Jan 6, 2014

Junk bonds raise questions about Answers in Genesis' finances

The dream was to build a 510-foot replica of the Bible boat that saved righteous Noah, his family, and representatives of all the animals. The dream was of a Kentucky theme park called "Ark Encounter," where millions would learn the Bible's stories of salvation, then and now, and how Jesus is the ark for the flood to come.

The reality may be a financial boondoggle.

Despite about $13 million in donations and more than $26 million in investments, this latest endeavor of one of the leading Creationist organizations appears to be headed for financial failure. An offering of junk bonds failed to raise the estimated $73 million needed to capitalize the project. Now, Answers in Genesis founder Ken Ham is pleading with supporters to buy up the nearly $29 million of unrated, unsecured municipal bonds that remain unsold. Without that infusion of capital, the "Ark Encounter" project is expected to founder.

If investors don't flock to this risky venture in the next month, Answers in Genesis loses the money already invested, Bloomberg New's Brian Chappatta has reported.

The wild, unorthodox way of raising funds might have been seen as brilliant, if it had worked. It doesn't look like it will, though, and now raises questions about the financial stability of Answers in Genesis. 

Can a group this reckless be financially sound? 

Can a non-profit whose plan for raising money is this fanciful really be responsible in the rest of its fiscal dealings?

A review of tax records shows signs Answers in Genesis may not be stable. Selling junk bonds is new, but not completely inconsistent with the group's recent financial history.

The most recent tax reports show that in one 12-month period, the Creationist non-profit brought in more than $19 million, and yet ended fiscal year 2011 with a deficit of more than $398,000. That wasn't the first time Answers in Genesis ended the year having spent more than it had, either. Fiscal year 2010 ended with a $540,000 deficit.

Since the group opened the Creationist museum in Kentucky in 2007, giving and grants have declined by $6 million and receipts have declined by nearly $1 million. There have been fewer and fewer visitors going to the museum, though spending has continued apace. Despite significant outlays to generate interest, attendance declined for four years in a row, and public curiosity appears to be flagging.

None of this is in evidence on Answers in Genesis' website.

On the site's blog, for example, Ken Ham recently reported that 5,500 people visited the creationist museum in the days after Christmas. There is, he writes, a great "remnant" of "families so enthusiastic for the Christian faith, despite the shocking spiritual state of this nation." Celebrating the organization's 20th anniversary, the founder reflects on "so many victories God has given us," and concludes, "we can truly say, the Lord our God has fought for us and continues to do so. The battles continue -- for example, the battle to get the Ark Encounter project finished." Ham doesn't mention the junk bonds that are part of that. Nor does the organization's official account of its 20-year history includes any mention the risky investment opportunity being pushed to supporters, though there is a reference to desiring "God's blessings on the various initiatives for 2014."

The groups fund-raising endeavors were not always so dubious. The Creationist museum cost $35 million to open in 2007, and yet that sum was raised through charitable giving. This is standard for Christian non-profits. Tens of thousands of supporters gave to the project, not expecting a monetary return but a spiritual one.

That was the model for the theme park too, at first, even though it has been organized as a for-profit limited liability corporation. Answers in Genesis actually raised $5 million for the project in the first year. People could sponsor the Ark by purchasing pegs for $100 or planks for $1,000 -- and they did. A feasibility study found there was a great potential for the project. First-year attendance was estimated to be between 1.2 and 2 million visitors. Answers in Genesis raised another $8 million in donations before deciding private donations alone wouldn't be enough.

The groundbreaking had been scheduled for 2011. When that date came and went, the group looked at other options, and then came up with the idea of junk bonds. The city council of Williamstown, Kentucky, where the reconstructed Ark is to be located, agreed to arrange the bond offering, while taking no financial responsibility for the investment. The bonds are essentially unbacked, with neither the city nor the non-profit putting up any collateral. The bonds are to be repaid by future profits of Ark Encounter, gained through spending at the theme park. If that never happens, they won't be repaid.

The bonds were unsecured, meaning investors could potentially lose all their money.

They've been given no insurance rating, signaling the riskiness of this investment.

"Buying bonds that haven't been rated is a high-risk proposition," Business Week reported. "Considering the sorry history of unrated municipal debt, investors who buy bonds being sold to build a replica of Noah’s ark may have to pray for their money."

Answers in Genesis, to its credit, has been clear about the risk. The documents explaining the bond offering includes the warning that the bonds "are not expected to have any substantial secondary market." There's another warning about how Answers in Genesis is not taking any responsibility for the investment. The bonds, potential investors are told, "will not be an obligation or liability of Answers in Genesis nor be secured by any of AiG's revenues or assets."

Ken Ham's pitch to potential investors has not been that they stand to profit from this investment. Rather, he says this is a great calling, a mission from God, with incredible potential for saving souls.

He writes,
God has burdened AiG to rebuild a full-size Noah's Ark -- as a sign to the world that God’s Word is true, and as a reminder that all men are sinners, and we all need to go through the “door” to be saved . . . I urge you to prayerfully consider how you could be a part of what could be one of the greatest evangelical outreaches of our time as we do what we can to get people to the 'door' of the 'Ark' -- the Lord Jesus.
The pitch brought in an impressive $26 million in investments, the first time. It wasn't enough, though. Now it looks like the whole thing will fail.

For some of Ham's critics, this is to be expected, given the Creationist group's leadership. As Mark Joseph Stern wrote in Slate, "The ark park is Ham's Xanadu, an extravagant vanity project born out of boundless narcissism and ambition. And that shouldn’t surprise us one bit. Ham is as much a showman as an evangelist; he preaches a twisted gospel of willful ignorance."

Whether or not that's fair, it does appear that Answers in Genesis' finances have tended, in recent years, to be detached from reality. The last year the group didn't run a deficit was the fiscal year ending in 2009. During that 12-month period, Answers in Genesis took in $22 million and spent $21.1 million.

Even then, however, the group's biggest project, the Creation museum, lost money.

With more than 305,000 guests, the museum cost $8.4 million to operate, according to tax reports. It brought in revenue of only $5.4 million, for a loss of $3 million. It was a good year for Answers in Genesis, but the Creation museum lost nearly $10 per visitor.

The math works out similarly for the group's seminars. In the fiscal year ending in 2009, Answers in Genesis conducted more than 300 seminars, according to tax reports. More than 306,000 adults and students attended Answers in Genesis seminars that year. The seminars cost $1.7 million, or about $5.50 per person. They brought in $405,000, or about $1.33 per person.

In 2009, Answers in Genesis seminars lost more than $4 per person.

The group did make money off of books and publications, however, and ended the year with a surplus. Answers in Genesis is a non-profit, of course. It's not the group's goal to make money. If it costs to spread the message, the group is committed to spending the money necessary to spread the message. Nevertheless, even non-profits are expected to manage their resources effectively.

At Answers in Genesis, though, donations were down by $50,000 in 2011, and salaries were up by  $345,000.

There are more than 300 people on the payroll, including seven of Ham's family members. They earn between $10,000 a year (daughter-in-law Susan Ham) and $67,000 (brother Stephen Ham). Ken Ham himself takes a salary of $134,000, plus an additional $42,000 in compensation, tax records show. That's not outrageous, but, on the other hand, Ham's salary has increased by $31,000 in the last two years, at the same time the group he leads registered deficits totaling more than $930,000. That alone would seem reason to question his leadership.

The financial decisions that have been made at Answers in Genesis in the last few years raise questions about the management of resources and the group's long-term financial stability. This is not to say it is teetering on the edge of collapse. Tax records show the group reports having $28 million in assets and $2 million in inventory. There is a buffer to handle bad years and bad decisions. There have been bad years and bad decisions, though. There's a certain fiscal recklessness that appears to have become standard operating procedure for Answers in Genesis -- a recklessness taken to a new, strange level with plans for Ark Encounter.

The failure to finance a replica of Noah's ark and a big theme park does not appear to be out of character, a kind of fluke, but of a piece with Answers in Genesis' approach to finances.

As Ham sees it, though, it isn't reckless. It's "stepping out in faith."

"The associated complications and struggles have been beyond our control," Ham wrote in an e-mail to supporters last week. "I urge you to please prayerfully consider the options and help us get this bond offering completed . . . Will you please step out in faith with us?"

Ham has until February 6 to sell the $29 million in junk bonds to finance Ark Encounter.