Is AMA’s Embarrassing Sunbeam Deal a Cue for Less Risks by Associations?

By Henry Saeman
March 1, 1998 - Last updated: May 31, 2011

Rarely in its annals has the embarrassment been more keenly felt, the reverberations from doctors and the public been more outraged, and the recovery more painful than the soured Sunbeam deal that shook the august American Medical Association at its roots last summer.

It’s a lesson potentially for all associations seeking rescue schemes to solve their financial predicaments. That was AMA’s problem: its revenues declining while association membership dropped. Thus, AMA executives agreed to endorse Sunbeam products for five years. Had it worked, the deal would have sweetened the association’s treasury by millions. And for Sunbeam, it promised to be as profitable as the Good Housekeeping seal of approval.

Instead, it outraged the doctors. Their furor was immediate, blistering and unrelenting. In addition, editorial comment in America’s newspapers was forceful and incessant. The maelstrom led to a corporate housecleaning culminating in the resignation of Dr. P. John Seward, AMA’s chief executive, preceded by the resignation of the association’s general counsel, chief operating officer and vice presidents for business and management, and marketing.

If all that thunder wasn’t enough, Sunbeam sued AMA for $20 million for breach of contract.

Whether the AMA calamity causes other money-starved major national associations to pull back is difficult to predict, but it’s bound to make the risk-takers more wary.

The financially-healthy American Psychological Assn. prides itself on having used what todate have been smart real estate transactions to increase its revenues, making it possible to hold membership dues in check.

After constructing the current headquarters building six years ago near Washington’s Union Station–previously an ailing, lost neighborhood since restored to flourishing commercial property–APA attracted the National Assn. of Social Workers, and several other major clients.

So profitable was the initial enterprise that APA, under the leadership of its finance officer, Jack McKay, began constructing a second building, its new tenants consisting of Amtrak and several national associations which agreed to longterm leases. The building has recently been completed and is now partly occupied.

However, profitable, nondues ventures haven’t always been an bonanza as long-standing APA members with haunting memories of the Psychology Today misadventure during the 1980s will attest. The financially-disastrous purchase and sale of the magazine caused a sea of red ink, and it took years to recover.

In addition to its real estate ventures, the association continues to be in the publishing business which helps boost revenues, but APA limits publishing to its familiar markets of psychology books and journals.

At the state level, nondues revenue-seeking has been fairly circumspect. No Sunbeam deals–real or attempted. State psychological associations gain some extra cash from conventions and workshops. They try other modest income-producing, non-risk ventures, none to rival AMA’s ill-fated effort of 1997.

The lesson AMA learned from its Sunbeam venture was demonstrated unmistakably at the association’s recent winter meeting in Dallas. It voted a firm “no” to future product endorsement. But it did leave the door slightly ajar by appointing a blue-ribbon task force to report at its annual meeting in June on how to respond to future corporate relationships.

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