NORFOLK – A lawsuit nearing trial has opened a rare window into the inner workings of Pat Robertson‘ s Virginia Beach-based media empire.
At the heart of the case is an issue that has bedeviled Robertson repeatedly over the years: the fuzzy line between his tax-exempt operations and his profit-making ventures.
The lawsuit accuses Robertson of abusing his tax-exempt status by using the resources of his nonprofit TV ministry to promote a commercial product – a high-protein diet shake.
Nonsense, the televangelist has responded: The shake was a totally separate venture, not related in any way to his Christian Broadcasting Network.
Now a trail of e-mails and other internal correspondence, dating back more than a year before the lawsuit, indicates that Robertson and other CBN executives were closely involved in the development of the shake venture.
In one letter addressed to nutrition-store managers, the broadcaster referred to the “built-in demand” he had generated for the shake and pledged to keep hawking it on his daily TV show, “The 700 Club.”
Other documents show that CBN produced a TV commercial for the shake. There was even talk of taking the product into the China market.
John Colombo, an expert on tax-exempt organizations at the University of Illinois College of Law, said the case raises questions about tax-law compliance.
“It seems to me that arguably, CBN was inappropriately conferring benefits on Pat Robertson as a result of giving him free advertising and free exposure for his product,” Colombo said. “If they’re giving away stuff to Pat Robertson that they shouldn’t be giving away, then that’s a problem.”
If the Internal Revenue Service found that to be the case, he said, it could levy an excise tax on Robertson for receiving excess benefits from CBN.
Robertson’s far-flung ventures have posed tax issues for years.
In 1990, CBN spun off its family-friendly TV channel after it became so large and lucrative that it risked the wrath of the IRS, which prohibits businesses from becoming bigger than their non profit parents.
In 1997, pilots for Robertson’s tax-exempt humanitarian organization said its planes were used almost exclusively for the evangelist’s African diamond mining operation, sparking an investigation by state charity regulators.
Robertson began promoting his “age-defying” diet shake on “The 700 Club” in 2001, offering to send the recipe free to any viewer who asked for it. He says more than 1.5 million people have requested the long list of ingredients, which includes such items as safflower oil, protein powder and vinegar.
One of those people was Phillip Busch, a Texas bodybuilder. Busch contacted CBN in the spring of 2005 with astounding news: He had lost nearly 200 pounds drinking the shake.
Robertson showed Busch’s dramatic before-and-after photos on “The 700 Club,” and they were incorporated into a TV spot that was aired on the show 20 times over the next few weeks. In July, CBN flew Busch to Virginia Beach for a live “700 Club” interview with Robertson.
Meanwhile, Busch says, he discovered that Robertson’s shake had been turned into a commercial product – a ready-to-mix powder in a can – and was being sold by General Nutrition Corp., a Pittsburgh-based health-food chain.
Busch sued Robertson, CBN, GNC and several related entities, claiming the broadcaster used his image for a commercial purpose without compensating him.
A central allegation in the case is that Robertson and CBN conspired to promote the commercial shake using CBN’s tax-exempt resources in violation of federal tax law – in other words, that they built a market for the product on airtime paid for by CBN donors and then cashed in on it.
In a variety of forums since then, Robertson and other CBN executives have insisted that the shake promoted on the nonprofit network and the ready-to-mix product sold in GNC stores are separate.
They are “two very discrete ventures,” Louis Isakoff, a CBN attorney, told The Virginian-Pilot just after the lawsuit was filed.
In a sworn affidavit a month later, John Turver, CBN’s vice president of marketing, said the pre-packaged mix “is not involved in any way with CBN or ‘The 700 Club.’ ”
Robertson himself, in a sworn deposition last month, addressed the issue squarely: “I want to say, categorically, that CBN had no relation with GNC whatsoever.”
He was asked: “So if I am understanding this correctly… the shake on CBN… and Pat’s Diet Shake are two different shakes?”
“Correct. Correct,” Robertson replied. Elaborating later, he characterized the GNC product as “a shake that was put together, high protein, available in commercial stores, that we did not have anything to do with.”
But e-mails and other correspondence that have become part of the court record suggest an intertwining of the two dating to March 2004.
That’s when Dave Hawk, a Pittsburgh bodybuilder who identified himself as new projects director for GNC and soy producer The Solae Co., e-mailed CBN asking to speak with a Robertson associate.
Robertson’s assistant, G.G. Conklin, forwarded the e-mail to attorney Isakoff with the comment: “I’m wondering if he’s interested in packaging Pat’s Age-Defying Shake? That would be interesting.”
Isakoff responded: “I think we should follow up on this. GNC is big.”
Days later, after talking to Hawk, Isakoff reported back to Conklin: “He thinks there is a market for Pat’s recipes.”
Soon Philippe Ballet, an account manager at St. Louis-based Solae, submitted a proposal on “how Solae could help CBN to launch a nutritional product line.”
As Hawk explained in a June e-mail: “This concept would expand to other products that… could be sold similar to ‘Newman’s Own’ products.”
By December, a contract had been drafted.
“I think we are very close on the contract and I just need Pat’s approval,” Isakoff wrote Hawk. “He is exceptionally excited about this, and ready to move forward. Let’s Go!”
Robertson has described the deal in court papers as an agreement in which he licensed the use of his name and shake recipe to the manufacturer. Details of his compensation have not been spelled out.
In an undated letter addressed to GNC store managers and franchise owners, Robertson wrote that 750,000 CBN viewers had requested information about his diet and exercise program:
“In addition to our already built-in demand, I will continue to talk about my ‘Weight Loss Challenge’ and Pat’s Diet Shake on regular weekly national television broadcasts.”
In April 2005, the same month Busch’s before-and-after photos were first displayed on “The 700 Club,” CBN produced a TV spot for the new product featuring a “spokesmodel” narrator.
The script made no attempt to differentiate between the nonprofit and for-profit products: “Thousands of people are already losing weight with Pat’s Diet Shake, and now all the wholesome ingredients that went into Pat’s original recipe have been concentrated into one easy-to-make shake.”
That spring, while one spot featuring Busch’s photos was aired on “The 700 Club” to promote Robertson’s nonprofit weight-loss program, the “spokesmodel” spot for the commercial shake was airing immediately before the program on many stations.
In May, Ballet e-mailed Turver with a bold idea: “Now, thinking ahead of the curve here, I remember you saying that Dr. Pat Robertson is very famous in China as well. Are you interested in the Chinese market for these products?”
Turver forwarded the message to Isakoff, who replied: “Why not China? If we are doing so, we will need to file for patent and trademark protection.”
Robertson’s patent application was filed a week later.
Busch’s lawsuit was filed in September 2005. In February 2006, three of the defendants – GNC, Hawk and Basic Organics Inc., the Columbus, Ohio-based manufacturer of the ready-to-mix shake – settled out of court for $42,000.
That spring, GNC dropped the product from its shelves without explanation. It has since been picked up by another health-food chain, The Vitamin Shoppe, based in North Bergen, N.J.
The lawsuit is set for trial in April.