Online auctions: Allure lingers despite the Kruse debacle

Originally published in Current, July 11, 2005
By Jeremy Egner

This time last year, pubradio fundraisers were leaping to try online auctions coordinated by Nancy Kruse + Partners, spurred by reports of easy Internet profits.

Fast-forward to 2005: another bubble has burst. The Kruse firm is defunct, lawsuits are likely, more than $400,000 of expected proceeds from the multistation auction it coordinated last fall are still missing, and online auctions will receive scant mention at this week’s Public Radio Marketing and Development Conference in Los Angeles. An online auction seminar was one of the most requested sessions at the 2004 development shindig, but no one was interested in the subject this year, says Doug Eichten, president of Development Exchange Inc., coordinator of the PRDMC.

So does this mean online auctions have been swept into the dustbin of failed fundraising experiments?

Not exactly, says June Fox, DEI’s station relations director.

"Stations have not said specifically, ‘Because of the Nancy Kruse situation, I don’t want to do them,’” she says. “They’re still interested in finding the right way to make it worthwhile.”

Online auctions still have inherent attractions: They raise funds without interrupting programming. They engage shopaholics and web-savvy listeners who might not otherwise donate. By carrying images of products, they let public radio participate in a form of fundraising that pubTV has used for decades. Advocates also note that they drive potential members to stations’ websites, and as stations work to secure merchandise they can establish ties to companies that aren’t generally philanthropic.

"They’re a great way to get new business from donors who can’t afford straight underwriting but can give you, for example, a night’s stay in their bed-and-breakfast,” says Alicia Frey, a consultant and former Kruse staffer.

But while companies such as Benefit Events and Auction Anything can supply the software and support, plenty of legwork is required to solicit prizes, promote the event, collect payments, ship goods and keep the books. And while the exact reasons for the Kruse company’s collapse remain a mystery, a major problem may have been its we’ll-handle-everything, you-count-the-money approach.

In a report on the collapse, Integrated Media Association staffer Gina Fox concluded that “Nancy Kruse went out of business by having too many people on the payroll, when compared with the proceeds she received for the auction administration.”

"I think the naïve phase of online auctions has passed and that’s a good thing,” says Melanie Cannon, development director for Nevada Public Radio. “I think in the past it seemed like stations could get something for nothing and that was hard to pass up. But any kind of fundraising model that seems to offer that doesn’t tend to bear fruit for long.”

The Kruse company “did one good thing and one bad thing,” says Jim Wintner, c.e.o. of auction company Benefit Events, based in New York. “It got more people interested in auctions, but it gave them unrealistic expectations.”

One unrealistic expectation, as it turned out, was that stations would get their share of proceeds. Though each of the 25 stations participating in the September national auction paid just over $15,000 to sign on, each received only $10,000 in return before the company suddenly shut its doors (earlier article).

The auction fell well 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.

Additional stations, such as Philadelphia’s WHYY, lost fees they paid Kruse + Partners shortly before the firm closed its office and laid off its staff in February.

Legal action is still expected but NPR and the stations involved declined to comment. Former Kruse consultant Barbara Appleby is suing the company for more than $77,000 in unpaid wages, according to Maryland court records. Auction Anything, the software provider for the national auction, wrote off roughly $10,000 in fees it never received, says company owner John Hotaling.

Of the stations burned by the Kruse fiasco, WHYY is “still evaluating” whether it will ever try auctions again, according to marketing v.p. Kerri Hanlon, but others such as San Francisco’s KQED and San Diego’s KPBS remain committed to the idea.

KPBS had planned a second Kruse-coordinated auction for February but after the Kruse firm closed it had to scramble to stage its own auction in May. The station budgeted $200,000 in auction proceeds, based on its results in spring of 2004, but netted only $90,000.

Despite lackluster results, the station will continue web auctions on a smaller scale, says Tammy Carpowich, communications director. KPBS has hired a full-time online development staffer to oversee them, will solicit prizes throughout the year and plans to bring in volunteers to help ship the prizes, she says.

A smaller station caught in the Kruse collapse, Baltimore’s WYPR, is also working to develop its own auction with the help of a onetime Kruse staffer, says Sharon Nevins, development director. The station is working with consultant Frey, who, as former development director for Kruse + Partners, has better-than-average insight into the flaws of that company’s soup-to-nuts approach.

Aside from whatever accounting or management problems might have existed, the main problem from a development standpoint was “the auction was not integrated into the station,” Frey says.

"We were considered outsiders, so there was no station buy-in,” she says. “Staffs didn’t want us to contact their underwriters, so we couldn’t leverage the relationships that were already in place.”

Cannon in Nevada agrees that stations’ programming and development staffs must become involved in auctions and take responsibility for their success. For example, the station must schedule enough on-air promos to send listeners to the auction portion of the station’s website.
KNPR’s joint auction with Hawaii Public Radio netted just under the $60,000 goal for her station earlier this year, Cannon says, along with plenty of names for its direct mail database. Letters sent to auction bidders produced memberships at a much higher rate than other member-acquisition mailings, Cannon says.

The Nevada station had no interest in participating in last year’s national auction, Cannon says, but she hopes to partner with stations in Arizona and southern California to create a regional auction, though all finances would be kept separate.

Benefit Events’ Wintner advocates such arrangements that expand marketing exposure but still keep control of the auction within the stations. Though Winter was Kruse’s partner in her initial pubradio auction, a successful 2002 event for Washington’s WAMU, he has long said that stations should not rely on outside firms to solicit prizes, follow up with bidders or handle other personal contacts. Such outsourcing wastes opportunities to establish and develop relationships with donor companies and potential members, he says.

Stations should treat auctions not as special events but as a regular part of their fundraising, Wintner says. They should solicit items in the course of underwriting sales efforts, for example. Monthly or bimonthly auctions would create regular interest and wouldn’t require the large pools of prizes featured on annual “special event” auctions.

"People are consumers and stations can give them buying opportunities they’d otherwise be looking for elsewhere,” he says. “There’s nothing magical about this.”

Though Wintner is disappointed that there’s no auction session at this week’s development conference, he will be on hand as a vendor looking to drum up interest in his integrated approach to online auctions.

"People aren’t so well informed about the options. They got to see one option via Nancy Kruse, but it wasn’t viable,” he says. “It’s time to see a more realistic vision.”