Athlete charities often lack standards
OTL: The Charity Conundrum
An "Outside the Lines" investigation of 115 charities founded by high-profile, top-earning male and female athletes has found that most of their charities don't measure up to what charity experts would say is an efficient, effective use of money.
Using guidelines set by nonprofit watchdogs Charity Navigator, the Better Business Bureau and the National Committee for Responsive Philanthropy, "Outside the Lines" found that 74 percent of the nonprofits fell short of one or more acceptable nonprofit operating standards. The standards cover all sorts of aspects, such as how much money a nonprofit actually spends on charitable work as opposed to administrative expenses and whether there are enough board members overseeing the organization.
Among the "Outside the Lines" findings:
• Many athlete charities fail the effectiveness test for a variety of reasons, ranging from the deceptive and unethical -- if not illegal -- to the simply neglectful and ignorant. Some athletes set up foundations as tax-planning vehicles. Others dispute the nonprofit standards overall, saying as long as they spend at least some money on actual charity they should not be criticized.
• In many cases, OTL had a hard time measuring a charity's actual effectiveness because it was behind on filing its IRS tax returns or the returns were filled with errors and omissions. Problems can go unnoticed for years as the main agencies that oversee charities -- the Internal Revenue Service and states' attorney general offices -- don't audit every return.
• Even though the athlete charities often are named in honor of wealthy sports icons, only about a third of them had total assets of $500,000 or more. Multimillion-dollar charities that actually run programs, such as those founded by Tiger Woods, Lance Armstrong, Andre Agassi and Richard and Kyle Petty, are rare.
Some specific examples of what "Outside the Lines" found after conducting interviews and examining documents: NBA forward Lamar Odom's charity that promised money for cancer research has not given a dime in grant money to any cancer entity in its eight-year history. Phone numbers listed for NFL receiver Randy Moss' charities ring to a private residence in the Canadian province of Manitoba. New York Yankees third baseman Alex Rodriguez's two foundations stopped filing tax returns about five years ago, leaving almost $300,000 from a fundraiser unaccounted for.
The implications of poorly run charities are large, said Ken Berger, president of Charity Navigator, a firm that monitors and grades charities.
"It's critical that when these kind of opportunities are available that the celebrities involved realize the profound responsibility that they have to try to get as much money to support these worthy causes as they can and to make sure they don't damage the public trust," he said.
While he said the percentage "Outside the Lines" found as problematic is in line with what Charity Navigator sees among all charities, athletes and other celebrities -- with their resources and name recognition -- should be held to a higher standard because they have the ability to do better.
"They can have a tremendous positive influence rather than doing so-so or average, rather than like everybody else," said Berger.
Charities left to fizzle
It's unclear what motivated Randy Moss, then with the New England Patriots, to start and run not one, but two charities as of 2009. But the charities did lead to public accolades for his promises to help sick and underprivileged children and build "learning centers."
Moss -- who had signed a $27 million contract with the New England Patriots -- gave $21,500 to initially fund his Foundation for Children, which spent the money on Christmas gifts for children living near his hometown of Rand, W.Va. His other charity, Links for Learning, raised money from a golf tournament and spent about $72,000 repairing sports facilities at schools.
In 2010, no money was spent on actual charity, although the charities paid hundreds of dollars in IRS fees, according to charity documents. No donations were collected either. By 2011, tax records show that neither charity had any money left. Links for Learning was officially terminated, but Moss' Foundation for Children is still presumably active, at least according to IRS records.
"Outside the Lines" investigated the highest-earning and most recognizable athletes from multiple sports who had nonprofits founded in their names. Additional information on charities of all types can be researched at Charity Navigator, Guidestar or the Better Business Bureau.
CATHY'S KIDS IRS FORMS
TEAM PLAY'S IRS FORMS
The phone number listed on the IRS forms for each charity rings to a private residence in Manitoba, where a woman who answered the phone said, over dogs barking in the background, that she's never heard of Randy Moss. His agent did not return calls seeking comment, and an accountant who serves on the Foundation for Children board of directors declined to comment.
Yankees third baseman Alex Rodriguez -- who signed a record-breaking $275 million contract in 2007 -- also had two foundations. Much like Moss' charities, both seem to have fizzled. It's hard to tell exactly what happened because neither foundation has filed a tax return since 2006, prompting the IRS in 2011 to revoke their tax-exempt statuses.
One of the foundations reported earning $368,000 from a fundraiser in 2006. It gave $5,000 to a scholarship fund and $90 to a Miami-area Little League. That year, it had about $300,000 left after myriad expenses, and it's unclear where that money went, even though the IRS has specific rules about what is supposed to happen to funds leftover in a foundation that decides to shut down.
The ballplayer's website lists a number of donations, totaling in the millions, that Rodriguez has made directly to other nonprofits, including the University of Miami, and a partnership he has with the Boys and Girls Clubs of Miami-Dade County. But it doesn't say what happened to either of the foundations started in his name. Multiple calls to Rodriguez's business manager and agent were not returned.
Former Chicago Bears player Chris Zorich was ordered in August by the Illinois Attorney General's Office to pay back almost $350,000 in unspent funds that he couldn't account for after his charity fell into disarray.
"If you're not going to properly support an organization, why have it?" said player agent Andrew Bondarowicz, who runs the Aregatta Group, which, among other tasks, advises athletes on how to be charitable. "There are hundreds and thousands of qualified organizations and many, many people who are legitimately trying to do good things. Why not help them as opposed to just letting something flounder?"
Bondarowicz said some athletes use a charity's money to finance all sorts of costs that go beyond the charity's needs, such as expensing a weeklong stay at a five-star resort when he or she is doing a one-hour seminar at a children's camp. And many charities list large sums of money under the title of "professional or business fee," which Bondarowicz said, "just becomes a term that's used for. 'I need to give someone money, and I will find a justification for it later.'" He said athletes sometimes use their charities to provide jobs for friends and relatives: "When a player is drafted, that's the meal ticket for a lot of people."
Bondarowicz said that when athletes put their friends and relatives in charge of their charity -- whether they're drawing a salary or not -- it's unlikely those people have the necessary dedication or experience to raise money and spend it wisely.
In 2004, Odom founded Cathy's Kids, named after his mother who the NBA forward says died from cancer. But eight years of tax records reveal that Cathy's Kids never gave any grant money to cancer-related causes and that the charity primarily existed to finance two elite youth basketball travel teams. Of the $2.2 million raised by the charity, at least 60 percent -- $1.3 million -- went to those AAU teams.
The only paid executive was Jerry DeGregorio, now an assistant coach with the Golden State Warriors. He was Odom's high school coach and best man in his wedding to reality TV star Khloe Kardashian. As secretary of Cathy's Kids from 2004 through 2011, DeGregorio made a median annual salary of about $72,000, while the charity operated at a loss since its inception. Its 2011 tax returns show it $256,000 in debt, mostly stemming from a loan Odom made to the charity, according to his business manager Lester Knispel, also the charity's treasurer.
If a charity spends money -- including paying someone a salary -- on activities not consistent with its stated mission, that could be a violation of tax law that could draw the attention of the IRS or a state attorney general's office to prosecute. In January, Knispel said the charity cleared an audit, but he did not provide details despite a request by "Outside the Lines" for more information. A letter sent to "Outside the Lines" on Friday from an attorney representing Odom and Cathy's Kids, said the IRS audited Cathy's Kids for its "most active five-year period" from 2005 through 2009 and "its exempt status was upheld. Its income and deductions were not challenged." Neither the audit nor copies of the correspondence with the IRS were provided to "Outside the Lines."
Watchdog groups like Charity Navigator and the Better Business Bureau have standards that go beyond IRS regulations, and those standards are what "Outside the Lines" used to assess the charities in its study. Problems such as having an inadequate board of directors -- the athlete, a couple of close friends, an agent or spouse; spending a disproportionate amount on administrative expenses, salaries and/or fundraising; or not being forthcoming about financials or programs are not necessarily illegal, but they are activities that certain watchdog groups say make charities ineffective or questionable. The Odom loan to Cathy's Kids, for example, is not illegal but is the type of action that nonprofit groups consider a red flag because it could indicate the charity was in poor financial health and such a loan could create a conflict of interest.
"The IRS has a very narrow range of what it can review and hold a charity to account for," said Charity Navigator's Berger. "There can still be plenty that's wrong even if you 'pass' an IRS audit."
"Outside the Lines" made multiple calls over several weeks to DeGregorio, who never returned messages. Knispel and fellow board member Jeff Schwartz, who is Odom's agent, also wouldn't agree to in-depth interviews. Although they were listed as running the charity, they couldn't tell "Outside the Lines" what Cathy's Kids actually did and, in brief phone conversations, implied that -- despite continuing to solicit donations on Odom and Kardashian's websites, spending money and paying DeGregorio -- the charity had been dormant for years. Odom, Knispel and Schwartz did not earn a salary from Cathy's Kids.
SOME ATHLETES OUTSOURCE THE WORK
Several athletes have moved to what's known as "donor-advised funds," which is basically where a third-party umbrella charity gets paid a fee to handle all the overhead of running a charity -- taking in donations, filing paperwork, assessing fundraising events and so forth.
One of the more popular and longstanding donor-advised funds for athletes and entertainers is The Giving Back Fund, which has more than $3 billion in assets.
President and founder Marc Pollick said his group is trying to change the thinking among athletes that "You should have a foundation because it's good for your brand" to "You should have a foundation because you care deeply about a certain cause."
"They have a lot of fun at these events. They have a wonderful golf tour. At the end of the day, they sometimes spend months putting these things together to raise $10,000. That's insane," he said. "Just write a check for $10,000 and take the next six months off. That's not philanthropy."
Pollick said The Giving Back Fund requires athletes to make a "meaningful" donation of their own money to the charity based on their income, and it advises them on how to run efficient fundraising events that are legal and ethical. In its 16 years, he said the foundation has closed between 80 and 100 athlete charities because their expenses were 50 percent of what they were giving out in grants.
"We had one guy who had a golf tournament, and for the teammates who came, he wanted them to buy them Rolex watches," Pollick said. "We said, 'You can't do that with your foundation money. It's not illegal, but what if it were on the front page of The New York Times?'"
Although promoted as a good alternative, some donor-advised funds have been publicly criticized for being a vehicle to help donors avoid taxes and funnel money back to themselves, friends and relatives instead of funding actual charitable work. The downfall of one such fund, the National Heritage Foundation, involved several well-known athletes. Another downside is that, unlike a standalone charity, donors aren't able to review the individual finances of charities operated under a donor-advised fund.
That was one reason why the Tim Tebow Foundation moved from being part of a donor-advised fund to becoming a supporting organization, a change that basically means it has to file an IRS 990 form that can be viewed by the public. It still uses the National Christian Foundation, a donor-advised fund, to manage certain aspects of the foundation.
"We're in a time, unfortunately, if I said to the public, 'What do you think of an [athlete's] foundation?' there's some bad ones out there," said Tim Tebow Foundation president Erik Dellenback. "I think there's a very high level of accountability in terms of being public that we'd like to have."
When no one from Cathy's Kids would agree to an interview, "Outside the Lines" approached Odom in the locker room after a game to ask questions about his charity. Odom did not answer any specific questions about the charity's spending, wasn't able to explain why his agent and business manager said the charity had been dormant and became visibly upset and ended the conversation. More than a month later, his agent arranged a sit-down interview with Odom in Los Angeles, but Odom still didn't answer questions, saying he just wanted to apologize for the locker-room scene.
When pressed for details about some of the expenses, including DeGregorio's salary, listed on the IRS forms, Odom repeatedly responded by saying, "It's my money," and refusing to explain any further.
That is a common attitude among many athletes who run charities, said Bondarowicz. "It's not your money," he said. "Once the money is put in the charity, it is no longer his private money."
"A charity, as a tax-exempt organization, is a public entity, and therefore it has a responsibility to the public. We give them nonprofit status because that organization is supposed to be giving back to society in some way, shape or form," he said. "It's not meant to be someone's personal slush fund and a way for them to spend money for their own private purposes."
"Outside the Lines" received a similar response when it tried to get information about two charities run by NBA free agent Baron Davis, with a representative of his saying Davis didn't like to talk about his charitable work because he considers that his personal business. Requests for copies of the charities' IRS forms -- which must be made public -- went unfulfilled long after the 30 days required by law. "Outside the Lines" would find out later that the charities were late in filing those forms with the IRS and state of California.
In 2006, Davis and Celtics forward Paul Pierce took over a celebrity charity event in Los Angeles that the Magic Johnson Foundation had sustained for 20 years, raising millions of dollars. The new event -- and ticket sales -- was advertised to raise money for Davis' Team Play Foundation and Paul Pierce's Truth Foundation, among other nonprofits.
Davis formed a company called LA Stars to run the event in 2006 and 2007. The weekend of celebrity basketball games, poker tournaments and entertainment touted big-name sponsors such as Coors, Clear Channel and Spalding and featured household names such as Jessica Alba, Usher, Snoop Lion and Donnie Wahlberg as well as several NBA players.
But instead of raising money for Team Play or the Truth Foundation, LA Stars took money from Team Play -- a total of $623,000, according to the charity's IRS filings. There are no records from Team Play or Pierce's Truth Foundation that indicate the event raised a single dollar for either charity, even though some of the events were advertised as sold out. Requests to Davis' representatives for proof that the event raised any money went unanswered.
What's more, Davis' accountants listed LA Stars, which is a private company, as a public charity on the tax forms, making Team Play look far more charitable than it actually was. Even though its stated mission was to raise money for other nonprofits, out of the $1.3 million Team Play spent since 2003, only 8 percent went to actual charities. Its tax-exempt status was revoked this month for failing to file tax returns for three consecutive years.
"When you look at how much money is raised versus how much money actually comes into the organization, you have to scratch your head sometimes to say, 'Were you really in the business of running an event? Or were you really in the business of promoting a charity and raising money for a charity?'" said Bondarowicz.
Berger, the charity watchdog expert, said he would give the charity a "zero rating" for its finances, because Charity Navigator expects nonprofits to spend a minimum of 66 percent on actual charitable work. "It seems vastly inefficient," he said.
Davis -- who is listed as the charity's only director -- refused multiple requests for an interview. Spokeswoman Kate Gordon released this statement, which reads in part: "Team Play accomplished its mission by distributing donations to over 10 nonprofits, including the American Red Cross. Our fundraising came from Baron Davis, a private network of donors and our main event -- LA Stars. When fundraising costs with LA Stars exceeded sponsorships, we felt a responsibility to focus on more efficient ways to raise money."
Some is better than none
While Davis' LA Stars event might be an extreme case of a fundraiser failure, Berger said the type of events athletes -- or celebrities in general -- like to use to raise money often fall short of the 66 percent charitable-expense standard because they're so expensive to run.
The loss of a major corporate sponsor resulted in the Kyle Petty Charity Ride's percentage to charity dipping to 46 percent in 2010 and 60 percent in 2011, former NASCAR driver Kyle Petty told "Outside the Lines."
"This is something that's always been near and dear to my heart," he said. The event, which is a springtime cross-country motorcycle ride, relies on riders to pay a certain amount that covers their fuel, food, lodging and other costs as well as their charitable donation. Corporate sponsors made up the rest.
"For the last three or four years, we haven't had a marquee sponsor," Petty said. "It has cut into our ability to give the amount of money we have in the past."
Petty said organizers haggle with hotels and other vendors to keep costs down, and the event replaced its executive director, who had been making $135,000 a year, with someone making half as much.
"We're like every other charity in America right now. You're at the mercy of where the economy is in some way shape or form," Petty said, adding that the event will have a new key sponsor this year and, he hopes, will be able surpass that 66 percent threshold.
But organizers of other big sports-related charity events question whether that threshold judges them fairly. In 2009 and 2010, the Franklin Templeton Shootout -- which, like many PGA Tour events, is structured as a public charity -- spent only about a third of its money on charitable recipients. The event is also referred to as the Shark Shootout in recognition of its founder, golfer Greg Norman, whose Great White Shark Enterprises has run the event.
President Bart Collins said the shootout follows the same model as other PGA Tour events, where the biggest expenses are prize money and the cost to get the event on television, which are necessary to attract players, sponsors and fans. "Whether you save 15 or 20 percent on catering or scaffolding or parking or the other operational expenses," won't matter much, he said, when those two big expenses are often "cast in stone."
Ron Price, chief financial officer of the PGA Tour, said the tour requires that the net amount from the event goes to charity but doesn't specify what percentage that should be of expenses. He said the 66 percent of expenses standard is good for nonprofits that actually run charitable programs, but for those that raise money for other charities, such as the Tour event, he said the bottom line net revenue matters more. And he points out that, in 2011, all PGA Tour events combined gave $120 million to charity.
"It's a hard business, and our heart's in it," Collins said. "I understand, with 115 athletes, you'll have some abuses with charities, but this really isn't one of them."
Despite that argument and the bottom line, Berger, from Charity Navigator, stands firm, saying the shootout was, "so vastly inefficient that it just sort of trumps everything else."