Last month, Urban Milwaukee obtained a copy of an IRS complaint filed against Milwaukee World Festival, Inc. — the nonprofit entity that operates Summerfest. The complaint challenges the festival’s nonprofit status and claims that Summerfest essentially operates as a commercial entity.
Also included in the complaint is a pattern of activities that directly compete with for-profit firms in the area to “monopolize the Milwaukee concert venue market through restrictive contract provisions and partnerships with for-profit entities.”
Urban Milwaukee editor and chief columnist Bruce Murphy broke this story recently, and he notes that for now the identity of the person who filed this claim is unknown. The complaint was leaked to him and was prepared by a lawyer in Kansas.
Murphy explains, "This complaint is arguing that Summerfest has over the years become much more like a private entity. They have a very close relationship with Live Nation, which is a pretty much a monopoly in the concert business, since they merged with Ticketmaster years ago."
Other complaints in the filing point out that Summerfest is paying 50% to 100% above market prices for artists and making them sign contracts that forbid them from performing anywhere in Milwaukee six months before their performance at the festival — effectively undercutting profit for other venues in the city like The Rave and The Pabst Theater Group.
While Summerfest's mission statement mentions nothing about doing lucrative business deals, Murphy points out that even their salary structure is that of a for-profit than a nonprofit.
He says Don Smiley, director of Summerfest, has made nearly $2.5 million in the last two years in compensations.
"As an example, the director of State Fair earns about less than $200,000. Smiley earns about nine times more than the director of State Fair. I might add that he earns far, far more than his predecessor, [Elizabeth] Bo Black, who ran Summerfest for years and never earned more than I think $210,000," says Murphy.
He points out that Summerfest was founded by the City of Milwaukee, the grounds are on city land and the city charges a below-market rate for the land Summerfest occupies. "So arguably this has been kind of a partnership of a nonprofit and the city," Murphy notes, "but the leadership of Summerfest told me that basically they don't see that this way, they consider themselves a private corporation."
Summerfest has denied the complaint in its entirety and has argued there's no basis for any part of it, according to Murphy. They also put forth that they're willing to cooperate with the IRS if there is an investigation.
More often than not, Murphy says the IRS is more willing to fine a nonprofit than revoke their tax exempt status.
"The IRS does do thousands of audits of nonprofits per year is what I've learned. However, it's rare that they yank someone's tax exempt status. So I would say the odds of this complaint succeeding are probably low," he says.
From Murphy's perspective covering Summerfest over his career, the public still holds Summerfest as a beloved institution and most people won't care about the IRS complaint. Instead, he says, the city might pay more attention to the change of guard at Summerfest.
Smiley himself is expected to leave in the next year or two, and Bob Babisch, an instrumental person in booking musical acts for the festival, is retiring after the 2022 season and considering a consultant role.
"The leadership is changing, that might be an opportunity for discussion about the role of Summerfest — whether its relationship with the city and how it operates should be reconsidered to some degree," says Murphy.
