Current.org | Part of auctions' proceeds gone, February 2005

Kruse collapse leaves rancor, debt in pubradio

Originally published in Current, Feb. 28, 2005
By Jeremy Egner

The sudden demise Feb. 9 of fundraising firm Nancy Kruse + Partners surprised the 25 stations still awaiting most of the reported $679,000 they jointly raised in a nationwide online auction in September.

Perhaps less surprised were the Washington, D.C., firm's employees, who say they hadn't been paid for work per-formed since New Year's, and consultants, who were owed tens of thousands of dollars.

Kruse said the startup business operated on a narrow margin, suffered cash-flow problems and simply ran out of money. After losing large amounts of personal and family money, she was not willing to borrow funds to keep going, she said.

Former staffers remain angry about unpaid wages and said Kruse management regularly misled them.

Stations involved in the Kruse-managed national auction wonder what happened to their money. They complained that the firm offered little explanation as it missed promised payments last fall. The firm was, according to New Hampshire Public Radio President Mark Handley, ”horrendous” about communicating with stations.

”We have for months and months been trying to get some info and have been totally kept in the dark,” he said.

”It's still a mystery where the money went,” added Wyoming Public Radio General Manager Jon Schwartz. “Things can go south and the situation can be handled well or not so well. We've been treated not so well.”

As recently as Jan. 31, the firm pledged to make promised overdue payments in February and March, according to a memo obtained by Current.

Less than two weeks later, the company closed its doors and no payments are forth-coming, according to Kruse. “The company is defunct . . . ,” she said. “There are no assets.”

Past Kruse clients lauded the service. Reps from San Diego's KPBS — which recently had to postpone its auction after the company's sudden closing—sang the company's praises just last month at the Integrated Media Association's web conference.

However, nonpayment issues led NPR to suspend plans for this fall's follow-up national auction even before the company officially folded, said Dana Davis Rehm, the network's v.p. in charge of member and pro-gram services.

NPR had limited involvement in the auction—lending its name and donating prizes for the auction benefiting a number of its member stations. But Rehm said the network will be more careful about entering similar relationships in the future.

Despite the Kruse firm's collapse, development professionals see great fundraising potential in online auctions. Rehm sees merit in auctions' off-air format and in the pubradio-related “experience” prizes, such as meet-and-greet events with NPR personalities, that strengthen bonds with listeners.

”Just because there's been a business failure doesn't mean the practice itself is a failure,” Rehm said.

The $429,000 question

Kruse launched the national auction after a number of separate auctions, apparently successful for other stations, tanta-lized development officers, Rehm said. A coordinated auction was necessary to fulfill the popular meet-and-greet prizes without repeatedly interrupting network operations, she said.

Each station paid just over $15,000 to participate in the national auction, according to a contract. In exchange, each would get a share of proceeds from the national prizes contributed by NPR and Kruse + Partners — public radio experiences, travel packages, etc. The stations were promised 100 percent of proceeds from auction of merchandise they had collected.

What each station received instead, late last year, was $10,000 and few details, according to Sean Gillery, NHPR's development director, and execs at other stations. Having paid the $15,000 entry fee, each station was still $5,000 in the hole. None received proceeds from merchandise they collected, which range from roughly $2,000 to more than $20,000, Rehm said. Each is also owed $7,000 from auction of shared merchandise, based on figures the Kruse firm shared with NPR.

The auction fell short of its $1 million goal but did gross nearly $679,000, according to Kruse + Partners and NPR. Assuming the payouts to the 25 stations totaled $250,000, that leaves roughly $429,000 unaccounted for. (Some of it could have gone to credit card fees and refunds to donors.)

“I'm not sure where all the money went, and I'd like to see an accounting of it,” Handley said.

Kruse understands stations' frustration and admits her company “definitely could have done a better job communicating with them.” On her attorney's advice, she can't comment on any contract-related issues, she said.

Exactly who officially received the auction proceeds is not clear. Stations' contracts specify that a nonprofit called Public Radio Fund Inc. would collect and distribute auc-tion proceeds. Since Kruse + Partners was a for-profit entity, the fund would receive proceeds and make winning bids tax-deductible.

But the fund was never formed, said Rehm, who was listed on the initial board of directors but later resigned. “No meeting of the Public Radio Fund was ever convened, bylaws were not created, and I have received no information about how or if it was used, despite repeated requests to Nancy Kruse,” she told Current. “The entity, to the extent it existed, has been entirely under her control.”

However, Kruse said she was never on the board or otherwise part of the organization. “I do not have any affiliation with Public Radio Fund and can't speak about a third-party entity,” she said.

Said Handley: “Stations are very interested in further exposition on what the hell has happened here.”

”Disappointed, bitter and broke”

As with many business failures, the collapse of the Kruse firm stirred plenty of bad blood. “Why are my former employees so angry?” Kruse responds when asked. “They lost their jobs. They lost their health insurance. They didn't get paid for work they did. It makes sense — when companies close, people are angry.”

But though she acknowledges that paychecks occasionally bounced and some contract workers were not fully paid — veteran pubradio consultant Barbara Appleby said she's owed more than $77,000 — Kruse denies that any dishonest motives played a role.

”There were constant cash flow issues ... and there were definitely shortcomings in the administrative area,” she said. ”But I'm not sure what they felt we were lying about. And to what end?”

As payroll problems mounted, management blamed everything except its own handling of cash flow, said former staffer Alex Tanouye. “People just wanted a straight answer” about the company's financial health, he said. “If we had ever gotten a straight answer, people would be a lot less bitter now.”

E-mails between Kruse management and employees indicate that some retirement deductions from paychecks didn't make it into employees' IRAs. In an early January e-mail exchange with an employee, Kruse assistant Amy Drayer said, “We are absolutely aware of the shortfalls and will make them up as soon as we can.” The employee would not discuss the situation for quotation. Kruse said she could not comment about IRAs on advice of counsel.

Former employees know they have slim chances of recovering missing wages — Kruse repeatedly cited the defunct company's utter lack of assets. But her workers are still sour about how things were handled. Most took special exception to Kruse's suggestion in Current Feb. 14 that ”staff fatigue” was a reason for the business failure.

”That somehow implies that people weren't working hard, but it was the ones who stuck it out to the very end that got the worst of it,” said Tanouye, who left the company in December. “It's a little disingenuous to say people were fatigued, when they were actually just disappointed, bitter and broke.”