All shook up: As Newseum's operating costs soared to $250,000 a day, Freedom Forum's finances sank

[This year's Presley exhibit is a stretch for a news museum]

Four months ago, the Freedom Forum journalism foundation issued a late-afternoon press release that nearly begged to be ignored. Under a snoozer of a headline, it announced seemingly routine management promotions at the non-profit foundation and its signature project, a Washington museum about news history called the Newseum.

Overby

"These changes,'' Chairman and CEO Charles Overby said, "strengthen the entire management team and reflect the good work that has been done to promote our priorities of the Newseum, the First Amendment and diversity in newsrooms."

The release barely hinted at the real news. Freedom Forum and the Newseum had undergone a stunning management shakeup that left several high-paying jobs vacant. They included that of its just-departed president, former USA Today Editor Ken Paulson, who got $443,185 in salary, benefits and expenses in 2009. Moreover, the statement didn't disclose that both institutions had fallen into greater financial straits than previously reported.

Now, newly released public documents reveal the untold story. Annual spending by Freedom Forum and the museum has skyrocketed, contributing to $224 million in foundation overspending during 2007-2009 alone, further weakening its crucial income-producing endowment.

The museum is the culprit. In 2007, a year before unveiling a $450 million expansion that cost nearly twice initial projections, the Newseum's annual operating costs totaled $36 million -- an average of $99,000 a day. In 2009, they soared to $92 million, or $250,000 a day, the documents show.

A glittering fortune, gone

This is a story about what happened to a glittering fortune -- one amassed by generations of Gannett employees, only to be drained from the company's charitable arm, the original Gannett Foundation.

Neuharth

It's also about Allen H. Neuharth, who launched Freedom Forum in 1991 after he retired as Gannett's chairman and CEO. The foundation, the company, and his most famous creation -- USA Today -- are the 86-year-old's legacy. Now, in the twilight of his life, crushing economic forces are threatening all three.

Freedom Forum tax documents and annual reports reveal extraordinary spending on construction, interest payments, salaries and bonuses. Coupled with bruising stock market declines, the endowment's non-real estate assets plunged to $400 million in 2009 from $900 million in 2000, when the Newseum expansion started.

Meanwhile, as museum staff got laid off, top executives received six-figure bonuses in 2008 for completing the museum, even though it opened years later than first forecast. Overby, for one, got a $375,000 cash bonus, bringing his total pay that year to $991,044 in wages, benefits and expenses. Including expenses over the past decade, Freedom Forum has now paid him $7 million.

These details emerge in nearly 10,000 pages of IRS reports Freedom Forum and the Newseum filed in 2000-2009. The 2009 report was filed Oct. 29. I obtained copies of the documents under federal open records laws. They're the only comprehensive source of financial information such non-profits are required to make public.

To be sure, Freedom Forum and the Newseum may have other financial resources to tap, including potentially millions in outstanding donations, plus a smaller endowment held by the museum itself worth $27 million at the end of 2009. Still, barring an exceptional reversal in fortunes this year and in the immediate years ahead, it's unclear how much longer the two institutions can be sustained.

I asked Freedom Forum officials about the financial condition of the foundation and the museum, in e-mails last Wednesday and on Dec. 8. They declined to comment, other than to acknowledge receiving my requests.

This isn't the first time Freedom Forum's spending has been in the spotlight. In a 1994 settlement with the New York attorney general's office, it agreed to curtail what the general called runaway construction spending on the foundation's first headquarters.

In 2002, when Columbia Journalism Review reported big cutbacks in international programs to finance the Newseum, Overby told writer Russ Baker: "I have found that there are three things that everybody knows how to run. They know how to edit a newspaper, they know how to coach a football team, and they know how to run a foundation."

An electric chair, and Elvis
Signs of the museum's stumbling aren't confined to IRS documents. Consider the Elvis Presley exhibit mounted last spring. "Elvis! His groundbreaking, hip-shaking, newsmaking story," was nominally about how the rock 'n' roll singer was portrayed in the news media. Yet, the Newseum's promotional materials focused more on Presley's personal property from his Graceland home.

The museum said those mementos included his white jumpsuit for the 1973 "Aloha from Hawaii" concert, plus a coat and belt he wore to his 1970 White House meeting with President Nixon. The Newseum appeared to be really stretching for ticket sales.

Newseum's exterior

The Presley show joined other exhibits built around an expansively eclectic collection of news industry artifacts, owned and borrowed -- and all displayed in the 250,000 square-foot museum. They include 35,000 historic newspapers, a collection of Pulitzer Prize-winning photos, plus pieces of the Berlin Wall, and the electric chair in which convicted Lindbergh baby kidnapper Bruno Hauptmann was executed.

Certainly, ticket sales never pay the freight at cultural institutions, especially in Washington, where admission is typically free to better-known places like the Smithsonian Institution. Last year, for example, the Newseum sold just $7 million in often-discounted $20 tickets. That's why contributions and earnings from endowments are so crucial.

Freedom Forum started with a $650 million endowment. At the time, 1991, Neuharth had taken control of the original Gannett Foundation after retiring as Gannett's jet-setting CEO. The foundation was established by Founder Frank E. Gannett in 1935 for the benefit of food pantries and other non-profits in communities where the company did business nationwide. Its endowment comprised GCI stock, which Neuharth moved to sell in order to boost the foundation's growth. Gannett agreed to buy it back under pressure, rather than risk its falling to an unfriendly investor.

Neuharth soon went on a spending spree that drew the attention of New York's attorney general. In a settlement on Dec. 28, 1994, Neuharth and other governing trustees paid $175,000 in restitution to the foundation for inappropriate spending. Those expenditures included a massage table in Neuharth's office, and the purchase of 2,000 copies of his autobiography, Confessions of an S.O.B., in an "apparent attempt to improve its bestseller standing," according to a settlement summary. By this point, Neuharth had relinquished the Gannett Foundation name, returning it to the company.

Optimism vs. reality
The reconstituted Gannett Foundation never recovered. It had just $15 million in assets at the end of last year, when its annual spending fell to only $4.1 million. Neuharth's maneuvers would forever deprive scores of communities of hundreds of millions of dollars in charitable support -- from the Rust Belt in Elmira, N.Y., to the farm town of Salinas, Calif., that inspired John Steinbeck's Grapes of Wrath.

Jan Neuharth

Neuharth named his new philanthropy Freedom Forum, and gave it a lofty mission: "free press, free speech, and free spirit for all people." His lieutenant for many years in Gannett, Overby, 63, has been CEO from the start; he became chairman of the nine-member board of trustees in 1997. Most of the trustees are close Neuharth friends or associates, including his daughter, Jan Neuharth. Other trustees include PBS correspondent Judy Woodruff. Former Senate Majority Leader Howard Baker is listed as board secretary.

At 86, Neuharth himself remains active, the foundation says. As founder, he got paid $216,094 in wages plus $262,235 for expenses last year. The 2009 IRS report says he worked 40 hours a week, but it doesn't detail his duties or expenses.

The original Newseum opened in 1997 next to Freedom Forum's first home, across the Potomac River from D.C. in Arlington, Va. Within three years, Overby cited capacity limits in announcing plans to build a bigger home at a location with more foot traffic.

In a June 2000 column, Overby said administrators chose D.C. over other sites in New York City and Northern Virginia. The location would be on Pennsylvania Avenue, across from the National Gallery of Art, "positioned between the Capitol and the White House on an avenue famous around the world,'' he said. Eventually, the project would include a Wolfgang Puck restaurant and a residential apartment tower. Overby suggested an opening in 2003 or 2004.

"If all goes well," he wrote, "Washington will have a major new tourist attraction in three or four years. And the First Amendment and a free press will have an enduring center that teaches and entertains."

All did not go well.

Freedom Forum paid a D.C. record $100 million for the Pennsylvania Avenue property; it included an office building that was razed. In that year's 2000 annual report, the foundation said "the entire project, including the land purchase and construction of the Newseum and housing, is expected to cost about $250 million."

Prichard

A year later, in late 2001, then-President Peter Prichard told CJR: "We said originally we thought the whole project would cost $250 million. I think it will probably cost somewhat more than that, but we don't know yet. We're actually in the process of trying to figure all that out now."

By 2002, the price tag had grown to $400 million, and the completion date had been pushed back to late 2006, that year's annual report said. It eventually opened in April 2008 at a cost Freedom Forum now puts at $450 million.

The trustees had confronted runaway construction before, in their 1994 battle with New York's attorney general, Oliver Koppell.

In the settlement, Koppell said trustees had "failed to exercise appropriate cost controls" around construction -- in that case, of the foundation's original headquarters in Arlington. In response, they agreed any future construction would be completed "within the budget's limits, and that projected costs are not exceeded without adequate justification."

Overby signed the agreement for the foundation. Its provisions effectively remained in force only three years, however. I obtained a copy of the settlement documents under New York open-records law. (Download your own copy, which I've published here for the first time.)

Debt load skyrockets
None of the IRS reports or other publicly available documents explain the cost increases or delayed delivery. But the IRS reports reveal the impact on Freedom Forum's balance sheet. (Here's a spreadsheet of select figures for 2000, plus 2007-2009.)

The 2000 report says the foundation had no mortgage debt; instead, it lists $89.9 million in "loan agreements." That year, it paid no interest. By 2007, however, mortgage debt -- presumably tied to the Newseum construction -- had soared to $362 million. Expenses that year included $1.1 million in interest.

Then the numbers suddenly started gyrating. In 2008, the year the museum opened, Freedom Forum paid a whopping $20.1 million in interest, only to see that drop to $6.2 million last year.

It was the opposite story at the Newseum. It is a legally separate entity from Freedom Forum, so files its own tax reports. By 2007, the museum also carried a mortgage, valued at $35 million. That year, its expenses included a $785,373 interest payment.

But last year, the report says, Newseum's interest expense suddenly ballooned to $23.5 million, even though its mortgage debt remained virtually unchanged. The IRS reports don't explain why the $20 million-plus interest expenses see-sawed between Freedom Forum and the Newseum. (Here's a spreadsheet of select Newseum financial figures for 2007-2009.)

The 2009 IRS reports for Freedom Forum and the Newseum don't identify the mortgage holders.

The cost overruns could be due to a lack of trained museum experience at the top. The foundation hired consultants to plan and develop the Newseum's expansion. Yet, overseeing the project were Freedom Forum and Newseum executives whose prior experience was in Gannett newsrooms. Long-time CEO Overby edited newspapers in Tennessee, Florida and Mississippi, and was on USA Today's management committee. Prichard was USAT's top editor before becoming museum president. So was Paulson.

Other unannounced departures
Freedom Forum's Aug. 11 management shakeup got little attention from major news media. The foundation's statement described Paulson's exit from the president's job only in passing. And it didn't mention two other executive departures. The Newseum's executive director since its 1997 start, Joe Urschel, has stepped down from his $276,000 post. And a former Neuharth chief of staff, Senior Vice President Chris Wells, has left her $291,000 job. Like Paulson's, those two positions haven't been filled.

Paulson

Paulson was named chief executive of the First Amendment Center, a foundation project in Nashville, Tenn. He had been in line to succeed Overby. It appears Overby is now running both Freedom Forum and the Newseum with other deputy directors who survived the shakeup.

There's been other evidence of money woes. Last year, Overby was among several managers who took pay cuts -- a rare move for him, long among Washington philanthropy's highest-paid executives. Yet, even with that wage reduction, documents show Overby has collected $6.1 million in salary and retirement benefits, plus $819,000 for expenses, in 2000-2009. (Since 2001, he also has been on the board of directors of the controversial for-profit prisons operator, Corrections Corporation of America of Nashville. CCA paid him $164,640 in fees last year alone.)

Also last year, Freedom Forum eliminated virtually all donations to non-profits that have been especially dear to Neuharth, and to Overby and the foundation's other trustees. In recent years, many of those headline-generators went to causes with little or no connection to journalism. They included more than $70,000 to a Cocoa Beach, Fla., adoption agency controlled by Neuharth's third wife. Last year, her Home At Last agency got zilch. Also cut out: gifts to the United States Equestrian Team; Neuharth's daughter, Jan, is an equestrian enthusiast in Middleburg, Va., an hour west of Gannett's corporate headquarters.

Freedom Forum's endowment, meanwhile, has a long way to grow before it can comfortably support itself and the Newseum. Last year, the foundation spent $28 million on operations, plus another $52 million grant to the Newseum. Assuming no change in spending, to produce that $80 million this year, the endowment would need to have grown 20%, to $480 million, just to avoid further erosion of its principal. That seems unlikely. Overall stock markets are up 12% this year, based on the widely watched S&P 500 index. (See the spreadsheet for a breakdown of investment assets.)

The foundation's money managers, led by Goldman Sachs, got paid $2.2 million in fees last year.

Freedom Forum's income from outside donors and other sources also appears tepid. The foundation itself doesn't solicit contributions from the public. But the Newseum does. It got $5.4 million in gifts in 2009 beyond the $52.4 million from Freedom Forum. It took in another $26.4 million from facilities rental, ticket sales and concessions. Combined, that revenue still fell short by about $8 million of its $92 million in operating expenses.

To be certain, the museum may have other resources on which to draw. It listed $53 million in grants receivable at the end of 2009, the tax report for that year says. But it doesn't identify the source of that money, including whether any is due from Freedom Forum itself. The museum has 16 "founding partners" who pledged at least $117 million in gifts toward the new building. The biggest, $25 million, came from the John S. and James L. Knight Foundation. Some of these gifts may be coming via installment payments, so could be part of the $53 million.

Also, the Newseum has its own endowment, comprising $27 million in publicly traded securities at the end of 2009. The value of those securities was much higher at the beginning of the year: $48 million; the tax report doesn't explain the $21 million value change, however.

What's Neuharth thinking?
Even the museum's closest boosters have hardly ponied up. Neuharth has contributed only $60,000 to the Friends of the First Amendment Society, which the museum calls "the premiere giving society for donors who contribute $1,000 or more to the Newseum." Members have donated a little over $1 million since it was established in 2007. Among Freedom Forum and Newseum trustees, only two have given $30,000 -- Bette Bao Lord and Wilbert Norton. Neuharth's daughter, Jan, falls in a category of those giving $10,000 to $19,999.

Overby will soon turn 65. With no clear successor after Paulson's departure, it's now reasonable to assume trustees are looking outside Freedom Forum for a new CEO. I asked the foundation if a formal search had begun; that was among my questions it did not answer. Neuharth would almost certainly be involved in any succession planning.

He keeps a close eye on another part of his legacy: USA Today. Last July, Neuharth sharply criticized Publisher Dave Hunke over a full-page Jeep ad that wrapped the front page, calling it the worst mistake made in the paper's 28-year history. USAT is now undergoing a reorganization to boost revenue after steep advertising and circulation losses.

Neuharth still writes his weekly "Plain Talk" for the paper from his sprawling oceanfront estate in Cocoa Beach, called the Pumpkin Center. He's paid $100,000 a year for the column, under an agreement-for-life with Gannett. At the height of his luxe Corporate rule, Neuharth enjoyed living in the limelight.

Now, amid Freedom Forum's missteps, the light has grown harsh -- and perhaps unwelcome. "Most of us have gotten very nosy about everything and everybody,'' he wrote earlier this month. "But many of us fail to realize how nosy others are about us."

Related: Download free copies of the 2009 tax reports. Here's Freedom Forum's. And here's the Newseum's.

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