Government

Could $2.3 million loss with newbo evolve have been avoided?

Go Cedar Rapids board chair says group was left in dark on big decisions

Board chairman John Myers delivers remarks on the newbo evolve festival’s $2.3 million loss during a press conference at the GO Cedar Rapids office in Cedar Rapids on Tuesday, Aug. 21, 2018. Myers will step in as chief executive until an interim CEO can be found, replacing former CEO Aaron McCreight. (Liz Martin/The Gazette)
Board chairman John Myers delivers remarks on the newbo evolve festival’s $2.3 million loss during a press conference at the GO Cedar Rapids office in Cedar Rapids on Tuesday, Aug. 21, 2018. Myers will step in as chief executive until an interim CEO can be found, replacing former CEO Aaron McCreight. (Liz Martin/The Gazette)
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CEDAR RAPIDS — The former chief executive of GO Cedar Rapids refused to cut expenses as “newbo evolve” neared contributing to a $2.3 million loss for the event, the board’s chairman John Myers said on Friday.

The board was unaware of and didn’t approve several expenses, such as the last-minute signing of rock band The Wallflowers to open for Kelly Clarkson on the event’s opening night, Myers said, and top act Maroon 5 was paid much more than it should have been. Things like stickers on the street and lockers outside the concert grounds could have also been cut to minimize losses, he said.

“A prime example was the signing of The Wallflowers because there was no contractual obligation to sign them as opener for the festival,” Myers said, declining to say how much individual acts were paid, citing contractual restrictions. “That was made the last week before the festival. It should have been avoided. It should not have happened.”

He cited “excessive spending on unnecessary items” and breaking protocol in signing contracts as factors when asked why the event lost so much money. The board is in process of finding a firm to conduct a full audit of the festival, he said.

As more details are released about newbo evolve — part music festival, part speaker series, part wellness, fashion, design and culinary series on Aug. 3-5 in downtown Cedar Rapids and the New Bohemia District — the oversight board continues to distance itself from the decision-making that led to the loss. Myers describes an engaged board that questioned information from the beginning, and he put the blame squarely on former chief executive Aaron McCreight and Scott Tallman, the creative director of newbo evolve.

Others question why the board allowed the tourism bureau to take on such a great risk with little experience in putting on such an grand event.

“They are playing with other people’s money, and it makes you wonder if these board members would put their own money up for something so risky,” said Daniel Borochoff, president of Charity Watch, a Chicago-based watchdog in the nonprofit sector. “Saying they got bad information says they didn’t do enough to get their own information.”

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Board members fired McCreight last week saying he misled them, either “intentionally or negligently,” about ticket sales, spending and sponsorships. Days after newbo evolve, McCreight had fired Tallman.

With the correct information, the board certainly would have made changes to limit loss and better protect the organization, Myers said. As it is, the future of GO Cedar Rapids remains uncertain.

An interim director is expected to be named Monday and that person will lead the effort of paying unpaid vendors and examining what needs to happen to stabilize the organization, which is charged with marketing the area and attracting visitors.

‘Such a risky venture’

The revelations about woeful ticket sales and the financial losses have put the spotlight on the board and how it handled its fiduciary and oversight responsibilities.

GO Cedar Rapids is a nonprofit organization managed by staff who report to the chief executive, who reports to the board. The volunteer board is made up of 18 directors, including six who serve on an executive committee which worked most closely with McCreight and finances.

The executive committee is made up of Myers, vice chairman Dan Callahan, treasurer Seth Wear, secretary Erika Elles, sports liaison Denny Goettel, and city liaison Angie Charipar. The remainder of the board includes Jay Andkerin, Anthony Arrington, Kaitlin Byers, LaNisha Cassell, Matt Evans, Adam Gibbs, Marty Lenss, Bill Neppl, Scott Overland, David Parmley, Megan Schulte, and Derek Stepanek.

Myers said new board members are recommended by other board members and as the executive director, reviewed by a selection committee and then voted on by the board to three-year terms. They goal is to have a mix of specialties such as legal, human resources, arts and culture, hotels, business community, city representation and others.

According to data provided by Paul Thelen, director of the Larned A. Waterman Iowa Nonprofit Resource Center at the University of Iowa, GO Cedar Rapids is among just 8 percent of more than 18,000 Iowa nonprofits with a budget greater than $1 million annually. The organization receives $1 million per year in public money from hotel-motel taxes and had an annual budget of $2 million last year.

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Thelen said directors of nonprofit boards have numerous responsibilities. Internal responsibilities include fiduciary, governing, strategy, evaluating, planning and audits, while external roles would include fundraising, being an ambassador, recruiting, networking and negotiating, he said.

Board members should be reviewing bank statements, cash flow and statements of financial position, he said. For a big initiative, they should expect a forecast of cost and revenues, he said.

“They need to provide proper oversight and due diligence, but execution you leave to the staff,” Thelen said.

He recommended an annual audit for nonprofits with annual budget of $1 million or more. GO Cedar Rapids has a financial compilation each year but hasn’t been audited recently, Myers said.

Josh Schamberger, president of Think Iowa City and a former staffer of the Cedar Rapids Convention and Visitors Bureau — the precursor to GO Cedar Rapids — emailed his board of directors in anticipation of the news about newbo evolve with reassurance.

“For starters, we would never (ever) attempt to produce such a risky venture,” Schamberger wrote. “As many of you who help with our various special events know, we fret over a possible couple thousand dollar loss on a ‘big event’ like the marathon or granGABLE or Olympic Trials. We don’t deal in the tens of thousands, let alone millions.”

Schamberger has been involved in creating several new events in the Corridor, such as FRYfest, U.S. Olympic Trials for wrestling, granGABLE bike race and the Run CRANDIC marathon. He said they go into events with the expectation of breaking even, not losing money and making it up in future years.

“It was a big risk, and the question is if it was needed to make Cedar Rapids the next big thing, because Cedar Rapids is a great community that has a lot of assets to build on,” Schamberger said in an interview with The Gazette.

Second guessing

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Myers said the GO Cedar Rapids board understood it faced risk from the beginning and had agreed to the $3.8 million budget before any contracts were signed. The organization wanted to take on a “signature event” that would make Cedar Rapids a destination year after year, and felt comfortable with the risk.

Hotels and the city had been urging the group to create festivals to help draw people to the community during slower times, he said.

The newbo evolve budget forecasted a $640,000 loss, and board members thought the worst-case scenario might be losing $1 million and paying it off over the next two years, Myers said.

“The reaction was not a sense of shock at one individual number,” Myers said. “We knew we were taking a risk and expecting to spend more to take that risk. We agreed to that. What didn’t agree to was substantial losses. ... The shock was Aaron (McCreight) blatantly disregarded our request to make cuts and operate within the $640,000 budget.”

If the board knew, it would have made personnel changes ahead of the festival, he said.

While some organizations require board approval for spending more than certain amounts and, in some cases, a board signature, GO Cedar Rapids put no such restrictions on McCreight, Myers said. He was authorized to sign contracts within the scope of the event budget.

However, McCreight violated the board’s rules by not getting legal review of contracts of $20,000 or more, and other contracts were simply verbal agreements, Myers said. The board is still sorting out those details.

Myers said McCreight provided the research that showed the festival was viable. Myers said the board did not seek independent market analysis or independent review of the budget, and instead trusted the findings of McCreight and “put their faith” in the expertise of Tallman, who’d worked with Comic-Con and South by Southwest and WWE while in Los Angeles.

Myers said the board did not seek to see the original statements from Ticketmaster, which was handling the tickets, and instead trusted the reports prepared by McCreight. The board reviewed financial statements, but ticket sale revenue of a future event does not show up in financial statements until the event, Myers said.

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Among the biggest areas for second-guessing are whether the board should have listened to community backlash about ticket prices and insisted on selling day passes and passes to individual speaker events instead of requiring the $375 three-day pass. Another question is whether the first year of the event should have started small, then grown in future years, Myers said.

Instead, Myers said, the board bought into McCreight and Tallman’s vision of putting “Cedar Rapids on the map right away, not starting small but seeing the growth Cedar Rapids needed right away.”

“From the beginning, the understanding was this is not a blank check,” he said. “Should things not materialize — sponsorships not coming in, ticket sales not coming in — we could scale back.”

l Comments: (319) 398-8310; brian.morelli

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