store chains including Target and Marshall Field.
MPR and Greenspring President Bill Kling and two other top execs share the bulk of $7.3 million in payouts under a plan previously laid down by their boards of directors.
But the big beneficiary is MPR, which gets about $90 million of the net proceeds to add to its existing $19 million endowment fund, giving it by far the largest endowment in public radio.
The endowment should give MPR annual income equal to the average $4-million-a-year contribution Rivertown made to the network over the last 10 years of its existence. That amounts to about 17 percent of MPR's current annual income of $24 million.
Though Rivertown sales via its Wireless, Signals and other catalogs accounted for most of Greenspring's income, Greenspring will continue, with the MNN Radio Networks and Minnesota Monthly Publications. MPR is also keeping its Prairie Home Companion catalog and Public Radio Music Source. And, Greenspring will use part of the remaining sale proceeds for an Internet-related project MPR won't disclose. "Nothing they develop will compete with what they've sold," said Anne Barkelew, a longtime MPR consultant who was involved in the sale. She wouldn't reveal the scale of the forthcoming project, but did quote MCG Board Chair Thomas McBurney as saying, "We are not going out of entrepreneurial development business."
A portion of the sale proceeds will also go to payouts and closing costs, according to MPR.
News of the deal predictably prompted criticism of personal profit by Kling, public radio's most successful entrepreneur. Others expressed admiration. Jim Russell, head of Marketplace Productions, says he's "dazzled" by the accomplishment. "It's such a big concept. [Kling] probably has secured Minnesota Public Radio for decades to come. Everyone talks a good game about endowments. He's actually done it. I can't imagine anyone in public radio or TV who has accomplished that kind of security."
Right time and price
The shift to an endowment also rids MPR of Rivertown's public relations downside and even potential legal trouble. There have been repeated questions in the state about the nature of MCG's nonprofit-for-profit relationships and concerns about conflict of interest. The Minnesota attorney general spent almost two years examining MCG's system for compensating executives, but ultimately found no wrong-doing.
But MCG cites only the desire for a stable revenue base as the reason it began investigating the possibilities of a deal four years ago. Like any catalog business, Rivertown's year-to-year success depends partly on external factors like paper costs and postage prices. In 1995, MPR had to lay off employees when Rivertown profits fell short.
In addition, Rivertown was primed to expand, but Greenspring lacked the cash. "Rivertown had so much potential for growth," Barkelew said. "They had ideas for new catalogs, new projects, but that takes a capital infusion. No money goes from Minnesota Public Radio to Rivertown. And MPR couldn't raise it, as a nonprofit."
When talks with Dayton Hudson about a joint venture turned into talks about a sale, MCG's board felt it was the right company, right time, right price, says Barkelew. Not only was Dayton Hudson based there in Twin Cities, it had pioneered a program of returning 5 percent of its federal-taxable income to communities, she says.
Dayton Hudson for its part says the acquisition of database marketing and fulfillment capabilities positions it to move into Internet retailing. Rivertown's 400 employees, including President Donna Avery, will move to Dayton Hudson.
Despite all these apparent good vibes, the Pioneer Press quoted Kling saying "the board had to push me pretty hard to sell," but "it was such a good win, I had to recommend it." Says Barkelew: "The board has said they pushed him. . . .[that] he always felt he could grow it even more."
Perhaps Kling did cling to the company that started humbly in 1981 with a Prairie Home Companion-inspired "Powder milk Biscuit" poster order form. But cynical types raise eyebrows at the notion anyone who stood to gain $2.6 million would hesitate before picking up the pen to sign his name.
Kling gets the equity share under terms of a unique "value participation unit" plan, similar to a stock option plan, that was approved by the Joint Compensation Committee for MPR and its sister companies.
Greenspring V.P. Thomas Kigin will get $1.4 million. Avery, Kigin's spouse, will also get a significant, undisclosed sum. A small portion goes to other Rivertown employees.
Some public radio broadcasters, such as David Anderson, g.m. of WUIS, Springfield, Ill., criticize Kling and Kigin for making money off an enterprise they believe was seeded with CPB dollars, even if indirectly. "I just find it questionable," Anderson says.
Minnesota state Rep. Matt Entenza, MPR's self-appointed watchdog, suggests the payouts might turn off supporters. "Reasonable people can differ about whether $2.6 million is too much," he said. "I know from some of the people I talk to that there is some hesitation about [making] donations" because of the payout and also because MPR is now so well-endowed.
Entenza is now writing a bill to prevent nonprofit execs from making inappropriate gains off deals they recommend to their boards. "My understanding is that Minnesota Public Radio has a fairly detailed conflict-of-interest standard, and they followed it," he says. "But the standard in our state and most [states] is lax," requiring only that executives inform their boards of potential conflicts. He says he may turn to MPR as a model. "They've told me they were careful; that their people didn't vote on matters [pertaining to the sale]."
One remaining question is how Kling will be compensated now that Greenspring is depleted of its cash cow. A state report released in January showed Kling in fiscal 1997 earned $526,945 in salary, pension contributions, incentives and fringe benefits. Most of the pay came from Greenspring--$451,808. MPR, on the other hand, paid Kling $75,137.
Barkelew says the Compensation Board will meet soon to decide the matter. Asked if the question will be how to compensate at previous levels, or whether to, she said "all of the above."
To Current's home page
Earlier news: State investigation finds no wrongdoing at MPR, 1998.
Later news: Interview with Bill Kling, 1999.
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