Sale of Catalogue Business Nets Profits for Minn. Public Radio — and Top Officials

Minnesota Public Radio last month announced that it had sold its highly profitable mail-order catalogue business to the Dayton Hudson Corporation for an estimated $120-million.

The sale has attracted some controversy, in part because the people who built the business and arranged the sale were rewarded with over $7-million in compensation.

The bulk of the proceeds from the sale — about $90-million — will be added to MPR’s permanent endowment, which currently stands at $19-million. An additional $15- to $20-million will go to Minnesota Public Radio’s for-profit sister corporation, the Greenspring Company, to develop new business opportunities.

The public-radio group has long contemplated selling its catalogue business, the Rivertown Trading Company, because it says the enterprise requires capital investments that the non-profit organization cannot provide or obtain.

In addition to the money going to MPR and Greenspring, executives of Greenspring will receive a total of $7.3-million as a result of the sale. Most of that will go to three top executives who will receive an estimated $6.6-million. The compensation deals were established in 1990 as a way for employees to gain a share of equity in the company. The package was designed to keep top executives from departing and to give them a stake in improving the company’s financial performance.

William H. Kling, who serves as president of both MPR and Greenspring, is expected to reap a $2.6-million windfall as a result of the sale of the company. Thomas J. Kigin, executive vice-president of Greenspring and vice-president of administration at MPR, will receive $1.4-million from the equity-sharing plan. And Mr. Kigin’s wife, Donna Avery, who serves as president of Rivertown, will receive $2.6-million from the package.

Matthew Landy, vice-president for finance and administration at the National Charities Information Bureau, a watchdog group, says the $7.3-million may have been an inappropriate transfer of the charity’s assets to top officials.

Especially troubling was Mr. Kling’s dual roles at the for-profit and non-profit entities, says Mr. Landy, whose group reviews the finances and governance of non-profit organizations nationwide. “There is a question of whether this individual had any undue influence over the boards controlling the charity,” he says.

Before the sale, the Minnesota Attorney General’s office had been concerned enough about the executive-compensation deals at the radio station and the for-profit subsidiary that it had conducted an 18-month review of the public-broadcasting station.

Last year, Mr. Kling earned a combined salary of $527,000 from MPR and Greenspring, Mr. Kigin earned over $270,000 from both entities, and Ms. Avery earned almost $530,000 from the catalogue company.

The Attorney General, in a letter of agreement with the radio organization that was released in January, did not fault the charity for any illegal or improper activities. But the letter did stipulate that the group should take steps to clarify its compensation policies to prevent any potential abuses from arising in the future.

Even though Mr. Kling served in dual roles, the inquiry found that the boards of the non-profit and for-profit organizations acted independently and that Mr. Kling was excused from meetings where his compensation was discussed.

Officials of Minnesota Public Radio insist that the pay awarded to top executives has been fair.

“We believe we got more than our money’s worth,” says Steven M. Rothschild, chairman of the Board of Trustees.

For more than a decade, MPR has operated under an unusually complex legal structure that was designed to enable the institution to maximize profits in its for-profit enterprises. The strategy was also intended to insulate the non-profit group from the adverse tax consequences of running for-profit businesses that grow too large. If the commercial activities of a non-profit organization begin to overshadow its charitable programs, the organization runs the risk of losing its tax-exempt status.

Since 1981, when Minnesota Public Radio first began selling Powdermilk Biscuit posters depicting the fictional sponsor of its popular Prairie Home Companion radio show, annual product sales have grown into a $200-million business. Today, the group’s catalogues, including “Wireless,” “Signals,” and “Seasons,” offer a wide variety of products, including clothing, home furnishings, and artwork, as well as books, recordings, and videotapes.

In 1987, when the organization’s product sales reached $12-million, the Minnesota Communications Group was established as a non-profit holding company, controlling the non-profit public-radio organization and the for-profit Greenspring Company. Greenspring controls three subsidiaries, including Rivertown Trading Company, which produces the catalogues; the MNN Radio Networks, which provides news reports to commercial radio stations; and Minnesota Monthly Publications.

Over the last decade, the organization’s catalogue businesse has generated an average of about $4-million annually, an amount that represented about 17 per cent of last year’s annual income for the statewide public-radio system. And with proceeds from the sale of the catalogue company, MPR’s endowment will catapult far ahead of the endowments at all other public-radio stations.

For many public-broadcasting officials, MPR’s product-marketing business is regarded as a triumph of entrepreneurialism — and a model for other groups.

Defenders of MPR say the organization should be applauded for the creativity and skill with which it achieved its financial success. And they argue that the officials who led the businesses deserve generous compensation to reward their efforts.

“In the for-profit setting, these are the kinds of incentive programs that help retain key employees,” observes Sarah Lutman, a program associate at the Bush Foundation, in St. Paul. “The best thing about the whole deal is it converts a volatile, high-risk income stream into a permanent, stable asset for MPR in the form of endowment,” says Ms. Lutman, whose foundation recently approved a grant of $873,000 over three years to the organization. She said her foundation had reviewed the executive-compensation packages to be sure that all was aboveboard at the station.

Executive compensation was not all that troubled some critics of Minnesota Public Radio. Mr. Landy of the National Charities Information Bureau says the organization should consider spending much of the proceeds from the sale soon, instead of putting it all into the endowment. He says that the group could sharply curtail its fund-raising efforts.

“We don’t think it is fair to keep going to the general public if you are sitting on huge funds, claiming to need more when you’ve got bank accounts that are overflowing,” he says.

But public-radio officials and other MPR supporters disagree vehemently, arguing that large endowments are increasingly important for public broadcasters.

“There is a great need for public broadcasters to look for alternative streams of revenue, especially in light of shrinking public dollars and the huge technological costs we are facing,” says Peter Jablow, executive vice-president of National Public Radio, which provides news and musical programming to public-radio stations across the country. “And endowment is one significant piece of the puzzle.”