Faith

Nazarene Publishing House embroiled in turmoil over 2012 gift

Gerald Smith founded Premier Studios, here in Lenexa, in 1988 with his wife.
Gerald Smith founded Premier Studios, here in Lenexa, in 1988 with his wife. The Kansas City Star

As gifts go, a 2012 offer to the Nazarene Publishing House by its then just-named president, Gerald Smith, is seen by some in the church as akin to the wooden horse left at the gates of Troy.

Upon his appointment to lead the printing operations, Smith had promised that “exciting times are ahead” — and to an unhappy extent, he was correct.

This summer is ending with Smith’s dismissal, layoffs and reorganization at NPH, as well as continuing congregation confusion about just what Smith’s donation of Premier Studios, his Johnson County marketing firm, has wrought.

“I get calls a half a dozen times a week from people who want to know what in the world is going on,” remarked a local pastor earlier this year, calling the controversy over the gift an unwelcome distraction from the work of the church.

The idea to give away his firm was to eliminate any conflict of interest during his tenure as NPH president, Smith said. In earlier years, Premier, founded in 1988 by he and his wife, Dianna, had made revenue by providing IT services to the church and organizing multiple Nazarene general assemblies, as well as youth and evangelism conferences across the country.

A Nazarene news release at the time happily approved of the gift, noting the “substantial assets” turned over, the anticipated future profits stemming from Premier Studios Inc.’s nonchurch clients and how the addition of the marketing and communications company would complement the services already offered by NPH.

Less than two years later, however, the goodwill and optimism have evaporated. In an Aug. 2 release, the church leadership simply noted: “The new approach for NPH utilizing the Premier Studios business was not as successful as was expected.”

In a recent interview with The Star, Smith maintained his donation was worth around $3 million in net value for NPH.

But many church members are concerned the publishing operations — already struggling in the digital economy — might have been saddled with twice that in costs from the deal.

A confidential church memo sent in July suggests the publishing house assumed not only about $2 million in debt obligations, but a 10-year lease requiring NPH to pay more than $4 million in total rent to a corporation owned by Smith.

Although the church headquarters has declined multiple requests for comment, The Star obtained memos about the matter from concerned Nazarenes.

The latest, a July missive written by Charles Davis, who is president of the church’s roughly 50-member general board as well as a Florida appeals judge, cited concern over “whether Mr. Smith received additional benefit and whether the transaction was in fact a gift.”

Although the judge did not provide the memos, he acknowledged authorship. Davis was careful in speaking about the matter, and two dozen other Nazarene officials and members would talk only anonymously; many did not want to be seen as critical of the church or face retribution in the workplace.

“A lot of us would like to look at ourselves as good soldiers — gotta be faithful,” said one member of the church’s general board. “But this has been heart-breaking for so many people.”

The 2012 retirement of Hardy Weathers, longtime NPH chief, came at a crucial time for the publishing house, which had helped spread the church’s message by churning out millions of copies of books, hymnals and Sunday school curriculums since 1912.

A copy of a 2014 NPH board report given to The Star indicates a struggling enterprise, with a net operating loss of $3.7 million in 2012, capping six previous years of significant losses.

Smith’s communications expertise and background — “I’m a product of the Church of the Nazarene,” said the son of a Nazarene pastor and graduate of MidAmerica Nazarene University in Olathe — made him a strong candidate as Weathers’ successor and, it was hoped, one who would turn around the publishing house’s fortunes.

Although in recent years Premier had lost Nazarene contracts, Smith had maintained friends and contacts within the church.

When elected to the post, Smith was quoted as saying, “We’re all in. Dianna and I have complete faith in God’s provision, and we believe strongly in the role of NPH as a global communications leader for the church and the denomination.”

Almost immediately, however, questions began to arise over the gift of Premier. The Board of General Superintendents — which acts as a collective CEO for the 106-year-old church — assigned a three-person task force to look into the matter. They were Davis, then-NPH board Chairman John Bowling and Eugenio Duarte, then chairman of the Board of General Superintendents.

Davis noted that Kansas secretary of state records showed Smith created Premier Studios LLC, a limited liability corporation, on Dec. 20, 2012, the day NPH’s board approved the acquisition.

Smith explained the LLC was created as a way to legally gift his original for-profit business to the publishing house, which is a not-for-profit.

Writing to the church’s general board in July, Davis said: “The corporation assigned some of its assets and all of its liabilities to the newly formed LLC and then assigned the ownership of the member interest in the LLC to NPH.”

According to Davis, those transferred liabilities included:

A $500,000 line of credit originally taken out by Premier Studios, Inc.

$1.45 million in a remaining balance on the $1.8 million loan Smith secured in 2003 for the Premier Studios building, located at 10000 Marshall Drive in Lenexa. It’s owned by Wolf Creek Development LLC, a corporation that Smith acknowledges is solely his and his wife’s.

Nearly $4.5 million in rental payments to Wolf Creek over a 10-year period for the building as well as an obligation by NPH to pay “all taxes, insurance, repairs, maintenance (and) upkeep” to the building.

Church documents show officials were aware that the Smiths owned the building but did not see it as a “genuine” conflict of interest. One letter noted that “it was more economical to leave Premier in its present location, at least for a time.”

The rent schedule called for monthly payments of $36,000, according to Davis, while Premier had been paying about $25,000 prior to the gifting.

The lease for the roughly 25,000-square-foot building was signed despite the publishing house’s own 225,000-square-foot facility, which sits on 16 acres in midtown.

“I was stunned,” said a local pastor of his reaction to the contract’s details. “It was almost beyond belief as to why we would be leasing a building at that rate when I know we already have a building with a lot of empty space down on Troost. It just didn’t make any sense.”

Documents indicate that officials considered the cost of moving Premier’s employees and assets to Troost Avenue.

In February, during a large scheduled church meeting at the Overland Park Sheraton, Smith responded to the “naysayers,” his voice seeming to crack from the emotional toll.

“If some choose to see only what is wrong, they will eventually find it; and if they can’t find it, they may create it,” said Smith, stating he would not stand again when his term as NPH president expired.

“I’m not giving up,” he said. “I’m giving in.”

His critics, however, were not satisfied. Smith was placed on paid leave in April. Jim Van Hook was brought in to act as NPH’s CEO and navigate what the church called “difficult waters.”

Van Hook soon revealed that NPH would lay off roughly 35 percent of its workforce — including most who had worked for Premier before the merger — and that Lillenas Publishing Company, an arm specializing in music, would be sold off.

One other development: NPH employees would now be working from the Troost location.

Talking to The Star days before his dismissal, Smith described himself as the victim of baseless accusations, the reasons for which he cannot explain.

“I gotta tell you, I could use an apology,” he said.

He declined to address Davis’ July missive, saying: “I find his memo confidential.”

Smith insisted that nothing had been held back in the Premier transaction.

“In the end, the key people of those involved, who are either in the leadership positions or the core committees, it’s their responsibility. And I just feel fully confident that everything was disclosed and understood by those involved,” he said.

Brad Moore, the current NPH board chairman, agreed. “There was full disclosure of all key aspects of the gift/transaction,” he said in a written response to questions posed by The Star. The vote to accept the gift was unanimous, he added.

Moore, who also serves as president of Hallmark Hall of Fame Productions, is a friend of Smith’s, with whom he participated in a charity motorcycle event through Latin America in 2011.

“I think everyone involved regrets how this whole controversy developed and continued,” wrote Moore, who said outside attorneys reviewed the deal before it was completed — though when asked, he declined to name them.

While Smith says he cooperated fully with the task force, Davis said an initial list of questions he sent to Smith, as well as a follow-up email, were not answered. Smith says he received these questions after the task force’s work was completed and was instructed by “church leaders” not to respond.

“If someone’s suggesting that I didn’t give enough, well, that’s unfortunate,” he said.

“Other than my paycheck, I’m not receiving any benefit whatsoever,” Smith said a week before his dismissal. That statement, however, doesn’t appear to take into account the roughly $36,000 monthly lease payments supposedly still going to his Wolf Creek corporation, or relief from Premier’s loans.

And he did acknowledge receiving a tax benefit for his charity.

IRS considerations, he added, make it difficult to take back Premier. “I could not receive it back ... without penalty and paying taxes. ... The idea of buying back something that I gave away, it’s very complex.”

Smith also said that while he once believed an agreeable resolution could be reached, he no longer does.

“I would never imagine that the Church of the Nazarene would ever walk away from its liabilities, from its agreements,” he said last week. “But with what I’ve been though, I’m not so sure anymore.”

Davis’ July memo agreed that a separation from Smith and Premier presents complicated tax issues. Discussions, he said, “have not produced an agreement as initially expected,” but that failure “would likely result in substantial challenges for NPH and the General Church.”

But last month, he told The Star: “With Gerald’s office being declared vacant and him no longer being there, I think that’s the first step. I now begin to ask my questions again.”

To date, no lawsuits have been filed. As multiple church members explained, the idea of suing a fellow Nazarene goes against the very fabric of the church’s principles.

“We’ve always, at least on the outside, dealt with ethical people before,” said a member of the general board. “We operate on trust and Christian brotherhood. They (church leaders) just keep trying to find the grace-filled way.”

In the meantime, Davis advised patience.

“This may be a several-act play,” said the judge. “But I think (with) the first act, the curtain has closed.”

To reach Dugan Arnett, call 816-234-4039 or send email to darnett@kcstar.com.

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