Part 1: Gearing Up
Part 2: Community Goals
Part 3: Clif Notes & Big Staffs
Part 5: Options & Alternatives
Part 6: Lost & Foundation
Part 7: Devotion Over Dollars
Part 8: 2001/2002 Update: Lawsuits, Loss and LifeCycle
Inside Pallotta TeamWorks
Bay Area Reporter
The cultivated image of AIDS Rides is one of diverse crowds lining rural byways to cheer victorious athletes who are giving their all for a good cause, but one former employee of the company that produces the events says a good look into the inner workings might dampen some of the cheering.
John Haley was a rider in the TwinCities-Chicago ride in 1996 and a rider in Boston-New York ride in 1997. He was an employee of Pallotta Teamworks from August of 1996 through November of 1998 in the Chicago ride office, first as a rider representative, and for the last year-plus as Recruitment Manager. He also went to California to staff California Ride 3 and worked as Ride Representative and Recruitment Director for the Twin Cities-Chicago AIDS Ride in 1996, and advised on the California Ride 3 and the Boston-NY AIDS Ride in 1997. He worked at the Chicago office through November of 1998.
Now he describes the years working for AIDS Ride founder Dan Pallotta in blunt terms: "I was under his spell."
In an interview from his home in the Chicago suburb of Oak Park, Illinois, Haley recalled the controversies that arose about the AIDS Ride, and how his employers at Pallotta and Associates dealt with them.
"We were never alerted when there was negative press," he told the Bay Area Reporter. "The company riders would call and tell us, asking about how to respond to criticism. Then the same thing happened down in Florida.
"The first big problem was Philly," he said of the 1997 financial dispute that resulted in a court-ordered fine of $110, 000. Pallotta and Associates (also known in some years as Pallotta TeamWorks) paid it, but denied any wrongdoing. Then, according to Haley, the company attempted to subtract that loss as an expense in other rides.
Haley says employees were told by Chicago Ride Director Dee Dee Holt "not to 'throw fuel on a fire.' Her approach was a non-response."
But even the brochure that Haley delivered to riders contained conflicting figures. "We got the rider portfolio," Haley said. "Every participant gets a folder on how to prepare for the Ride and fundraise. But when those came out on Ride 3, the background section included different figures. There was a difference of $5 million within our own publication."
Haley inquired with National Director of Rides Kevin Honeycutt, but received no response. "There were a lot of questions about what was going on."
Haley left on disability due to a back injury, then was turned down when he re-applied for work with the company after 12 weeks. He believes his dismissal may have been a result of his growing discomfort with the way Pallotta's company operated.
Since then, he has made it his mission to do what he calls "exposing the Rides for what they are." He says his research has revealed budgets bloated with "amazingly high salaries" and lots of them. Among the positions are a publications editor, a national accountant, a corporate sponsorship director, an advertising director, two national logistics managers and their assistants, as well as communications assistants and volunteer coordinators, "plus the budget for the local staff." On the local end, there are full-time coordinators in each city.
Paying so many employees for a familiar recurring event strikes Haley as excessive. "This is a Ride that's been going on for years," he pointed out. "The route, campsites, and pit stops are all set, but they [have continually] added and billed for additional salaries."
Haley said he tried to alleviate some of the regional costs of producing the events and Tent Cities. "We would make suggestions, offering to find people to make donations. Efforts like that were met with indifference."
In seeking work with other charities, Haley mentioned one representative of the American Heart Association was shocked at the figures from AIDS Rides. "If the cost of fundraising is higher than 30 percent, they won't do it. When I told people I had worked on the AIDS Ride, people with AIDS service organizations said the Ride was not regarded highly. Some agencies viewed it as something that hurt their ability to raise funds."
However, the money keeps rolling in to Pallotta. As a for-profit company it is not required to open its books, but Haley says his research shows "in Texas [in 1998] he made $280,000, and for the midwestern Ride and its collective of beneficiaries he'd collected a combined production fee of $450,000. And his 'good' events, at least by his standards of netting 45 or 55 percent, brought in another $900,000 in production fees."
Haley said he referred a developer of a child services group in Chicago to Pallotta, who offered her a $330,000 fee. "This is for an event that had a gross of $50,000. She was speechless. Since then, they hired another local company for $15,000."
To Haley, "there's a difference between making a good living and making a half a million a year." While he admits that the original concept of an AIDS Ride is smart, he questions the cost. "How many years does this good idea justify his making this kind of money?"
A Firm Foundation
To a representative of the San Francisco AIDS Foundation (SFAF), how much Dan Pallotta's firm makes is not the issue.
Gustavo Suárez, SFAF director of communications, told the B.A.R. this week that the foundation's history has no such financial problems or confusion with the company, and considers the California AIDS Ride an unequivocal success. The Los Angeles-San Francisco trek has expanded annually from its original 500 riders to 2,500.
"In terms of dollars and rider participation, this much is obvious," Suárez said. "With a larger amount of riders, that's why it's so successful. The success of the event depends on the people you draw."
Suárez agrees with those who cite low turnout of participants as reason for the recent financial problems of other Rides. "If you don't draw enough riders it doesn't work. We're in a fortunate position because with the riders we've had, we get more and more people. Registration is closing earlier every year. Slots are filled much sooner."
Another reason for the regional problems was possibly even homophobia. "We're not confronting as hostile an environment as perhaps other rides are," said Suárez.
"The public here as a whole is more progressive, so support is greater. The challenge we're facing here is not what some organizations face."
He also mentioned that many first efforts lose money due to inexperience, and should be overcome with experience. Still, he admits that "if some rides have a bad first go, it sort of puts a cloud over it."
But do groups like SFAF have any sort of sympathy for AIDS service organizations (ASOs) who now vow to find other producers?
"Pallotta runs a business," he said. "You contract that service or not. You enter into it in as clear-eyed a fashion as you can."
Suárez considers other failed Rides as unfortunate exceptions. "We're not the only AIDS Ride that's successful," he said. "It's important that every ASO really think before entering into any contract with a producer."
A contract that loses money won't happen in San Francisco, he said. "There are strong fiscal controls for us. As to what will work and what will not, possibly smaller organizations don't have the infrastructure to evaluate these events."
Haley, however, believes that the problem is not with small groups, but with his former employer, whom he believes consistently overcharges for his services.
He recounted ways that he believes Pallotta's accountants shifted donations and income. The contracts, he alleges, often stipulate that Pallotta and Associates receive a bonus if a Ride cuts costs; although that sounds good, he told the B.A.R. that the illusion of cost-cutting can be created by making some collected money into "negative cost" instead of income. "On accounting for cash sponsorships, Tanqueray will pay $100,000," Haley said. "Instead of that being counted as income or revenue, they count that money as a negative expenditure. They subtract it from expenses, not adding it to profit." The shift doesn't end there: every rider's $45 registration fee is subtracted from costs rather than added to profit. That alone knocks $112,500 from the "costs" of the California Ride, allowing Pallotta to demand a substantial bonus for his company.
"If the cost were below 43 percent, he would get a $50,000 [extra] fee," Haley alleged. "That is income that doesn't go to AIDS charities.
"It's a slick accounting method," he said, and one that bombed in Philly. Haley said that after paying the fine, but denying any fault, Pallotta and Associates "even appealed to the Pennsylvania Attorney General that $110,000 fine be included in the cost of their Ride."
One thing that Pallotta's fee is not linked to, apparently, is the overall success of fundraising. "Pallotta's production fee for Boston [in 1998] is listed as $198,000," Haley told the B.A.R. "That's a 10 percent increase on this Ride during the worst year he's had yet for net dollars on these events."
Haley also said he "was outraged" by Executive Director Chris Cole's remarks that a 15 percent return is "a good investment" for an AIDS Ride, when Cole compared the low net proceeds to investing in the stock market.
"Their attitude is they want all the credit when a Ride is successful," Haley said, "but not willing to take the flack for failures."
What does he think should be done? "I would like to see some accountability. Force them to open the books. These [beneficiary] agencies should get together and say, 'You have to reduce these costs or we're not going to do these Rides.'"
'The Way Philanthropy Works'
Haley knows many will hesitate to criticize any lucrative source; SFAF is only one group that depends upon the Rides to bring in a substantial portion of their annual budgets.
"They're like heroin addicts," Haley said of some ASOs. "They know it's bad, but the thought of giving it up is too painful."
SFAF's Suárez calls such claims unfounded. "If it wasn't a good working relationship we wouldn't be doing business with them." Despite the history of other Rides, he said the California AIDS Ride remains a financial success and great public relations for the cause.
"Suddenly a topic that people are loathe to discuss is on the front page," he said. "That is a tremendous boon. The underlying story is that these people are caring and working to alleviate suffering caused by AIDS. They're also keeping America aware of this epidemic."
Suárez referred to the many mainstream TV stories about the Ride, and how the uplifting image of cyclists remembering loved ones does raise awareness for AIDS in a time of decreasing government funding and philanthropic donations.
According to Funders Concerned About AIDS, a consortium of foundation board members, the number of funders granting $50,000 or more each year to HIV/AIDS declined 22 percent over a three-year survey period (1997-1999). This may be why some ASOs are hesitant to criticize any efforts to raise funds.
"People do not seem to give otherwise," said Suárez. "They need this. When the benefit is expensive to put on, they raise a lot of money. This is the way philanthropy works. We would not raise this money otherwise."
But Haley asks, "Is it worth so much? As if a little kid seeing a bunch of people ride by on bikes is worth the same as having an educator do a safe sex demonstration in urban schools."
And with so many other AIDS organizations coming under scrutiny by groups like the Accountability Project, should the largest producer of AIDS fundraising events remain immune to such questions simply because of its for-profit status?
For Haley, it's a definite no. "As far as Wisconsin goes, there was blatant corruption going on there," he said. "Pallotta claimed to be giving the Wisconsin ASOs a break of $50,000 on his usual production fee and only charged them $110,000, but I have a copy of his budget that he proposed to the beneficiaries in Wisconsin. He turned around and billed them for partial salaries of several of his national office staffers. These are the people he claims he has to pay out of his exorbitant production fees whenever the high fees are questioned. So he reduces the fee in Wisconsin by $50,000, but then bills them about $52,000 in salaries and health benefits in the budget."
This could neither be confirmed nor denied. Pallotta's Los Angeles-based public relations firm Bragman, Nyman & Cafarelli, has yet to arrange for any AIDS Ride officials to respond to requests for interviews with any representatives from Pallotta TeamWorks or primary sponsor Tanqueray. Even basic questions made to the San Francisco office of the AIDS Ride about the role of the advertised 700 volunteers needed for the opening ceremonies were referred to the Hollywood PR firm's offices.
Haley is not the only person curious about the reason for all the secrecy. He wonders, "If there's nothing wrong with them making so much, why do they refuse to tell how much it is?"