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KNPR Files Legal Motion Over Endowment Funds

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Interim CEO Jerry Nadal

It's been a few months since Nevada Public Radio announced the resignation of its chief executive officer amid an investigation into the financial status of the station.

Since then, the station's board of directors took charge, with former chairman of the board, Jerry Nadal, serving as interim CEO.

Nadal told State of Nevada that in the last few months, the station has begun paying long-overdue bills and expects to have a surplus of a few hundred thousand dollars by the end of 2020.

While the immediate crisis is over, Nadal said, the station needs to raise more revenue per month and will seek more members next year.

And earlier this week, the station filed legal action to release $2 million in endowment funds to help pay off a backlog of bills, including more than $700,000 to National Public Radio and the unpaid printing costs for Desert Companion magazine. 

Nadal also said many of the financial problems go back to the purchase some three years ago of a radio station in Reno. That station, which aired new music, failed to attract enough listeners and new members. In total, he said, Nevada Public Radio invested about $1.5 million in the station, employees and equipment. 

Nevada Public Radio plans to sell that station, a transmitter in Carson City and another in St. George.

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DISCUSSION:

Introduction: It's been nearly three months since Nevada Public Radio announced some troubling financial problems.

When that announcement was made, longtime CEO Flo Rogers resigned and KNPR's board of directors took control of operations. Since then, the station has laid off its staff at the Reno music discovery station and is looking to sell that property.

Cuts have been made to employee benefits and KNPR has reduced from 12 to 6 the regular additions of its sister publication, Desert Companion magazine. The magazine will also produce two special editions next year.

But questions remain about how the station ever got into this mess. How it ever got $2 million in debt.

Jerry Nadel, former chairman of the board at Nevada Public Radio, stepped in as interim CEO and is overseeing changes at the station.

 

Joe Schoenmann: When you talked about this more than a month ago, the question came up -- How could $2 million in unpaid bills happen without the board of directors knowing about it?

I wonder if the answer is different now after forensic auditors have been drilling into the financial accounts for the last couple of months.

Jerry Nadal: It's a good question. And we still have the forensic auditors recreating the books from last year.

With the board of directors, we always received financials, but we got very top-line numbers. And from the best we can tell, we were not getting the whole story as to what was going on with the finances here.

So, there was money that was being shifted between fiscal years. Accruals were being done into the next year. Bills weren't being paid. So, we're still uncovering a lot of that material… Now, that's kind of what we're finding and seeing there.

Schoenmann: Since you came on this program again a couple of months ago, has anything like embezzlement been discovered?

Nadal: No, we haven't discovered anything like that yet. But again, the process is still ongoing. So, I can't say that with 100 percent certainty, but as of right now, everything that we're going back and recreating, there doesn't appear to be anything that was along those lines happening with the books or the finances here.

Schoenmann: What was it? What possibly happened? What is the picture that's forming?

Nadal: I think the biggest issue that drove the debt that we found ourselves in was the acquisition of the Reno station, NV89.

So, we knew that when we were able to acquire that signal that it was going to take a while to get that up to be financially viable in Reno. But it became pretty evident about a year and a half ago that that probably was not going to happen with the Discovery Music format. It was not the type of format that was bringing in traditional NPR listeners.

Certainly, we'd run a couple of fund drives up there and really being on the air for two to three weeks --  and listeners here know what that's like -- but to be on the air for two weeks and only get about 20 supporters. That's pretty indicative that there is not an audience there to support that.

So, the way we were paying the bills up there, the mortgage on the station and everything. We weren't fundraising against it. So, of the $2 million in debt, we can go back and say, "listen, we spent about $1.5 million on Reno and that's probably where we found the majority of it."

So, bills were being paid there. We weren't paying other bills down here. Things were being shifted around and eventually we ran out of rainy-day funds and nowhere else to kind of move the money around to.

Schoenmann: Is it possible that this was the result of the accounting that was done here? The accountant is no longer here. [She] resigned as well. Or is it possible that former CEO Flo Rodgers knew about this when it was happening?

Nadal: I can't imagine that she didn't know what was happening here. And if you look at ... the way the place was managed from an accounting standpoint between the business manager that was here and the CEO, they had to know what was going on and moving things around and not paying bills. I mean, the biggest challenges, we were paying some bills and not others to the tune of almost $2 million, as you mentioned.

Schoenmann: You were with Cirque de Soleil for 20 years. You had a lot of experience in managing companies much, much larger than Nevada Public Radio. When you discovered all this, I wonder how it made you feel because you were on the board when Flo Rogers was CEO. How does it make you personally feel?

Nadal: Personally, it made me feel … I felt deceived. Like a lot of the people in the building felt deceived -- the staff here. And yeah, that's probably the best way to put it. To know that the wool was being pulled over our eyes is not pleasant to go through. But once we discovered it, now we're in the process of fixing all of that.

Schoenmann: The financial issues here - how serious were they? Can you put it in terms that people can understand?

Nadal: We were about two weeks away from having to close the doors when the board finally stepped in; when it became evident to Flo and to the business manager that there was nowhere else to turn to.

We actually couldn't make the current payroll that was coming up back in August. In July, we had $464 in the checking account. And, you know, we have sustaining members and money that comes in on a regular basis, but there wasn't enough to even cover the payroll.

So, we kind of took, as you know, quick action to take a look at the bills, where the money was going, money that was coming in.

We were able to access funds that we had in the bank in part of the endowment funds that were not restricted. So, you were able to get some money upfront. And then we went into the fall membership campaign, which was very successful, which helped. And then our Corporation for Public Broadcasting money came in a couple of weeks ago. So, we're out of that.

I can't say we're a hundred percent out of the woods, but we're not at risk of closing the doors now. We have a solid budget that was put in place that we just presented last week to the Finance Committee here. And there's a board meeting tomorrow that we will have a full board vote on (Editor's Note: That meeting was held December 4, 2019.)

So the budget is in balance. Actually ... we're showing a bit of a surplus, which is exactly where we want to be.

Schoenmann: You're showing a surplus after the end of the next fiscal year?

Nadal: For the next fiscal year. If the money comes in the way we think it will and we know where our expenses are right now -- we have a great handle on that -- we should have probably a $300,000 or $400,000 surplus going forward.

Schoenmann: What kind of changes were made to allow that kind of surplus while paying off all this debt?

Nadal: Well, we've been renegotiating a lot of the debt. I have to say, a lot of the vendors were -- I can't say that they were understanding -- but they knew where we were. So, they were able to negotiate between 20 and 50 percent off outstanding bills.

Schoenmann: You can't say they were understanding. What do you mean?

Nadal: Well, I think they understood what was going on. I don't think they were happy. I can’t imagine any vendor would be. But they worked with us so we got payment plans put in place. We paid off what we could.

We still have about $1-point-3, $1-point-4 million in outstanding debt that we have to pay off. But from an ongoing operations standpoint, we know that we're bringing in enough money or we'll be bringing enough money to cover the existing expenses.

You've already mentioned we cut back Desert Companion to six issues plus two special issues a year.

We took a good hard look at the employee benefits here. There was a very rich package that was here, which was great, but it was just not sustainable.

So, we cut back on the pension plan. We cut back a bit on the health insurance plan and looked at the rest of our contracts and money that we were spending in different areas. And we canceled what we could and that wasn't absolutely necessary to run the station.

Schoenmann: At the same time, you had the fundraising drive in October. You mentioned it lasted more than three weeks, raised more than a half-million dollars and 1,500 new members. How important was that to the future security of the station?

Nadal: It's really important because I think for a couple of years, we put a lot of emphasis on sustaining members, which is great because they're not people you have to call up and harass a bit to renew their membership. So, it just rolls over year after year until they choose to cancel it.

But we were still around that 12,000-member mark. So, we were relying heavily on those people to do a lot of the funding for the station.

And if you look at other NPR stations and other metropolitan areas that have 2.2 million people in the general area, to have 12,000 members is not really a sustainable model.

So, I tasked the staff with going after looking at getting this to 15,000 new members by the end of this calendar year. And next year, there's a goal of 20,000 members in total, knowing you're always going to have members that fall off and you're always going to be trying to acquire new members.

And also looking at where we're reaching out into the community and who are we attracting to NPR, who are listeners, and going after those people to come in and support the station.

Schoenmann: Nevada Public Radio is one of the highest-rated stations in the Las Vegas Valley as of about the last year. What about corporate support? How important is that and what's being done in that area?

Nadal: We rely heavily on corporate support. Corporate support has never been the issue. We always get a significant amount of corporate support, which then we use in the membership campaigns to help leverage listener support. One-for-one matches and that type of thing.

There can be more of that. We're looking at where we have reached out to the community. We have traditional people to come in and support us all the time. And now we're going out to other organizations and businesses in town and doing our pitch on why it would be important to support independent journalism in the market.

Schoenmann: Is there anything being done to cultivate people who are already members, and to cultivate potential new members to keep them in the fold, to keep them aware of what's going on and to feel more a part of the station?

Nadal: I think we do that pretty well here. We're looking at other member-type events.

Coming up in two weeks, we have our Trivia Night at the Brooklyn Bowl. And that's a way to bring people down into areas that, like the Brooklyn Bowl ... It might not be a natural fit for a KNPR listener. But you reach out and say, "Listen, we're doing this cool promotion with Brooklyn Bowl." Those previous ones have been well attended.

We do the Shakespeare Festival every summer.

One thing we have in this market that there is not in others is our online box office. And there's so much entertainment here, all those companies.

I know I started this when I was at Cirque, providing tickets that really we know were not going to be sold and provide them to KNPR to fundraise against.

The station sells them for what they think they can get and the money goes right to the station. So, we've got Live Nation and AEG and other promoters and people in town that have stepped forward and given us tickets to fundraise for.

It's also a great advertising tool for them, as well, for the shows that are there. So, we try to go outside of the traditional membership campaigns to raise money and awareness about the station and in order to fill up our revenue line.

Schoenmann: This week, Nevada Public Radio is filing a claim in court to free up endowment funds to pay off outstanding debts to National Public Radio, among others. How much money is in that fund?

Nadal: When we started at the beginning of the summer, let's say there was just under $2 million.

Schoenmann: How much does the station owe NPR?

Nadal: We owe currently about $700,000, maybe a little bit more to NPR programming.

Schoenmann: Does that mean NPR hasn't been paid for, what, a year?

Nadal: About a year and a half.

Schoenmann: What is that endowment money supposed to be used for?

Nadal: I think when people contribute to endowment funding -- endowment money -- it is really to ensure the longevity of the organization. And any organization that has a decent-sized endowment fund throws off a certain amount of interest every year that then you could draw down on to help fund your operations, which we did for many years. And as you know, the stock market's done quite well.

But it's also there, I think, in case of an event of this nature that comes along.

We certainly don't want to draw that down. But we can't carry $1.5 million dollars in debt as well on our backs and on the books.

So, going after the endowment money, a lot of the people that contributed, large contributors that we were able to identify, we told them what was happening.

Everybody agreed to release the money out of the endowment funds. The remainder of the money that's sitting there, the $1.3 million is made up of a lot of small donors. $500, a $1,000, $2,000. It was impossible to go back and find every one of those donors. So, we've petitioned the court to allow us to access the endowment money so that we can pay off our back debts.

Schoenmann: And then do you make a promise that when the financial issues are resolved, you'll build another endowment?

Nadal: I don't know that we have to make a promise, but we need to have another endowment. So, I think on a go-forward basis, we're going to need to rebuild an endowment. And again, so that, should we find ourselves in a situation -- not like this one again, hopefully -- but a financial crisis of some magnitude, that there are dollars there that we can draw on.

And I'll go back to 2008 when the financial crisis, the recession, hit. A lot of our support, a lot of our corporate support dried up because there was a lot of uncertainty in the marketplace.

That's when we started doing other fundraising activities, like the tickets for shows and whatnot. But we had some of that money. We were still getting interest off of that endowment fund. So I think we need that as a hedge and a cushion against a downturn in the business.

Schoenmann: Now, you've become a fixture at Nevada Public Radio. It seems like people even like you.

Nadal: (laughing) That's a bad thing for a CEO, Joe.

Schoenmann: But you're only interim. I don't think you're going to be here forever. Is the board currently looking for a permanent CEO?

Nadal: We just started a search this week with a search firm, Livingston and Associates, that are well-known within the National Public Radio and PBS world. We’ll be working with them to identify a CEO that would come in here and take the reins full time.

Schoenmann: What kind of special skills do you want that person have?

Nadal: I think having some, obviously, knowledge of the broadcast system would help. You actually need to have somebody that is a people person… because so much of running an organization like this, any not-for-profit really, relies on fundraising, which means a lot of corporate support and meetings and really being able to go out and pitch the mission of the organization and getting involved in the community. And then, obviously, you need somebody with great financial acumen.

Schoenmann: All these issues at Nevada Public Radio last several months, it's sort of been like reading a book by Elizabeth Kubler-Ross, the five stages of going through a death.

I think people are a little more accepting now, but they're a little worried about the future as well. But I wonder about our listeners: do you anticipate or expect what's happened here is going to affect what they hear?

Nadal: No. And I think not as a direct result of the financial issues. But, when I came in here, I asked Dave Becker, the program director, to take a look at all the programming that we have because we haven't made a lot of changes over the past few years. And NPR and the affiliates, there's a lot of other programming out there, and this goes back to looking at who's in our community and are we speaking to everybody.

So, Dave has made some changes already in the programming lineup. We'll obviously keep all of those big anchor programs that people come to expect from NPR. So, I'm hoping that we get  a little bit more diverse programming in place until we can broaden our audience.

KNPR's State of Nevada
Sep 30, 2019

KNPR CEO: Station Needs Your Help

Guests

Jerry Nadal, interim CEO, Nevada Public Radio

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