Aurora Summerfest Deal Raises Questions

Aurora Pavilion stage rendering. Rendering provided by Milwaukee World Festival, Inc.

On June 7, Milwaukee World Festival, Inc., the parent organization of Summerfest, announced that its new CEO would be Sarah Pancheri. That same day MWF also announced a new deal whereby Aurora Health Care would be the new sponsor of the Sound Waves Stage. These two seemingly unrelated press releases actually are connected. When you look closely you see a picture of how leaders of tax exempt non-profits are increasingly getting rich.

Back in June 2022, MWF announced that Summerfest CEO Don Smiley would be retiring at the end of 2023 and that Pancheri would be elevated to the position of President. There was no disclosure of what her pay would be. On December 7 we learned that the Summerfest board had promoted Pancheri to replace Smiley as CEO beginning on January 1, 2024.

Back when Smiley was hired, in 2004, Summerfest did a national search for a new director to replace Elizabeth “Bo” Black, whose final salary was $207,000. Smiley was hired for an annual salary of $225,000. The festival was very transparent about all this.

Not any more. Though Summerfest was founded and long subsidized by the City of Milwaukee, uses city land and is a self-declared “public charity” that has collected more than $5 million per year in gifts, grants and contributions, Smiley once declared that his salary is none of the public’s business. In fact the festival is required by law to declare this information on its federal 990 tax forms. And these (typically released a year or two after the fact) showed that Smiley’s annual pay had jumped to $886,885 by 2012 and continued to rise. Over the five year period from 2017 to 2021 Smiley collected $6.56 million and likely collected similar compensation in 2022 and 2023. Had his salary increased at the rate of inflation he would now be earning $366,000. And even that would be far more than the $144,000 paid to the director of Wisconsin State Fair, a similar festival but with greater attendance.

Why was there no national search for his successor? What was Pancheri offered to take the job of CEO? What will Smiley earn as part-time advisor and consultant for the next year? None of that was disclosed by Summerfest’s board. In response to questions from Urban Milwaukee, spokesperson Julie Dieckelman said “MWF does not disclose salary or compensation.”

The Sound Waves stage had gone with no sponsor in 2023 after Johnson Controls dropped out, with no explanation given by Summerfest. Ultimately someone at the festival had the idea of offering the sponsorship to a big health care group.

Which was sort of a no-brainer as big nonprofit health care organizations are increasingly flush with money. The national Ascension Health chain has $18 billion in cash reserves and in addition, runs an investment company that manages $41 billion. Locally, Children’s Hospital of Wisconsin has socked away $1.5 billion in investments.

One way they amass more wealth is through mergers. Almost 1,900 hospital mergers were undertaken from 1998 to 2021, which typically give them more leverage with insurers, leading to higher prices. When Aurora Health Care of Wisconsin merged with Advocate Health Care of Illinois in 2018, they created the 10th largest not-for-profit health care system in the U.S., serving nearly three million patients each year with combined revenues of nearly $11 billion. Four years later, in 2022, Advocate Aurora Health Care merged with Atrium Health Care, based in North Carolina, to become Advocate Health Care, the nation’s fifth-largest nonprofit health system, with $27 billion in revenue and 6 million patients.

The usual result of such mergers is that “hospitals add billions of dollars annually to their bottom line, lavishly compensate their CEOs, and spend millions of dollars, which are generated by patient fees, lobbying government to defend the status quo,” as a story by Forbes noted.

As Urban Milwaukee reported, the merger of Aurora and Advocate helped to jack up executive salaries. In 2020 there were 15 top staff, whose compensation ranged from $1.34 million to $6.8 million (for CEO James Skogsbergh) and together collected a total of $33 million, their federal tax forms show. In 2021 that rose to 16 staff members whose total compensation ranged from from $1.34 million to $7.7 million (for Skogsbergh) who collected a total of $36.75 million.

But perhaps the biggest winner was Nick Turkal, former CEO of Aurora, who got a wonderful golden parachute for agreeing to the merger whereby Skogsbergh would take over. Turkal transitioned from full time to 30 hours per week in 2019 and collected $12.4 million that year. Thereafter he retired and collected $5.77 million in 2020 and $3.56 million in 2021 for zero hours worked.

But those numbers actually look low compared to what the even bigger Atrium system pays its top executives. Its CEO Eugene Woods collected $9.83 million in 2021, according to a report by the North Carolina state treasurer. “Woods made $4,728 an hour… It would take him just 13 hours to exceed the yearly wages of the average North Carolina household,” a story by Charlotte Axios noted.

But Woods was just warming up for 2022, when he got a 40% hike in pay, bumping his total compensation to $13.9 million, as the Charlotte Business Journal reported.

Below that, the next nine executives at Atrium collected compensation ranging from $1.88 million to $3.65 million. Together the top 10 executives collected $36.6 million, as Becker’s Hospital Review reported.

Skogsbergh’s huge salary will be added to this, as he will serve as Co-CEO of the newly merged system for 18 months and thereafter, like Turkal, will undoubtedly earn lucrative multi-million retirement payments as a reward from handing his empire over to Atrium and Woods.

Precisely how much wealth the new Atrium-Advocate-Aurora system has is hard to precisely estimate because these deals do not merge all assets and each system had many different nonprofit entities it ran.

At the time of the first merger, Advocate had some $567 million in assets, including $490 million in investments, its federal 990 tax forms show. Aurora had $5.9 billion in assets, including  $2.7 billion in savings and temporary cash investments, and a separate foundation with $240 million in assets, including $237 million in publicly traded securities, its tax forms showed. As for Atrium, its 2021 tax form shows its foundation alone had $493 million in net assets, including $355 million in publicly traded securities. One report shows Atrium earned $938 million of net investment income in 2022, which would suggest its total of investments was probably well more than $10 billion.

Aurora was the obvious group for Summerfest to approach, as two mergers have obscured its identity in Wisconsin, and the Summerfest sponsorship provides a promotional opportunity that is easily affordable: its 2021 tax form shows it had $4.6 million in net assets and some $555 million in investments. What does the annual sponsorship cost? Neither Summerfest nor the health care group would disclose the amount.

As for why a health care system is underwriting what used to be called the World Music Stage, Cristy Garcia-Thomas, chief of diversity, equity and inclusion officer for Advocate Health, released a statement explaining that this is all about serving the community: “We know that music and the arts have the power of bringing people together, and we know that strong social fabric is correlated with improved health outcomes,” she noted. Garcia-Thomas was paid total compensation of $1.2 million by the health group, according to its 2021 tax form.

Ultimately the money for the sponsorship will come from out-of-pocket payments by patients or their insurance companies (from premiums paid by patients) or from tax-supported entities Medicare and Medicaid. In addition we the people also subsidize nonprofits like Aurora and Atrium through tax exemptions they have been given because they are supposed to operate as public charities. And the Summerfest sponsorship, along with ever-increasing ticket prices for the festival, will help pay for the annual compensation and consulting fees going to Pancheri and Smiley.