Paid celebrities give hearing foundation a louder voice

Former presidents Bill Clinton and George W. Bush are coming to the Twin Cities this weekend, attending an annual fundraiser that is one of the largest in the Midwest and helping raise millions of dollars to help people with hearing loss around the world.

Put on by the Starkey Hearing Foundation, the gala in past years has attracted politicians, Oscar winners, A-list musicians and sports figures, many of whom say they appear because of Starkey's mission. In an unparalleled effort, the foundation in the past year donated 175,000 hearing aids in the United States and globally.

But the celebrities also have reaped hundreds of thousands of dollars for their own foundations, participating in an unusual partnership that builds Starkey's brand internationally.

Clinton's Global Initiative, for example, received $1.6 million from the Starkey foundation between 2010 and 2013. In a Starkey promotional video, Clinton says, "They do something that nobody else is doing. And they built a model that other people who try to do a lot of good in a health care area for a lot of people would be well advised to learn from."

Clinton has appeared with Starkey founder Bill Austin in Zambia, Rwanda, Kenya and elsewhere at missions where Starkey hearing aids are given to poor people.

To some, the efforts of the Starkey foundation amount to brilliant marketing, both helping people in need and getting Starkey hearing aids into emerging global markets. Others worry that the foundation obscures the relationship between it and the celebrities and between the foundation and its corporate partner, the privately owned for-profit Starkey Hearing Technologies. Austin is the founder of both.

In 2013, the most recent year for which data is available publicly, the foundation reported revenue of $33 million. Two-thirds of that was in the form of hearing aids provided by the company, the fifth-biggest hearing aid manufacturer in the world. The foundation donated those hearing aids to poor people around the world, often at highly visible "missions" featuring teams of celebrities like Clinton.

Most of the rest of the foundation's revenue was raised at the annual gala, which brings in more than $8 million a year. That money pays for the international missions and also goes into the coffers of foundations favored by the celebrities.

Documents the Starkey foundation filed with the Internal Revenue Service between 2011 and 2013 show it gave $1.9 million to the George W. Bush Presidential Library, the George W. Bush Foundation and The Global Health Corps, founded by Bush's two daughters.

The foundation also gave significant sums to charities tied to entertainers who performed at the gala and appeared on hearing aid missions.

Elton John, for example, performed at the gala in 2004 and 2009 and went on a foundation hearing aid mission to the Philippines in 2012. The foundation gave the Elton John AIDS Foundation $1.5 million between 2007 and 2012.

Other charities linked to Garth Brooks, Tony Bennett, Michael Bolton, Miley Cyrus and Jordin Sparks also received money from Starkey. They either performed or appeared at past gala events.

Charities linked to professional sports stars Willie Mays, Muhammad Ali, Magic Johnson, Larry Fitzgerald and Adrian Peterson also have received money from the foundation.

All those people help with the foundation's mission, said Richard Brown, president and chair of the Starkey Hearing Foundation. "Big name folks help us be able to spread the word of what we do and how we do it."

Brown said the foundation hasn't made it a practice to pay celebrities to attend the gala since he took over in 2013. But he defended the practice of giving cash grants to nonprofits linked to celebrities.

"We're very much looking for people who want to share in sending our message of sharing and caring and giving the gift of hearing to people."

Brown said charities linked to George W. Bush and the Clinton Global Initiative (CGI) will continue to get funding because of commitments made in the past. He said the fee to be a member of CGI, which has helped deliver hearing services internationally, is $500,000 a year.

Brown also said Hillary Clinton, the current front-runner for the Democratic presidential nomination, was not paid for her appearance at the gala last year.

The gala isn't cheap for the 1,550 or so people expected to attend the event Sunday at the St. Paul RiverCentre.

Event sponsors are asked to give $250,000, and individual seats range from $1,500 to $5,000. It's also a private affair. Reporters are invited to interview celebrities and guests on the red carpet outside of the event but they aren't allowed in.

There is nothing illegal about the foundation's approach to courting celebrities, but there is disagreement among nonprofit watchdogs about the practice.

Doug White, director of the master of science in fundraising management at Columbia University in New York, said the foundation should be more transparent about what it spends to put on the gala. After scanning Starkey's charity forms and looking at the gala attendees, White said that, in particular, it should let people know how much celebrities charge to be a part of the mission.

"There's a lot of buzz when it comes to being a celebrity," White said. "Having Elton John come and speak and maybe sing a song or two. Having Bill Clinton, come, Oh my God, isn't this wonderful? It's so great, but you know at the end of the day everyone goes home and the question is, 'Is the mission being furthered?' I don't see a lot of evidence of that."

But Anne Cohen, adviser for public and nonprofit management at the Carlson School of Management at the University of Minnesota, said Starkey's strategy is smart. She said a recent study at Rutgers University shows that charities linked to celebrities collect more in donations. By linking up with entertainers, athletes and politicians, Cohen said Starkey is able to cut through the white noise of fundraising that many charities face.

"They're looking to celebrity endorsements to build credibility, to build exposure," Cohen said. "And they're also saying, 'Hey, this works,' it's giving some return on investment for those endorsement dollars."

Cohen said the celebrities also help Starkey build the foundation's brand and the brand of the company it's linked to. She said doors open more easily in Third World countries for charities and companies any time they travel with a high profile individual.

"When they try to go across the globe and take their mission across the globe, they also need to say how are we going to open doors?" Cohen said. "Having former presidents coming in and assisting with their mission will help them deliver on their mission."

And that may be a broader part of the strategy of Starkey Hearing Technologies, which provides hearing aids to the foundation.

Austin is the sole owner of the company, and there is little known publicly about its sales and revenue. A spokeswoman for the foundation said Austin was unable to be interviewed for this story because of scheduling conflicts. An official with Starkey Hearing Technologies declined to discuss company revenues, but several investment analysts said Starkey holds about 10 percent of the $5 billion hearing aid market.

That makes Starkey a small player but still profitable, said Alex Morozov, research director at the investment research firm Morningstar.

Morozov, based in the Netherlands, said Starkey has two ways to grow in the competitive hearing aid market. First, he says it has to continue to convince reluctant Americans with hearing difficulties that the devices will improve their quality of life.

Secondly, he said, underdeveloped countries are a major untapped market. Morozov said Starkey's emphasis on teaming up with Clinton, Bush and other celebrities should help establish a footprint and will eventually boost Starkey's international sales.

"The earlier you are on the ground, the more established your brand becomes, the greater likelihood that the market starts picking up, you're going to be in the front."

The company values the hearing aids it provides the foundation at $250 each - a figure consistent with what German regulators reported it costs to make the device when they released a study of major hearing aid manufacturers in 2006. Several analysts say the company is eligible for taking a tax break on every device it donates to the foundation.

Imran Mushtaq, analyst for London-based Technavio, agreed the underdeveloped world is a promising market for Starkey. Linking with celebrities will "definitely give it an advantage but not significantly," Mushtaq said.

Instead, Mushtaq, who did research on projections for the global hearing aid market through 2019, said Starkey should focus on improving the technology of hearing aids to compete with firms who hold a larger market share.

"Revenues are only generated when more and more people adopt a device," Mushtaq said. "And people only adopt a device for when there is (government) reimbursement available or when it is technologically much more advanced."

It's clear Starkey Technologies has a focus on growing internationally. The company has factories in 26 countries. Parking lots outside its corporate offices in Eden Prairie are also labeled by country.

Brown, head of the Starkey Hearing Foundation, said the foundation is independent of its corporate partner. He downplayed any link in global strategy between the foundation and the company.

"We're so busy doing what we're doing in these countries, I personally haven't thought of Starkey selling hearing aids."

But because the foundation's support grows every time the company sells a hearing aid, its success will always be linked to the number of hearing aids the company sells.

Major Starkey Hearing Foundation contributions, 2006-2013

Information based on Internal Revenue Service documents, 2006-2013

• William J. Clinton Foundation and Clinton Global Initiative | $1.6 million

• Elton John AIDS Foundation | $1,549,819

• George W. Bush Foundation and George W. Bush Presidential Library | $1,250,000

• Teammates 4 Kids (co-founder: Garth Brooks) | $785,000

• Global Health Corps (Barbara Bush and Jenna Bush Hager) | $692,465

• Women's Sports Foundation (Billie Jean King) | $525,000

• Youth Services America / Get UR Good On (Miley Cyrus) | $420,000

• Michael Bolton Charities | $350,000

• Virgin Unite USA (Richard Branson) | $210,000

• Exploring the Arts (Tony Bennett) | $141,000

• Goldie Hawn Institute | $132,500