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Case Code: BSTR529
Case Length: 7 Pages 
Period: 2005-2017 
Pub Date: 2018
Teaching Note:Available
Price:Rs.200
Organization :The Newseum
Industry :Museums, Non-Profit
Countries : The US
Themes: 
Case Studies  
Business Strategy
Marketing
Finance
Human Resource Management
IT and Systems
Operations
Economics
Leadership & Entrepreneurship

The Newseum-Will It Survive the Sustainability Crisis?

 
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EXCERPTS

FINANCIAL DISTRESS

 

In 2008, the US economy was hit by one of its worst financial crises. The crisis had a severe impact on the Newseum. In the words of its then CEO, Charles Overby (Overby ), “I have watched the economic cycle go up and down more than once – I don't panic at the first sign of a drop. But as we watched this year, it became apparent we couldn't sit around.” The massive outflow of $ 450 million toward the Newseum’s new building, coupled with the economic downturn, left the firm with a severe liquidity crunch. Newseum’s loan for construction was brokered by Lehman Brothers, the bank hit hardest during the crisis and which had eventually closed down. The Newseum’s construction was financed with about $350 million in variable-rate revenue bonds secured by the Freedom Forum. The interest rates increased after Lehman Brothers’ credit rating was downgraded. Lehman Brothers was hit so hard that it declared bankruptcy. It demanded $62 million from the Newseum for previous credit-default-swap transactions. These were finally settled at $41 million, causing a further outflow from Newseum’s coffers. To make matters worse, the corporates, charity foundations, and generous individuals who used to donate funds to Newseum pulled back their contributions owing to the financial crunch. .

 
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SUSTAINABILITY ISSUES

The declining course of the Newseum’s revenues and the receding sources of funds indicated a possible flaw in the business model of the firm. Experts started questioning the very feasibility of running the Newseum if the same model continued. The firm’s excessive dependence on a single donor, the Freedom Forum, did not look like a long run solution. In the words of Jan Neuharth (Neuharth), Chair and Chief Executive Officer of the Freedom Forum, “It has become obvious that the current model — where the Freedom Forum is the primary funder of the Newseum — cannot continue indefinitely at this level.” .
 

ENTROPY

By 2014, disorderliness increased at the Newseum. Agile change management was needed to turn the firm around. But the pace of decisions being taken at the firm showed that this was far from the case. The Newseum had recruited Wayne Reynolds (Reynolds), a D.C. philanthropist who played an instrumental role in stabilizing Ford’s Theater. Reynolds resigned in 2014 expressing his frustration at the organization’s disinterest and lack of progress in fixing the problems. According to him, “They brought me on as an agent of change, but change is the last thing they’re interested in.” .
 

THE ROAD AHEAD

At end of August 2017, the Freedom Forum launched a strategic review to take critical decisions addressing the Newseum crisis. On funding the Newseum, Neuharth said, “Left unchecked, this deficit and the spending rate would eventually drain the Freedom Forum’s entire endowment, and the annual cash drain prevents us from allocating any new capital to First Amendment programs that are at the heart of our educational mission.” ...
 
 

EXHIBITS

Exhibit I:The Newseum – Mission.
Exhibit II: Newseum – Financial Statement