SHIFTING GEARS.

Pallotta TeamWorks turns to more profitable breast cancer walks as interest and funds for AIDS rides wane

IN 1999 MATT LOCKLIN, director of the AIDS Housing Coalition of Houston, found himself in a desperate situation. Lack of funds forced him to close down his six-bed shelter for homeless people with AIDS.

The reason for the shortfall? His nonprofit agency had bet the farm on the 1998 Tanqueray's Texas AIDS Ride, produced by Pallotta TeamWorks Inc. But low rider turnout and high overhead costs that year resulted in only 15% of $2.6 million in rider pledges being distributed to the participating AIDS charities. While the AIDS Housing Coalition recouped the $10,000 it had invested in the ride, the agency earned just $4,000. It had expected $35,000.

"The AIDS Ride money not coming in put [the shelter] out of business," Locklin says. His agency, back on its feet this year, now does its fund-raising through a local nightclub.

But Pallotta TeamWorks's financial fumbles in Texas are in stark contrast to the company's successes producing the Avon's Breast Cancer 3-Day walks. These fund-raising events have drawn participants so quickly that registration for six of the seven walks scheduled for this year has already closed. Not so for the AIDS rides. Only one of five, the California AIDS Ride, has closed its registration. What's more, Pallotta TeamWorks is generating returns for breast cancer charities that are considered nearly acceptable by most standards of giving, with 59.6% of funds raised going back to the organizations. (The National Charities Information Bureau, based in New York City, says at least 60% should be the goal.) By contrast, Pallotta TeamWorks says it returns an average of 55% to its AIDS charities.

The unfortunate lesson here is that it's increasingly difficult to raise money to fight AIDS, while campaigns against other diseases are having an easier time finding sponsors. As a result, AIDS fund-raising giant Pallotta TeamWorks, like any smart business, is trying to diversify. "The reality is that breast cancer is a more palatable conversation piece," says Kevin Honeycutt, senior vice president of operations for Pallotta, adding that he thinks the AIDS rides are still growing at a healthy rate. (Nor is breast cancer the last stop. The company plans to move into fund-raising for still other causes, such as combating domestic hunger and childhood diseases.) But as Pallotta TeamWorks diversifies, many health activists and fund-raising experts question how many other charities will be stung the way the AIDS Housing Coalition was by the company's particular formula.

While Locklin's experience is an extreme exception, Pallotta TeamWorks often has been plagued by unsatisfactory financial returns. "In the past they have charged huge percentages of the proceeds for expenses, and very little of the actual dollars went to benefit the organizations," says Eric Sawyer of ACT UP New York. "That is outrageous."

In recent years the privately held company--which was founded by Dan Pallotta (who declined to talk to The Advocate) and is based in Los Angeles--distributed 20% or less of AIDS ride donor contributions to participating organizations in Florida and Pennsylvania, leading to cancellation of Pallotta-produced rides in those states. In 1998 charities in Wisconsin received only 10.6% of the money raised in the state for the Twin Cities-Wisconsin-Chicago AIDS Ride. And in March, Pallotta TeamWorks released more bad numbers, for the 1999 Texas AIDS ride. Although the company notched a minimal improvement over 1998, Texas charities received only 16.5% of the more than $2 million raised. Commenting on those numbers, Honeycutt says, "Nobody has a bigger incentive than we do to return the most amount of money. This is our business."

Of course, not all charities have had negative experiences working with Pallotta TeamWorks. The San Francisco AIDS Foundation plans to participate this year in its sixth California AIDS Ride, one of the most successful events produced by Pallotta TeamWorks. The foundation is quite happy with the returns and the visibility the event provides. "The ride works as an event for us," says Gustavo Suarez, a spokesman for the foundation. "It raises awareness of the disease, gets tremendous media attention, and pays for the activities and services we provide." In 1999, 67.3 [cts.] of every dollar raised by San Francisco donors went to the foundation, one of two AIDS agencies that benefit from the California ride.

Pallotta TeamWorks's market niche indeed is to stage heroic events that attract a lot of media attention and raise awareness for a particular cause. Some 60% to 80% of AIDS rides donors have never given to AIDS causes before, Honeycutt maintains.

But the events are saddled with many fixed costs, such as for tents, food preparation, transportation, safety measures, and the company's production fee, which varies according to the size and scale of an event. The production fee for an average AIDS ride is around $200,000. The fixed costs stay the same whether registration is high or low, so low turnout decreases the amount of donor contributions that actually make it to the charities. The breast cancer walks, started in 1998, are comparable to the AIDS rides in their scale. The walks are 60 miles long, last three days, and include tents and meals for participants. The production fee for one of these is $245,000.

For now it looks as if Pallotta TeamWorks has hit a bonanza with breast cancer. While donor contributions for the AIDS rides grew a healthy 10% in 1999, donations for the breast cancer walks have climbed off the charts. Pallotta TeamWorks produced four breast cancer walks last year, up from one in 1998, and donations grew 300%, from nearly $7 million in 1998 to $27.9 million in 1999.

One reason AIDS rides may not be growing as quickly is that nearly 20 years into the epidemic, there's a distinct battle-weariness, and protease inhibitor therapies have left many people with a sense that AIDS is manageable. "There's funding fatigue around AIDS and a decreased sense of urgency," says Paul di Donato, executive director of Funders Concerned About AIDS, a New York-based philanthropy and education organization. He adds that AIDS fund-raising controversies, including those provoked by Pallotta TeamWorks, have not helped either.

In contrast, Di Donato says, large numbers of people are becoming increasingly aware of the breast cancer epidemic. "Breast cancer in the last five years has gotten a high profile in the media, and that has translated into more successful fund-raising," he says.

Breast cancer's high profile may be the reason Avon Products Inc. has proved itself such a willing sponsor for the walks. (Avon executives declined to talk with The Advocate but said in a written statement that the company's working relationship with Pallotta is a good one.) Whereas Tanqueray gives $1 million annually to help underwrite costs for all five AIDS rides, Avon provides between $500,000 and $700,000 in start-up funding per walk. That underwriting helps defray expenses and guarantees that Pallotta TeamWorks can distribute more to the breast cancer organizations that participate in the walks.

Though the breast cancer walks return more than the AIDS rides, the rate of return is still well below what other private fund-raising companies offer similar charities. MZA Events Inc., producer of AIDS walks in Atlanta, Boston, New York, and San Francisco, says it disburses, on average, 75% to 85% of donor contributions to participating organizations. And the Revlon Run/Walk for Women, which is held in Los Angeles and New York and is fully underwritten, claims to give 100% of donor contributions to women's cancer charities. The scale of these events, however, is much smaller than that of Pallotta-run events--they are typically under ten miles and take only a few hours to complete--so their costs are lower.

Pallotta TeamWorks's affiliation with the breast cancer walks has angered some activists, who, like critics of the AIDS rides, have accused the company of profiteering. "Avon and Pallotta are perfect partners," says Barbara A. Brenner, executive director of Breast Cancer Action, a San Francisco-based education and advocacy organization. "Pallotta [TeamWorks] is in it for the money, and Avon is in it for corporate goodwill."

Breast Cancer Action is urging donors to think twice about the San Francisco three-day walk in July because the group believes that all of the money raised should go toward fighting breast cancer. It also disagrees with Avon's focus on programs that support breast cancer awareness rather than treatment and screening. "They will collect millions of dollars from unsuspecting people who think they are spending money on breast cancer," says Brenner, who is a lesbian. As an alternative, the organization is encouraging the walk's potential donors to give money directly to the charities they support.

Ultimately, the anger felt by some of the agencies involved with Pallotta TeamWorks may spread to donors. Locklin, of the AIDS Housing Coalition of Houston, says this has already happened in some areas of Texas. "[Donors would] rather give their money directly to a local organization that can use it," he says. And Locklin adds that he wouldn't be surprised if donors across the country, like those in Texas, decide that the high price of Pallotta TeamWorks events is simply not worth the effort.

Find more information on the charity events and fund-raisers mentioned in this story at www.advocate.com

Quittner has contributed to Business Week and The New York Times.