Date: Mon, 10 Oct 1994 15:10:18 -0700 From: Mills Mike This is a very revealing story about the Robertson Empire. It reminds me how truly insignificant are my efforts to bleed money from Pat by calling his 800 number and requesting his free fact sheet on the militant homosexual agenda in the Western States. The experience did show me how Pat goes about getting his "seed money," however. While I was having a few friends over for dinner a couple weeks ago the phone rang. It was Darlene from the 700 Club wanting to speak to the alias I had given on the 800 number. Freaked out, I hung up immediately. "How did they get my number?" I screamed. Of course they get the numbers of everyone who calls their 800 number automatically. So this money isn't just coming from senior citizens and out-of-work vacuum tube specialists watching Pat on TV, but also from active telephone solicitations. I know I felt pretty violated. So I sent back a few free business reply envelopes they had sent me. In one was a pious letter asking for more free info on queers. In the other was a safe sex information card. -Mike =-=-=-=-=-=-=-=-=-=-=-=-= 'With God There's No Cap' BY MICHAEL ISIKOFF AND MARK HOSENBALL [NEWSWEEK 3 Oct 94] FOR LOYAL FOLLOWers of Pat Robertson, the pitch seemed irresistible. Speaking at rallies in hotel ballrooms around the country in the fall of 1991, the world-famous televangelist was promoting his latest business idea: a new "multilevel" marketing company that would sell discount-coupon books to Christian families. Potential profits, Robertson suggested, were unlimited: "With God there is no cap. In the multilevel business, the sky is the limit." Kerry Young, once a volunteer in Robertson's presidential campaign, was dazzled -- and signed up as a distributor. "I saw dollar signs," he recalls. Today Young and some others who joined Robertson's marketing company are angry -- disgruntled participants in a bungled venture that has branched out into exotic products such as "good life" vitamins and skin creams from the Holy Land. Enticed by Robertson's Scripture-quoting recruitment rallies, some distributors now complain that they lost thousands of dollars after buying products they were unable to sell. Company documents obtained by NEWSWEEK and ABC News show that millions of dollars in funds from Robertson's tax-exempt religious ministry, the Christian Broadcasting Network (CBN), were initially used to prop up the money-losing venture. "I feel betrayed," says Young, who estimates his losses at nearly $10,000. "I've lost all respect for Pat Robertson . . . I can't even turn his program on anymore." Robertson's aides say that the CBN money that went into the marketing company came from "investment reserves" rather than donations, and that Robertson, this year, has fully reimbursed CBN with interest. They also note that the original company, American Benefits Plus, has shut down and its successor, KaloVita, is under new management. Nevertheless, the controversy offers a glimpse into the relationship between Robertson's religious and political organizations and his business interests. The relationship was apparent this month when Robertson convened the annual "Road to Victory" conference of his grass-roots political organization, the Christian Coalition, a session attended by virtually every potential Republican presidential candidate. The conference program included an advertisement inviting Christian Coalition members to sign up as distributors for KaloVita -- today a 100 percent Robertson-owned venture. "Christian Coalition Members --You've Made Your Political Voice Heard!!!" read the ad. "Now Make Your Economic Voice Heard!!!" The key to Robertson's empire is CBN, a $237 million-a-year television ministry that ships food and medicine to the poor in Africa, runs telephone counseling centers and airs TV programs that "prepare the world for the coming of Jesus Christ," according to its annual report. But critics -- including Democratic Rep. Pete Stark -- charge that Robertson has used the tax-exempt ministry to launch a complex web of nonprofit and profitmaking organizations. The most prominent of his for-profit businesses is International Family Entertainment Inc., a holding company set up by Robertson and his son Tim five years ago for one purpose: to purchase the Family Channel cable network in order to avert potential Internal Revenue Service concerns that the network was becoming too profitable for a tax-exempt ministry. Since then, IFE has grown into a $150 million-a-year entertainment conglomerate that has gobbled up assets as diverse as reruns of the Mary Tyler Moore show and the Ice Capades (chart). Equally impressive have been the Robertsons' personal gains: when IFE shares were first sold to the public in 1992, Pat and Tim Robertson saw the value of their initial $183,000 investment soar to $90 million -- a gain of 4,900 percent. (The elder Robertson put most of his stock in a trust for the eventual benefit of CBN.) Although Robertson takes no salary from his nonprofit ministry, company documents show that last year, Pat and Tim Robertson earned annual salaries and bonuses from IFE totaling more than $l.l million. Robertson has a name for such success: "God's Marvelous System of Money Management," he called it in one of his books. (The idea is that if you give some of your money to the Lord, he will eventually shower you with earthly blessings.) According to some charity watchdog groups, however, the problem is that the seed money for Robertson's profitmaking businesses originally came from Christian donors who responded to the fund-raising appeals of his nonprofit religious ministry. Much of CBN's revenue continues to come from small contributors. "You should see the thousands of social-security checks that are sent over to CBN," one former employee told NEWSWEEK. To use those assets to build profitmaking companies is troubling, critics say. "It may be as legal as it can be, but to me it's immoral to build your business empire based on tax-deductible gifts to a ministry," said James Dunn of the Baptist Joint Committee on Public Affairs, a religious watchdog group. Robertson "goes from ministry to marketing with very few pangs of conscience." Although the IRS audited CBN for years, it has never taken any action and Robertson has not been accused of any illegality. Moreover, says CBN spokesman Gene Kapp, the ministry has profited from Robertson's business dealings: when CBN sold the Family Channel to IFE, the ministry got $600 million in benefits, including a guarantee that "The 700 Club" -- the TV show that helps Robertson's ministry raise money -- would still be aired in prime time. Robertson's "business skills have enabled CBN to thrive in an environment that has crippled other ministries," said Kapp. His ventures into multilevel marketing have not been so successful. The original company was created by CBN in 1990 to sell home Bible-study courses. Two years later, however, Robertson approved an idea to turn it into an independent profitmaking firm based on multilevel, or "network," marketing. The concept works like this: independent distributors recruit friends to serve as members of their personal network -- and then collect commissions on sales of each distributor below them. Robertson proclaimed that the notion had scriptural roots. Network marketing, he said in a 1991 promotional video, is "one of the greatest expressions of the Biblical principles of prosperity that I know of. . ." At the outset, Robertson's company seemed blessed with success. In its first year, more than 20,000 Robertson followers joined its marketing force, in some cases investing thousands of dollars of their own money in fliers, brochures and videotapes promoting the company and its chief product -- a "passport" book of coupons offering discount prices on everything from generic drugs to vacation condos. Barely a year later, after listening to a pitch by Beverly Hills body-builder Jim Heflin, Robertson suddenly switched gears and made high-potency vitamin supplements, produced by Heflin, his primary product line. Before long, Robertson's company proclaimed itself "born again" as KaloVita, The Good Life Co. (The company magazine reminded readers that Saul of Tarsus "underwent a name change and became known as Paul.") Gone were the discount books. In came a line of KaloVita health products, including deodorized garlic, pills that help you slim while you sleep and a nutritional drink called the American Whey. Company executives proclaimed the new line a "complete health- and body-management system." But former KaloVita president Mark Peterson, who was fired by Robertson in 1992, said the vitamins were too potent for the average consumer -- and sold at a high markup. "We were buying it for $7 to $8 a bottle and selling it for $49.95," Peterson told NEWSWEEK. "What I didn't understand is a man of [Robertson's] stature putting his name on products like that." Robertson later changed vitamin suppliers. Policy change: The company's metamorphosis into KaloVita created an uproar among some distributors who found themselves stuck with boxes of discount-coupon books they said were almost impossible to sell. "It was a catastrophe," said Lois Flockhart, a 76-year-old Indianapolis retiree who says she lost more than $7,000 and was forced to refinance her home. Others complain the company reneged on a pledge to buy back unsold coupon books. When Ron Santom tried to send back more than $750 worth of the coupon books, the Pittsburgh-area financial executive said he was told the company's board had "changed the policy" and that refunds were no longer being offered. "I didn't think a company backed by Pat Robertson would do that," said Santom. Chief operating officer Nelson Rogers says KaloVita paid more than $1.5 million in refunds, but acknowledges that it changed its policy this year and stopped paying refunds on products purchased more than 12 months before. Those affected by the change could exchange old coupon books for new ones for a small fee. As problems mounted, Florida Attorney General Robert Butterworth's office began examining the company in the fall of 1992. State investigator Jim Lyons wrote that the company's recruitment pitch took advantage of "the greed factor," implied that membership in the company would solve "family financial problems" and, by forecasting earnings of at least $3,600 a month, "was replete with income claims which I believe to be deceptive," state files show. The company notes that all distributors now must promise not to make any claims as to income potential and that one distributor in Florida was dismissed for violating the policy. The company has never been charged with any legal violations, and says it complies with the ethical standards of the Direct Selling Association. Former executives also complained that, as originally conceived, the company's structure could have made members of Robertson's own family among the prime beneficiaries. His son Gordon served as the firm's chief lawyer, and one of his daughters was initially installed as the top figure in the distribution chain. (Robertson said he didn't know this and that he removed her as soon as it was brought to his attention.) 'Personal loss': Robertson and Nelson Rogers, KaloVita's new chief, say the company's management problems have been solved. After critical stories about KaloVita appeared last year in The Virginian-Pilot, Robertson blamed Peterson, whom he had fired earlier, accusing him of running up "hundreds of thousands of dollars" in accounts and making "wild promises" to distributors. (Peterson says all decisions were approved by Robertson and CBN.) CBN acknowledges that $2.8 million in tax-exempt ministry funds were poured into the marketing venture at one point and that, even while the company was losing money, Robertson received $38,609 in 1992 for making promotional speeches and videos. Rogers told NEWSWEEK the ministry hasn't suffered at all: in addition to repaying its investment, Robertson paid for services such as using its mailing list to recruit potential distributors. Robertson also has paid for KaloVita's losses and refund claims, Rogers says. "He had neither a legal nor a moral obligation to do so, but he took the loss personally, rather than see the ministry he loves injured in anyway ... ," Rogers said in a written statement to NEWSWEEK. Meanwhile, KaloVita continues to diversify. Recent offerings include Good Life spot remover, Hydro-Complex Hair Care and Sea of Galilee face creams and mud masks. Rogers said that Robertson takes a personal interest in selecting each product. The company will soon be introducing diet oatmeal cookies personally "taste-tested," by Robertson. But for some of the disappointed distributors, the bad taste of Pat Robertson's multilevel marketing venture will linger on. CHART: Pat Robertson's Empire THE CHRISTIAN BROADCASTING NETWORK (nonprofit) * The 700 Club Daily religious TV series; 7 million weekly viewers * Northstar Entertainment Producer and distributor of video and family films * ZapNews Fax news service for media outlets * StantardNews Radio news network INTERNATIONAL FAMILY ENTERTAINMENT (for profit) * The Family Channel Tenth largest cable channel; 57 million subscribers * Ice Capades Dorothy Hamill and her traveling ice-skating troupe * MTM Entertainment Mary Tyler Moore classic-TV-series library; produces and syndicates TV shows and movies * The Great American Entertainment Company Owns three music theaters OTHER ROBERTS0N AFFILIATES * Christian Coalitian Political activist organization; 450,000 members [note, in 1994 Robertson has claimed over 1 million] * Regent University Private graduate school. 1,400 students, $100M+ endowment, in Virginia * KaloVita Distributes vitamins, health products and beauty aids