Dec. 29 (Bloomberg) -- A toaster that burns the National Rifle Association’s logo onto bread fetched $650 at an auction last month, just one reflection of the money-making power in the gun group’s brand.
The NRA, which began as a grassroots organization dedicated to teaching marksmanship, enters the 2012 election season as a lobbying, merchandising and marketing machine that brings in more than $200 million a year and intends to help unseat the incumbent president. From 2004 to 2010, the group’s revenue from fundraising -- including gifts from gun makers who benefit from its political activism -- grew twice as fast as its income from members’ dues, according to NRA tax returns.
More than 50 firearms-related companies have given at least $14.8 million to the Fairfax, Virginia-based group, according to the NRA’s own list for a donor program that began in 2005. That same year, NRA lobbyists helped win passage of a federal law that limited liability claims against gun makers. Former NRA President Sandy Froman wrote that it “saved the American gun industry from bankruptcy.”
“Unlike organizations which start out controlled by industry and created by industry, like lobbying groups for coal or oil, they really started out as a grassroots organization and became an industry organization,” said William Vizzard, a former agent of the Bureau of Alcohol, Tobacco and Firearms who’s now a professor of criminal justice at California State University in Sacramento. He studied the NRA for a 2000 book on gun policy.
Going After Obama
One of the group’s latest political objectives is to get President Barack Obama out of office next year, even as gun-control advocates express disappointment in his administration. Obama has done little to “confront the core weaknesses in our gun laws,” said Dennis Henigan, acting president of the Brady Center to Prevent Gun Violence.
That didn’t stop NRA Executive Vice President Wayne LaPierre from citing what he called “a massive Obama conspiracy to deceive voters and hide his true intentions to destroy the Second Amendment in our country” during a September speech to the Conservative Political Action Conference in Orlando. LaPierre said the NRA would work to defeat Obama in 2012.
The NRA funds its educational and political missions in part with contributions, merchandise sales and various sponsorship deals and “affinity” partnerships. A short-lived company that helped H&R Block Inc. market tax services to NRA members in 2001 had financial ties to wives of NRA executives and the association’s treasurer, court records show.
Sources of Income
Combined, sources such as fundraising, sales, advertising and royalties produced about $115 million in 2010, just over half the NRA’s $227.8 million in income, according to the group’s tax return. Most of the rest, about $100.5 million, came from membership dues. Other sources included program fees, sales of assets, investment income and subscriptions.
The businesslike approach extends to the NRA Foundation, an affiliated charity that files separate tax returns and last year distributed $21.2 million in grants -- including $12.6 million to the NRA itself. At least $5.5 million went to hundreds of local recipients, including 4-H organizations, shooting clubs and university rifle teams. In 2010, the foundation began requiring many such grantees to spend their cash gifts at its own online “merchandise center.”
Representatives of four recipients told Bloomberg News they received less than the foundation reported giving them on its 2010 tax return. Failing to provide correct information to the Internal Revenue Service could subject a tax-exempt organization to fines of $100 a day, said David S. Miller, a tax attorney with Cadwalader, Wickersham & Taft LLP in New York. If there’s a reasonable explanation for inaccuracies, the law doesn’t impose a penalty, he said.
LaPierre declined requests for an interview. Andrew Arulanandam, the association’s chief spokesman, e-mailed the following statement:
“The NRA will not participate in agenda journalism driven by a news organization owned by an avowed enemy of the Second Amendment -- a politician who has been aggressively working against the interests of the NRA, our members and the nation’s gun owners for years.”
New York Mayor Michael R. Bloomberg is the majority owner of Bloomberg LP, the parent company of Bloomberg News. He is co-chairman of Mayors Against Illegal Guns, a 600-member coalition that advocates tightening required background checks of gun buyers. Under Bloomberg’s administration, New York sent undercover investigators to gun shows where they purchased firearms without such checks, according to city reports. This month, the city announced that 77 of 125 online gun sellers agreed to make sales even after an undercover buyer said he “probably could not pass” a background check.
“The mayor and the coalition support the Second Amendment and legal gun ownership, but we have proven time and again that our laws are either not enforced or have cavernous loopholes, resulting in dangerous people acquiring guns and committing crimes,” said Marc La Vorgna, a Bloomberg spokesman. “Polling shows the majority of actual NRA members -- as opposed to their Washington lobbyists -- support the coalition’s efforts to keep weapons from ending up in the wrong hands through better enforcement and common-sense laws.”
Bloomberg has not had a role in the day-to-day operation of Bloomberg LP for more than a decade, La Vorgna said.
Membership Numbers Vary
The number of NRA members is unclear. One NRA website says it’s “approximately 4.3 million.” On another, it’s “nearly four million.” A “sponsorship prospectus” for the group’s 2012 annual meeting offers ad placements in e-mails that will be sent to the “house file of 2 million NRA members.”
Those 2 million are “our most active and interested members,” the prospectus says.
Before its modern incarnation as a political force, the NRA was mostly identified with promoting rifle sports. Dismayed by their troops’ lack of marksmanship in the Civil War, Union veterans Colonel William C. Church and General George Wingate formed the group in 1871, according to an NRA history. For decades the only mention of the group in the New York Times concerned results of its sanctioned shooting matches.
While the association established a legislative affairs division in 1934, it didn’t begin lobbying until the mid-1970s as gun-control laws emerged after the political assassinations of the 1960s. In the 2000 presidential campaign, the NRA’s opposition to Al Gore hurt him in his home state of Tennessee and contributed to his loss in the presidential race to George W. Bush, according to former President Bill Clinton.
No Perceived Threat
Success brought its own challenges, according to Richard Feldman, a former lobbyist for the association.
“There was no perceived national threat to gun ownership” after Bush was elected, said Feldman, who wrote a 2007 book titled “Ricochet: Confessions of a Gun Lobbyist.” “The NRA’s membership dropped to under two-and-a-half million, although they never admitted it.”
NRA member Joe Gregory, the former vice chairman of Bristol, Tennessee-based King Pharmaceuticals Inc., said he pitched the idea of soliciting deep-pocketed donors during a 2003 conversation with LaPierre, the executive vice president.
LaPierre was “talking about how proud he was of the association and how it was built on the strength of $10 and $25 donations,” Gregory recalled during an interview he gave to an NRA-produced radio program in April. He said he responded:
“But with over 4 million members, there’s got to be a few people who’ve been fortunate to be blessed to live and work and prosper in this country and they can give more than $25. And we ought to look for ways that we can encourage them to do that.”
‘Ring of Freedom’
The NRA’s “Ring of Freedom,” a donor-recognition program, began in 2005, according to the association’s website. The NRA’s Office of Advancement solicits contributions from companies, foundations and individuals.
Gregory, the chief executive officer of Gregory Management Co., an investment firm in Bristol, is part of a more exclusive group called the Golden Ring of Freedom. Its members, who have contributed at least $1 million, wear custom-tailored gold jackets at NRA gatherings. He referred questions to the NRA staff.
The NRA received $71.1 million in donations last year, up 54 percent from $46.3 million in 2004, according to its federal tax returns.
Gun Makers Give
The gun makers Sturm, Ruger & Co.; Remington Arms Co. in Madison, North Carolina; and Smith & Wesson Holding Corp. all contributed this year, according to news releases.
Sturm Ruger, of Southport, Connecticut, announced a goal in May to sell 1 million firearms by March 31 and donate $1 for each sold to the NRA. The company said last month that it expects to contribute $556,100 by Dec. 31. Remington became a “defender” sponsor of an NRA fundraising program, a designation that involves a $35,000 donation. Springfield, Massachusetts-based Smith & Wesson signed on as the “exclusive pistol sponsor” of an NRA TV show; it’s unclear how much the company paid.
One of the NRA’s 27 websites calls such donors “corporate partners,” while another says the association is “not affiliated with any firearm or ammunition manufacturers or with any business that deals in guns and ammunition.”
At about the same time the NRA began seeking more in contributions, its lobbying arm, the Institute for Legislative Affairs, notched political successes that benefited the firearms industry. In 2004, ILA lobbyists helped ensure the end of the federal assault weapons ban; U.S. makers’ annual rifle production has increased about 38 percent since, according to ATF data.
In 2005, NRA lobbyists helped pass a law limiting liability claims against gun makers. Cities, led by New Orleans, had sought damages from such companies for health care costs and other expenses associated with gun violence. The “Protection of Lawful Commerce in Arms Act” helped end the suits, according to Mike Fifer, the CEO of Sturm Ruger.
The law, “which is one of the cornerstone achievements of the ILA, is probably the only reason we have a U.S. firearms industry anymore,” Fifer told an NRA interviewer in May.
Sturm Ruger has benefited from another NRA lobbying effort, a decades-long campaign in U.S. statehouses for laws allowing permits to carry concealed weapons. After Wisconsin became the 49th state to allow such licenses in July, Fifer said on an earnings call that he expected a sales boost in the state.
More Than Doubled
Annual U.S. handgun production has more than doubled over the past decade. Sturm, Ruger was the leading U.S.-based producer in 2009, the most recent year for which the ATF has published data. Kevin Reid, general counsel for Sturm, Ruger, didn’t return calls seeking comment. Representatives for other gun companies that gave to the NRA this year also didn’t respond to requests for comment.
Rank-and-file NRA members say they’re unfazed by the organization’s soliciting corporate contributions, or representing gun-makers’ and gun-dealers’ interests.
“As a gun owner, I already support the firearms industry,” said Bob E. Kelly, 59, an NRA member in Rindge, New Hampshire, in an e-mail. “I expect the NRA to solicit their support. And I expect the NRA to support them. How can I own guns if no one can manufacture them?”
Like other organizations, the NRA has also tried to derive extra income from its members by selling corporations access to them. Affinity partnerships with various companies “have paid the NRA tens of millions of dollars in royalties,” the association said in a 2003 court filing. NRA Treasurer Wilson Phillips and the spouses of two other NRA officials had financial ties to a for-profit company that marketed access to NRA members in 2001, court filings show.
Tax Service Deal
Phillips was chief financial officer at Memberdrive.com Inc., records show. LaPierre’s wife, Susan LaPierre, and Holly Marcario, the wife of NRA membership director Robert Marcario, worked there too, according to the documents. The company made a deal with the tax firm H&R Block that paid Memberdrive a commission for new clients generated from the NRA’s members. Memberdrive was to pay 70 percent of that commission to the NRA itself, records show.
After protests from gun-control advocates led H&R Block to cancel the partnership, Memberdrive in June 2002 sued HRB Management Inc., a subsidiary.
Phillips held stock in the startup, according to charitable-registration documents Memberdrive filed with the state of Washington in 2002. The company named Susan LaPierre one of its three highest-paid employees in a 2001 registration form filed with the same office. Memberdrive was sold for an undisclosed sum about a year after its lawsuit was dismissed in October 2003.
NRA officials declined to make Phillips, Marcario or Susan LaPierre available for this story. H&R Block spokesman Gene King said the company doesn’t comment on litigation.
The top name on the NRA’s list of corporate contributors is MidwayUSA, Inc., a Columbia, Missouri-based retailer of gun-related products, including ammunition and high-capacity magazines. It has contributed more than $6.5 million to the NRA and its lobbying arm since 1992, according to the company’s website.
That year, MidwayUSA owner Larry Potterfield began asking his customers to “round up” their purchases to the nearest dollar and donate the difference to the gun-rights group, according to the company’s website. More than 50 other businesses have since joined the round-up program or a similar “add-a-buck” effort in which customers can contribute a dollar to the group at the point of purchase, the NRA says. Potterfield didn’t return calls seeking comment.
At least one dealer, Champion Shooters Supply LLC, of New Albany, Ohio, isn’t as happy with the NRA. The company, which deals in target-shooting equipment, complained last year that it was losing business because the NRA Foundation had established an online store where its grant recipients were required to purchase scores of commonly used items, including ammunition and targets.
Many items in the foundation’s store were priced higher than at Champion Shooters Supply, according to a letter written by Susan D. Rector, an attorney for the company.
“This Spring, Champion Shooters began receiving inquiries from several of these clubs, that are its loyal customers, asking why they can no longer use NRA Foundation grant funds to purchase supplies and ammunition from Champion Shooters,” the letter said. Rector declined to comment, as did Sandy Joost, the co-owner of Champion Shooters.
‘Get the Goods’
Before 2010, recipients were allowed to spend the foundation’s grants where they chose. Under the new system, “we open a page on some website,” said Richard Lynch, president of the True Sportsman Club near Sacramento, California, which received a $27,183 grant from the foundation last year. “That’s where we do our shopping. It’s the same stuff as before, except that there’s no cash anymore. We just get the goods.”
At least 22 items in the online store are sold by Champion’s Choice Inc., a dealer in LaVergne, Tennessee. Charles Pearson, the company’s president, said his products were featured in the store because they’re custom-made, and that his company was the sole source for them. Asked which of the products fit that description, he declined to answer.
Miller, the tax lawyer with Cadwalader, Wickersham & Taft, said he’d “never heard of anything remotely related to” a charity telling its grant recipients “that you have to purchase from a specific place.”
He and Marcus Owens, an attorney with Caplin & Drysdale in Washington, agreed that the arrangement might confer a private benefit on vendors who supply goods for the merchandise center.
If a significant percentage of the NRA’s grants could be spent only with a limited number of companies, “then it is very serious, perhaps sufficiently so to jeopardize tax-exempt status for the foundation,” said Owens, who was the director of tax-exempt organizations for the Internal Revenue Service from 1990 to 2000.
Last year, the foundation granted at least $5.5 million to local clubs and organizations, according to its tax return. It’s unclear how much was spent in the online merchandise center.
Representatives of four grant recipients said in interviews that they received lower amounts of grants in 2010 than the NRA Foundation reported giving them. The foundation reported a grant of $25,829 to the Whitney Rifle Club in Albemarle, North Carolina, on its 2010 tax return.
Mike McSwain, Whitney’s president, said in a telephone interview that the club had received $12,093.
The NRA told the IRS it gave $20,347 to Morganton, North Carolina, city officials to support youth programs. The city says it received $8,412, a difference of $11,935.
Oklahoma State University, which supports a number of youth shooting programs across the state, received $107,758 from the NRA Foundation during 2010, according to documents the university provided to Bloomberg News under its state open records law. The NRA Foundation told the IRS it gave OSU $125,778, a difference of $18,020. OSU officials said they had no explanation for the discrepancy.
Tom Slaughter, president of Arizona Outdoor Sports Inc. in Mesa, Arizona, said his group got $5,000 worth of ammunition for clay-target shooting last year from the NRA Foundation. The foundation reported giving Slaughter’s group a $1,135 cash grant and $10,105 in non-cash assistance for “program materials.”
“I don’t believe all of those went through us,” Slaughter said in an interview. He added: “I’m a volunteer. I’m good at helping kids. I’m good at working with kids. I’m a terrible accountant.”
Accounting issues were far from the agenda at a Friends of NRA banquet at King Kamehameha’s Kona Beach Hotel in Kailua-Kona, Hawaii, last month. Friends of NRA, billed as a nationwide, grassroots fundraising program for the NRA Foundation, holds more than 1,000 such events each year. It has a network of corporate sponsors as well, according to an NRA website. At the first “Friends” fundraiser in 1992, Potterfield of MidwayUSA played host.
While dining on mahi-mahi and crab salad, attendees at the Friends dinner in Hawaii bid on firearms and hunting equipment. What really got them talking was the NRA toaster, said Glennon Gingo, who organized the dinner. It sold for $650, he said.
Gingo joked that using the appliance is a great way to vet your social circle. “You can make ‘em toast in the morning and see how many friends you really have,” he said.
“I understand that they’re planning on putting out a waffle iron next year.”
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