The NRA uses creative accounting to post surge in revenue

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The embattled National Rifle Association reported some good news to its supporters earlier this year: Revenue from membership dues jumped 33 percent last year to $170 million.

But that picture — outlined in its 2018 annual report circulated to supporters and analyzed by Bloomberg News — may not be as rosy as those numbers suggest, as factors other than growing member rolls may have contributed to the revenue increase.

For one thing, the NRA increased annual dues twice in two years. The group also booked much of the revenue from multiyear memberships in the first year, according to financial statements. Such an accounting tactic is permissible, but it leaves open the possibility that receipts could fall if multiyear membership numbers don’t keep pace.

“The NRA is increasingly reliant on selling long-term memberships” and counting much of the revenue the first year, said Brian Mittendorf, an Ohio State University accounting professor who has looked closely at the NRA’s finances. “A very conservative approach with a five-year membership would be to record one-fifth in the current year and defer the rest.”

An NRA spokesman, Andrew Arulanandam, said it was more effective to secure long-term memberships than to pursue renewals year after year. “Simultaneously, longer-term commitments also provide the member with significant savings over annual renewals,” he said.

Arulanandam didn’t respond to detailed queries about the NRA’s membership and accounting practices.

The annual report covers the NRA and its affiliates, providing a snapshot of the group’s health in 2018. That was before a spate of ugly battles among its leadership prompted anti-NRA vitriol and boycotts by once-loyal pro-gun blogs.

Internal Turmoil

On Monday, an influential Second Amendment supporter called on members to “de-fund” the gun-rights group by contributing the minimum possible to maintain their voting rights until the NRA replaces Wayne LaPierre, its top official.

“NRA members should be expressing themselves in the only way left that’s sure to get management’s attention — by starving it of cash,” Dan Zimmerman, managing editor of The Truth About Guns, wrote.

The internal battles spilled into public view in recent months with the departure of the NRA’s unpaid president, Oliver North, and its chief lobbyist, Chris Cox, after the group accused them of plotting to remove LaPierre. The NRA’s marketing firm for nearly four decades, Ackerman McQueen Inc., cut ties after LaPierre accused it of breach of contract.

Meanwhile, litigation costs are mounting. The NRA is the subject of an investigation by New York Attorney General Letitia James into its finances, and the group claims in a lawsuit that the state illegally discouraged banks and insurers from doing business with it. The NRA is also suing North and Ackerman McQueen. The firm, which produced the now-defunct NRATV, has countersued.

Bills related to the New York investigation and other legal matters were running $2.9 million a month, North wrote in April in a leaked internal memo.

The NRA also continues to spend more money than it takes in. Last year, expenses for the gun-rights group and its affiliates exceeded revenue by $11 million, following a $1 million deficit in 2017, according to the annual report.

The NRA’s long-formidable political power also faces challenges. After spending an unparalleled $30 million to support Donald Trump’s 2016 presidential campaign, the NRA is entering the 2020 election cycle without the marketing or lobbying power that made it such an effective force for Trump in 2016.

Under Threat

The NRA has implored its members to come to its aid by warning that the Second Amendment and their way of life are under threat, even as it has played down its financial troubles.

“On August 1, 2018, NRA membership dues will increase for only the second time in more than 20 years,” the group said in a membership letter last year. Without the higher dues, the NRA warned, it wouldn’t be able to compete in the fall election “where not only our Second Amendment rights but every freedom we cherish is at stake.”

It didn’t mention that the August dues increase would be the second in as many years. All told, the increases, to $45, have pushed up the cost of a one-year NRA membership by 28 percent since early 2016.

The NRA doesn’t officially disclose its membership, though LaPierre said in April 2018 that it had reached a record of close to 6 million. For outsiders, it’s difficult to translate the NRA’s reported membership revenue directly into membership rolls because the group offers various packages. In addition to a one-year membership, there are discounted two-, three- and five-year packages. A lifetime membership costs $1,500.

While accounting rules urge for-profit businesses to book revenues only at the time they provide a good or service in return, nonprofits have more latitude with contributions, Mittendorf said. He noted that the NRA has received a clean bill of health from its auditor, RSM US LLP.

This isn’t the first time that the NRA has front-loaded its revenue. In 2007, it started counting the revenue for multiyear memberships in the first year, minus the cost of providing benefits, like its magazines. As a result, 2007 dues revenue jumped to $229 million from $72 million the year before, according to a financial statement filed with the New York attorney general’s office.

Doubling Down

The NRA has been accounting for its long-term memberships in the same way ever since, its financial statements from the later years show. Last year, deferred revenue — which includes money to send out magazines in the future — increased nearly 50 percent to $47 million. The fact that deferred revenue is growing faster than member dues suggests that long-term memberships may be playing a growing role, Mittendorf said.

Rylance Lord, a retired pharmacist in Springfield, Ohio, joined the NRA three years ago because he supports its mission and political candidates. But after receiving repeated calls from NRA solicitors pushing him to extend his one-year membership, he’d had enough.

“I was annoyed that they wanted to add on years,” said Lord, 76. “I told them I’m not into the hard sell, so please don’t call me. When they persisted, I said ‘I’m not going to do this. Please take my name off your list.’”

Ultimately, Lord canceled his membership.

Bloomberg News
Revenue recognition Accounting fraud Financial reporting RSM