End of the road for the ride: a year of mounting controversy and financial problems force AIDS Ride organizer Pallotta TeamWorks to call it quits. (Business).

Early this year, Chicago marketing consultant Ben McConnell studied Pallotta TeamWorks--the for-profit firm that has produced the AIDS Rides, breast cancer walks, and other blockbuster charity events--for a book he is coauthoring. The book, Creating Customer Evangelists, to be published in December, analyzes several other companies, among them Krispy Kreme Doughnuts and Southwest Airlines. Its conclusion on Pallotta reinforces what the company's critics and supporters agreed on over the years: TeamWorks is a "brilliant marketer," McConnell says. "They make going through these events highly experiential, tapping into participants' emotions and rallying people to the cause. Pallotta is changing the face of nonprofit fund-raising."

So McConnell, like many others, was "extremely surprised and shocked" to hear that on August 23, Dan Pallotta, 41, the firm's founder and owner, announced that TeamWorks was suspending operations and laying off its more than 250 employees. In the days following the closing, top company executives were unavailable to explain the decision or indicate if it is permanent. Neither Pallotta, president Steve Bennett, nor senior vice president Norm Bowling responded to phone calls or E-mails from The Advocate requesting comment.

The only public comment came from laid-off spokeswoman Janna Sidley in an interview with the Associated Press the day after the closing. Sidley said the company might rehire some employees and was planning to hold the three remaining Avon Breast Cancer 3-Day Walks scheduled for this year. The Avon Foundation, which announced in May that it would no longer retain TeamWorks to produce its walks after this year, said it expects Pallotta to ensure that the three walks, in Los Angeles, New York, and Atlanta, go on this fall as planned. "We didn't have any advance warning of this," says Susan Heaney, director of Avon's Breast Cancer Crusade.

Neither did TeamWorks employees. According to one former staff member, who requested anonymity because he hopes to be rehired, Dan Pallotta called all workers in the company's Los Angeles headquarters to a meeting in the cafeteria and reported that the beneficiary that had been lined up to replace the Avon Foundation in 18 breast cancer walks next year decided against the deal. With his voice breaking, Pallotta said the company was consequently in a precarious position and needed to lay off everyone, at least temporarily.

There were rumors that TeamWorks would file for bankruptcy and seek to reorganize, the employee says. But there was no confirmation of this from executives. Employees were not given severance pay. And at press time, this employee says no one, as far as he knows, has been paid for their last week of work.

Beneficiaries are essential to an operation like TeamWorks, explains Mark Salzberg, an attorney who once worked full-time for the event planning firm. "If you don't have beneficiaries, they're not sending that flat fee [that TeamWorks gets for organizing every event]."

But the loss of a beneficiary for next year's breast cancer walks, while possibly pushing TeamWorks over the brink, was only the latest in a cascading series of signs that the company was in trouble. Among other problems:

* Four planned events were canceled this year because of insufficient participants--a Los Angeles KidsMarch to benefit foster care and adoption services, two AIDS vaccine bicycle rides, and a Los Angeles walk to end poverty. TeamWorks had to absorb substantial expenses to advertise, promote, and administer these now-canceled events.

* There was rising criticism that TeamWorks' costs for producing events were too high and that the charities were not getting enough of the proceeds. In August the Washington Blade reported that the two beneficiaries from this year's Washington, D.C., AIDS Ride--the Whitman-Walker Clinic and Food and Friends--netted less than 14% of the $3.6 million contributed by participants and supporters, with more than 86% gobbled up by expenses and the company's $225,000 fee. (The general standard, according to the Better Business Bureau's Wise Giving Alliance, is that 65% should go to the charities.)

* Costs, combined with a declining number of participants, led some charitable organizations to sever their relationship with TeamWorks. In Washington, Food and Friends and Whitman-Walker announced that this year's ride was the last Pallotta would produce for them. Food and Friends executive director Craig Shniderman says that even though TeamWorks' AIDS Rides raised $7.3 million for each of the D.C. charities over seven years, officials at his organization decided it would be more profitable to do the ride on their own. Whitman-Walker officials say they will turn to other kinds of fund-raising.

* TeamWorks lost a nasty court case earlier this year in its unsuccessful bid to prevent the San Francisco AIDS Foundation and the Los Angeles Gay and Lesbian Center from launching a ride to compete with TeamWorks' own eight-year-old ride, of which the AIDS foundation and the L.A. center had been the beneficiaries. The two groups organized their own event after increased TeamWorks production costs reduced their profits in the 2001 AIDS Ride.

* TeamWorks also faced another lawsuit filed by Mark Cloutier, executive director of Continuum, a San Francisco AIDS service organization. Cloutier charges that three AIDS vaccine research centers received less than a third of the $28 million raised from an Alaska AIDS vaccine ride he participated in last August. Cloutier says he and others were misled into believing a minimum of 60% of proceeds would go to the centers. "It really infuriated me," Cloutier says. Whether the suit goes to trial may depend on whether TeamWorks survives.

All these woes contributed to an increasingly bad public relations image and financial situation for TeamWorks. "Our event producer had become more the news than the event, and that worked pretty consistently to our detriment," Shniderman says. Some people who had participated enthusiastically in previous events said they were getting turned off by what they saw as TeamWorks' excesses of self-promotion.

Even former employee Salzberg--who has participated in seven AIDS Rides, which he says gave him an "incredible belief in myself' and a "great feeling of community"--became disillusioned because he felt TeamWorks was focusing on promoting its other fund-raising events. The AIDS Rides "became a Pallotta TeamWorks event, and they stopped even talking about AIDS," he says.

As the news of TeamWorks' closure surfaced, some said the company was getting its due. Says Wayne Turner, a spokesman for Washington, D.C.'s ACT UP: "From my perspective, these [fundraising] events were designed to build the Pallotta empire. I see Pallotta TeamWorks as a parasite, really looting the community of resources that should have gone to AIDS groups and AIDS services."

But many others praised the company and its efforts to bring much-needed attention and funding to AIDS and breast cancer charities. A. Cornelius Baker, executive director of the Whitman-Walker Clinic, says TeamWorks helped his organization raise money it would not have received if those fundraising events did not take place. "A lot of people say that those who didn't want to support the AIDS Rides should send the money directly to charity," Baker says. "But that isn't how fundraising works."

And Salzberg still expresses admiration for Pallotta and the spectacular, often emotional events he produced to get people involved in a cause. Still, he says, "The company got really big really fast and wasn't thinking in a very practical way about having all these events. I think they alienated a lot of people along the way. All these things piled up, and it's really too bad, because the company did a lot of great things for a lot of people, including me."

Freiberg also has written for the New York Post and the Washington Blade.