July 24, 2011; Source: The Palm Beach Post | Seniors join AARP and receive discounts from partnering businesses eager to reach out to their 40 million members. Revenue from these agreements comprises 46 percent of its income. A recent bankruptcy filing by an AARP corporate partner reveals some of the details and financial benefits to AARP. Questions of AARP’s profit motive and tax exempt status surface again.
HearUSA, signed a $7.6 million dollar deal with AARP to be the sole hearing aid provider to its members. The company agreed to provide 1,000 aids a year to disadvantaged seniors and donate $250,000 to AARP’s education fund. It also paid AARP $660,000 royalties from sales of hearing aids. Within a year of announcing this agreement, the company president resigned and HearUSA ended up in bankruptcy court.
HearUSA apparently had a history of operating losses. The AARP contract was not the primary reason for the bankruptcy, but it didn’t help. Their major supplier was against the deal. Large numbers of hearing aids were not sold and HearUSA spent or lost a combined $3 million through the AARP contract in the 3rd quarter of 2010.
According to the article, HearUSA was reluctant to provide details of the AARP contract in bankruptcy filings. AARP, which also runs a for-profit subsidiary AARP Services, also refuses to discuss the agreement.
An earlier article in NPQ Newswire summarized a March congressional report that questions AARP’s tax exempt, non-profit status. It noted that the organization makes more than $650 million in royalties through these contracts, which are kept confidential from its membership.
Phil Kent, president of the American Seniors Association, a publicly traded company and competitor of AARP, noted that HearUSA got “ripped off.” He also questions AARP’s secrecy in these types of deals. Analysts say HearUSA had a profitable business model that was just poorly managed.
This business failure should also raise a red flag to other companies wishing to partner with AARP. Check, analyze and ask: Is it worth it? –Nancy Knoche