New documents give a glimpse into how the company is becoming a nonprofit — and who benefits
By Steven T. Jones
JANUARY 16, 2015 — Burning Man is now under the control of a nonprofit organization, a major step toward financial transparency and accountability by a company that derives most of its economic value from the volunteer efforts of those who build the art and infrastructure for this annual festival in the Nevada desert.
The nonprofit Burning Man Project’s recently filed IRS Form 990 spells out for the first time the terms of its acquisition, on Dec. 31, 2013, of Black Rock City LLC, the company that has staged Burning Man since 1996. The main highlight is the revelation that Burning Man founder Larry Harvey and the five other LLC board members will receive $46,000 each for their interest in Burning Man, a substantial discounting of equity that was appraised at as much as $1.2 million each.
But there are also many questions about the transaction that the company is refusing to answer, including how much the LLC board members paid themselves in bonuses or other lump sum compensation before the sale took place, something that Harvey and fellow board member Marian Goodell have told me in the past they wouldn’t disclose.
In order to accumulate any equity beyond a $20,000 cap instituted by the LLC in 2000 — a reform sparked by concern in the burner community that the board members were appropriating for themselves the economic value of thousands of hours of volunteer labor — the board changed that provision, as Harvey said it would in an April 2011 speech. That action and others by the LLC continue to remain secret and company representatives who said they would answer our list of questions related to the transition that we submitted on Feb. 8 by Feb. 12, later refused to do so.
Among our questions was how much the LLC board members are drawing in salary as they assumed executive positions with the new nonprofit, as they have since the start of 2014. The filing says those salaries were “based upon two different surveys of compensation for similar positions in similarly situated Northern California arts nonprofits,” and that they will be disclosed on the Form 990s for 2014, although those aren’t due for some time now.
“We’re on the IRS’s timeline for that one. They typically run almost a year behind. So, at the latest a year from now but hopefully before the end of this calendar year. We’ll likely have additional financial information to publish before then, likely in August or September,” BMP spokesperson Megan Miller told me before refusing to answer any more of our questions.
We’re also still waiting for a responses from Jennifer Raiser, a BMP board member who wasn’t on the original LLC board, who said she was deferring to Miller. Raiser serves as the treasurer of the nonprofit and was its top paid staff member in 2013, drawing an annual salary of $111,427, with all other employee salaries totaling $172,612.
“The Board contracted with the Treasurer to provide development services. The Treasurer has provided this service to other organizations. The terms of the contract are the same as contracts typically negotiated by the Board with other organizational management companies,” the report says.
Raiser has a business background and writes high-society columns for the San Francisco Chronicle and her SFwire.com website. After being invited by LLC board members to join the BMP board, she wrote “Burning Man: Art on Fire,” a book that was released in August. Another BMP board member, Chris Weitz, was a producer on the 2013 film “Spark,” while a third, Airbnb executive Chip Conley, started fest300.com to cover Burning Man and other festivals. All three projects offer uncritical praise for Burning Man without prominently noting the conflict of interests of their creators.
Such cozy and convenient relationships have become common within the Burning Man organization in recent years as its revenues have swelled along with the population at the event, which has gone from 50,000 attendees to nearly 70,000 in just the last few years, with tickets costing $390 going on sale this week.
We asked Tim Wolfred, a longtime consultant to nonprofit organizations in Northern California, to review the Burning Man Project’s 990. What struck him, he said, is the active management roles that the organization’s board members are playing in the project, rather than the independent fiscal oversight role common in most nonprofits.
“It’s unusual in nonprofits to have salaried people on the board, except the executive director. I don’t know of any nonprofits like that,” Wolfred told us. “There’s self-interest in setting their salaries. You want that separation between governance and management. The governors should be non-compromised.”
Wolfred also questioned the unusual salary arrangements in the new nonprofit and the fact that Raiser draws the only salary, but there were substantial payments to unidentified non-employee consultants, including $304,921 for management, $93,494 in legal, $42,399 in travel, and $36,657 for “other.”
To be fair, the new oversight system is much better than the old one with the LLC, where the six board members — Harvey, Marian Goddell, Harley Dubois, Michael Mikel, Will Roger Peterson, and Nanci O. Peterson (aka Crimson Rose) — were free to pay themselves bonuses or make other big decisions with almost no oversight.
That arrangement has periodically generated controversy in the Burning Man world, as it did in late 2004 — as I covered for the Bay Guardian and in my book, The Tribes of Burning Man — and in 2000, an episode covered by professor Katherine K. Chen did in her 2009 book, Enabling Creative Chaos.
“We divested [the Burning Man organization] of property interest…If any member of the LLC quits…they can’t claim a sixth share of the capital or the worth of it, they have no rights whatsoever…So now people can’t say that even though we collect fairly large salaries, that they’re building masses of equity,” Chen quoted Harvey as saying, going on to write, “Harvey publicized this change on the Burning Man Web site in the hopes that it would assuage concerns about organizers’ interests.”
But as their interests in the LLC were dissolved with the acquisition by the nonprofit, dividing the value of the LLC by six is exactly how the accounting was done. Initially, an appraisal done on Sept. 30, 2013 valued the LLC at $4.9 million “after applying discounts for fractional interests (lack of control and marketability).”
In other words, the company was worth less because no single person had a controlling interest and could unilaterally make decisions. That left the six LLC board members with a $809,000 stake, which they discounted down to $46,000 each and presumably got a pretty substantial income tax credit for that charitable donation.
But the value of that charitable donation increased on the day after the acquisition was completed, when the LLC was reappraised at $7.4 million, reflecting the fact that the LLC became a wholly owned subsidiary of the nonprofit.
“Thus, each LLC Member’s in-kind donation of shares is valued on this return at $1,242,667 less the $46,000 each is owed for their shares under the discounted Purchase Price, leaving a net contribution shown on the return of $1,185,667,” says the 990, which assigns a value to the nonprofit of more than $8 million, between that donation and nearly $1 million in revenues in 2013.
The LLC will continue to operate the Burning Man event, with Will Roger — the board member who oversees community and government relations in Nevada — continuing to draw his salary from the LLC while the other five board members’ salary more over to the nonprofit. In addition, all six board members continue to control the Burning Man brands and logos through another company, Decommodification LLC, which is paid $75,000 per year in licensing fees by the BRC LLC, although those assets are scheduled to be transferred to the nonprofit in 2018.
The new nonprofit was formed for a few reasons. As Harvey said at great length in his April 2011 speech announcing its creation, there was terrible infighting among the LLC board members, sparked in part by Harvey’s efforts to consolidate control and Mikel’s fear that he was being forced out .
The idea of cashing out and turning everything over to a new nonprofit — gifting it back to the Burning Man community, as Harvey has described it, saying in his speech, “We want to get out of running Burning Man. We want to move on.” — quelled those conflicts and got the board working well together again.
Yet somewhere along the way, most of the board members decided to keep a firm hand on the reins, and the reasons for the transition and what it would look like began to morph . Now, the stated reason for the nonprofit is to expand Burning Man culture around the world.
“The mission of Burning Man Project is to facilitate and extend the culture that has issued from the Burning Man Event into the larger world,” read the mission statement from BMP’s 990.
That includes more regional events and arts initiatives in cities around the world, which the organization hopes will alleviate some of the demand on the main event, which is constrained by natural and regulatory forces from getting too much bigger.
Yet many of the regional events are coming under the same kinds of criticism that longtime burners level at the main organization, accusing them of becoming fiefdoms run by insiders who cultivate power for themselves at the expense of the legions of volunteers who make the events happen. The latest flareup is in Africa, where the Afrikaburn event was the subject of this caustic essay that has been making the rounds among burners.
In explaining the acquisition of the LLC to the public in a Jan. 27 blog post, Burning Man spoke as an organization and offered a straight recitation of the basic facts without saying much about the motives or reasoning of the board members.
For example, they don’t say why the board members chose to so deeply discount their equity (one of the questions I asked) and, given what they’re not saying about the full compensation package, it’s to their credit that they don’t trumpet the discount as an act of altruism or gift to their community. It says only that “they elected to donate all but a small fraction of the value of their shares to the Burning Man Project,” and that those six recused themselves from the vote to pay them each $46,000.
But this transaction does end the practice of board members accumulating equity from those who buy tickets and build Black Rock City each year. Going forward, all proceeds from the event will remain with the nonprofit, a structure that creates strict rules against self-dealing by board members.
So Burning Man is finally attaining the transparency and accountability that many burners have long sought, even if the road to get here has been a little rough.
