Grammy Group Paid Royalty by Its Own Charity

The nonprofit Grammy organization, which has built its reputation for philanthropy on the workings of its house charities, collects a substantial fee from one of those charities for use of the Grammy trademark and logo. The charity, in addition to paying the 18% royalty, also is billed for donors’ tickets to the annual Grammy telecast.

In one recent year, the recording academy billed the charity $319,555 for royalties and tickets while contributing $86,922 to the NARAS Foundation. That produced what appears from public records to be a net profit to the academy of more than $232,000 from its own philanthropic enterprise.

The arrangement in which a parent organization--in this case the Santa Monica-based National Academy of Recording Arts & Sciences--charges its own charitable arm for the use of its trademark appears to be unusual in the world of nonprofit organizations. It is unique among the three major performing arts academies, including those sponsoring the Oscars and Emmys.

It also comes as a surprise to many contributors to the NARAS Foundation, which finances educational and benefit programs in schools and public places.

Several donors to the foundation told The Times they were unaware that any portion of their tax-deductible contributions went to the foundation’s parent as a licensing fee and that they thought the charge was improper.

“This is the first I’ve heard of it,” said Tamra Lhota, president of New York City Public-Private Initiative Inc., a nonprofit business group that collected about $625,000 over the last year for the Grammy Host Committee, in part for the foundation. “It’s bizarre, but in light of the recent Los Angeles Times articles outlining the meager percentage of donations that actually reach the charity, I can’t say it’s surprising.”

A source close to the committee said Public-Private Initiative Inc. is likely to demand that no funds given to the academy be used for a royalty payment.

Disclosure of the royalty fee is the latest in a series of questions to arise about the finances and management of the recording academy under its chief executive, C. Michael Greene.

Greene declined comment Thursday, but has repeatedly said that neither he nor the organization has done anything wrong.

In earlier articles, The Times has disclosed that another academy charity, MusiCares, has spent less than 10% of its revenue over the last five years on its principle charitable function, disbursements of emergency funds on behalf of ill, unemployed or indigent people in the music industry.

The articles also noted that Greene’s academy salary of $757,000 in 1995-96 placed him among the uppermost rung of nonprofit chief executives in the country and that he hawked a recording of his own music to record executives during discussions of Grammy matters.

In the aftermath of disclosures by The Times, there have been these recent developments:

* Greene has formally withdrawn the album, for which he had negotiated a $250,000 contract from Mercury Records.

* An Atlanta-based member of the academy board of trustees, singer Tamiko Jones, on Thursday called upon Phil Ramone, chairman of the academy, to hire an independent outside firm to investigate the allegations raised in the Times articles.

“If the academy is to be exonerated, an outside--and I stress ‘outside’--and independent investigation is an absolute necessity,” Jones told The Times.

* Ramone said the board’s executive committee had hired the auditing firm of Deloitte & Touche to review all relevant issues raised in The Times.

“I expect a report soon,” Ramone said. “If there was any wrongdoing--and I don’t know that there was--it will not be swept under the rug.”

Deloitte has a long-standing business relationship with the academy and its subsidiaries. In 1995-96, for example, the academy and its two charities paid more than $304,000 in accounting fees. John Hazard, an academy lawyer, said he believed the bulk of these-- and possibly the entire sum--was paid to Deloitte. A spokesman for the accounting firm declined comment on its fees.

* On Tuesday, Greene received a round of applause after a 20-minute speech at a local board of governors meeting at the academy’s Santa Monica headquarters. On Wednesday, the board of governors of the academy’s Nashville chapter decided to wait for a report from the executive committee before taking further action.

The royalty arrangement raises new issues about the relationship between the National Academy of Recording Arts & Sciences and its subsidiary charities. It could not be learned, for example, if the size of the fee was subject to negotiation between the recording academy and the foundation, or whether the value of the trademark and logo--a distinctive representation of a vintage gramophone--was independently appraised. Greene serves both as chief executive of the academy and as the foundation’s unpaid president.

Academy sources told The Times that the idea to impose the licensing fee originally came from Deloitte & Touche, which serves as financial auditor for both the academy and its foundation.

The 18% trademark fee, according to sources within the recording academy, is also charged against revenue due the foundation from the annual CD compilation of Grammy-award nominees’ music. The record, which is produced and distributed on a rotating basis by the six major recording labels, is explicitly marketed to the public as a fund-raising device for the NARAS Foundation. Each copy, for example, bears a label stating that a portion of the album’s proceeds “will be donated to the NARAS Foundation Inc., for music education initiatives.”

Sources told The Times that income from the record is normally paid by that year’s producing label directly to the recording academy. The academy, the sources said, subtracts “overhead” expenses, including the 18% trademark fee, before forwarding the balance to the foundation.

Sources said income from the recording accounts for the bulk of what the academy claims as its annual “cash contribution” to the foundation.

In 1995-96 that sum came to $725,507, according to public tax filings. That same year, however, the academy charged the foundation $357,648 for the trademark and for Grammy telecast tickets to be provided by the foundation to large contributors.

In 1994-95, the recording academy made a contribution of $86,922 to the foundation. But it billed the charity $319,555 for trademark royalties and tickets.

John Hazard, the recording academy’s attorney, characterized its royalty arrangement as “common” among nonprofit entities.

“I have examined a number of such licensing agreements, and I find nothing unreasonable with the academy’s trademark license with the NARAS Foundation,” said Hazard, whose Washington-based law firm represents the academy and hundreds of other nonprofit organizations and foundations. “In fact, I think the academy’s trademark license arrangement is quite advantageous for the foundation.”

When asked to provide the name of another client with a similar arrangement, however, Hazard declined to do so.

Hazard said he believed that the academy uses the Grammy logo and license deal as part of its sales pitch when trying to raise funds from sponsors. But representatives from several major record companies that have donated hundreds of thousands of dollars in recent years to the NARAS Foundation said on Thursday that they had never heard of the 18% logo licensing fee.

The foundation typically raises money from a number of sources, including other charitable entities and corporations wishing to co-sponsor Grammy events.

One such contributor was the Recording Industries Music Performance Trust Fund, which was established by music unions to pay musicians to appear at benefit concerts around the country. The fund collects from record companies a fraction of a cent for every CD sold in the U.S.

The fund contributed $500,000 in 1995 to the foundation to co-sponsor its “Grammy Showcase,” a touring act of little-known rock bands. Of that sum, $75,000 was collected by the recording academy for its royalty.

John Hall, the fund’s trustee, said in an interview with The Times that he understood in advance that the royalty would be charged. “I was not happy with the idea,” Hall said. Nevertheless, he said, he acceded to the academy’s demand because he thought the co-sponsorship would give the trust fund a much-needed publicity boost.

He said in subsequent years the trust fund has sharply cut back its contributions to the NARAS Foundation--to $80,000 in the most recent year--and that it no longer agrees to pay the licensing fee.