- September 1st, 2006, 1:06 am
#28016
On The Cover/Top Storieshttp://www.forbes.com/forbes/2006/0918/118.html
Prophets of Boom
Dirk Smillie, 09.18.06
To save their Bible boot camp from financial doom, the Reverend Jerry Falwell and son, Jerry, have begged, borrowed and built their way back up.
Veering from a narrow dirt road, Jerry Falwell Jr. shoots his GMC pickup along the rocky slopes of Candlers Mountain in Lynchburg, Va., hitting an armchair-size rock that nearly flips the truck. Unfazed, Falwell guns his engine harder, bouncing his way to the top of the 1,200-foot peak. Far below, workers are putting the finishing touches on a new law school, ten dormitories, a football clubhouse and a chapel. "What we build here has got to be bold," says Falwell, taking a deep breath. "Our destiny is at stake."
Financial, as well as spiritual. The last few years have been a bumpy ride for Jerry Jr., his famous father and their evangelical institution, Liberty University. The nonprofit school aims "to develop Christ-centered men and women with the values, knowledge and skills essential to impact tomorrow's world." But it's the present that has kept this duo busy. Liberty may be a mandatory whistle-stop for Republican presidential aspirants, who come to deliver commencement addresses and grab photo ops with the founding father of the Moral Majority. But Reverend Falwell, who used his television ministry to raise $2 billion for conservative causes in the 1980s, isn't the money machine he once was. He and his son have spent the last few years battling to work off $100 million-plus in debt, just as donations to Falwell Sr.'s Thomas Road Baptist Church, the university's onetime key benefactor, have shriveled. At the same time father and son have towering ambitions: They're looking to raise $1 billion to solidify Liberty's legacy as a West Point for the faithful.
Since its founding by Falwell père in 1971, Liberty has grown from a one-room Bible class inside the church to a 4,400-acre campus with 9,558 residential students. An additional 12,000 or so sign up for distance-learning courses. It offers B.A.s from its college of arts and sciences, its schools of business, communication, education and religion, and graduate degrees in 15 programs, from an M.B.A. to a master of science in nursing. Sports are a big deal; the school boasts 18 NCAA division-1 programs. "Athletics are a platform for our message," says Jerry Sr.
Religious instruction permeates academic and social life. Prayer leaders minister to groups of five students, who must attend chapel three times a week; the school prides itself on turning out "champions of Christ" who take the Bible literally, believe in creationism, political conservatism and free enterprise. The law school preaches that separation of church and state was never intended by the founders. Students must submit to random drug tests and adhere to hair and dress codes. Coed dorms, partying and sexual promiscuity are out. Anyone involved with "witchcraft, seances or other satanic or demonic activity," warns the student handbook, will be slapped with a $500 fine and 30 hours of community service. "Evangelicals are finally confronting the larger culture over issues we care passionately about," says Frederick Milacci, dean of graduate studies.
Both Falwells--the elder, who is chancellor, and the younger, vice chancellor--keep offices inside the brick cottage that was once home to Senator Carter Glass of the Glass-Steagall Act and Treasury Secretary under Woodrow Wilson. On a recent summer evening, as fighting raged between Israel and Hezbollah, Jerry Sr. typed out his Web column, suggesting that the world might be on the edge of Armageddon. In a conference room next door Jerry Jr. pored over a geologic map of a ski resort the Falwells plan to build on Candlers Mountain, cell phone pressed to his ear as he debated with a real estate partner whether to use artificial snow for the slopes. The younger Falwell, 44, seems to spend little time pondering the apocalypse. A graduate of the University of Virginia law school who sports a Daytona tan, he struts around Liberty's construction chaos in a navy blazer and beige khakis, hopping over wet cement.
But there's no mistaking who still calls the shots. The church and the university are separately incorporated; a Christian K--12 academy and the Liberty Channel TV network (once called the Old Time Gospel Hour) are grouped under a third nonprofit, Jerry Falwell Ministries. Liberty University's 38-member board is appointed by the church and is packed with pastors and local business folks, without a single faculty staffer. Its budget is ratified by the board, which is handpicked by Falwell père. At 73 he is still vigorous, if hefty, despite having been sideswiped by death last year: In March 2005 he was pronounced dead after an arterial blockage threw him into cardiac arrest for four minutes; a paramedic revived him. "Dad's illness put our feet to the fire," says his son.
This month, the Falwells say, they'll complete $82 million in campus construction projects. Nearly half that sum is being spent to transform a million-square-foot former Ericsson (nasdaq: ERICY - news - people ) plant bordering the campus into a new law school and a larger site for the church. The mammoth building came courtesy of an $11 million purchase on Liberty's behalf in 2004 by David Green, chief executive of retailing giant Hobby Lobby Creative Centers and a big backer of evangelical education. Such largesse funds most of the building boom. Liberty University isn't losing money: Last year tuition and fees amounted to $125 million, operating expenses $109 million. But it's still $30 million in debt. "We need a financial safety net," says Falwell fils. An endowment of $1 billion, he thinks, could throw off $50 million a year, enough to cover growing operating costs and to underwrite some of the 2,000 scholarships Liberty offers each year (tuition, room and board run $19,950).
Getting there won't be easy. From 1988 to 1992 donations to Falwell's ministry plunged from $135 million to $10 million. "It was a nightmare," says the younger Falwell, whose father brought him on as Liberty's general counsel in 1988. Jerry Jr. first tried to get the state of Virginia to bail out Liberty by floating $60 million in bonds, but the state supreme court put the kibosh on the move, ruling that the public offering violated the separation of church and state.
Those were desperate times. The younger Falwell spent hours on the phone pleading with donors and lenders for new loans to keep the campus afloat, sometimes getting cash the very day he had to make the payroll. Rescue seemed assured in a deal with Kemper Capital Management, an affiliate of Vincennes, Ind.'s Kemper CPA Group, to refinance $55 million of short-term debt with long-term bonds--or so he thought. "Unfortunately, Kemper couldn't sell the bonds, so we sued them," he says. The case went to arbitration, but Liberty lost. Jerry Jr. then sat down with creditors, including Household Retail Services and Stephens of Little Rock, Ark., and worked out a seven-year repayment plan. He raised $4 million by selling 2,000 acres on Candlers Mountain. He also cut costs by shutting down a fundamentalist magazine, eliminating the wrestling program and slicing the recruitment budget for Liberty's distance-learning program by a total $12 million.
Since 1999 Jerry Jr. and his private development firm have raised $100 million or so via sales of land and leaseholds to pull in retailers--Wal-Mart (nyse: WMT - news - people ), Kohl's (nyse: KSS - news - people ), Staples (nasdaq: SPLS - news - people ) and Circuit City (nyse: CC - news - people ), plus a dozen restaurant chains--around Liberty's campus. "Jerry Jr. is a one-man real estate boom," cracks Christopher Doyle, vice president at CB Richard Ellis and the Falwells' point guy on the Candlers development.
Liberty also found a savior in life insurance mogul and Forbes 400 member Arthur L. Williams, who has dropped $70 million into the kitty. His biggest gift came in 1997 with the proviso that he be allowed to send his finance chief to scrutinize Liberty's books. It came out that the source of Liberty's ramshackle financial state was an overreliance on donations from Falwell's diminishing TV ministry. Williams also urged him to scale back his other ministries and make Liberty the focus of the family business. "Jerry Falwell is one tough dude," Williams says. "He refused to let his dream die." Williams has created a few of his own: His $12 million for a new basketball arena and football stadium helped recruit University of Virginia coach Danny Rocco for the upcoming season. Other big gifts have come in from the likes of apocalyptic Christian novelist Tim LaHaye, whose $7 million helped to build an ice rink and a student center with five basketball courts and an Olympic-size pool.
The Falwells know they can't rely on such manna forever. Tuition and enrollment are both increasing at roughly 8% a year. But the rise masks one big problem: Only 49% of Liberty's distance-learning students, the fastest-growing and easily the most profitable population, return year to year, making growth dependent on new-student recruitment. Liberty's Web courses face strong competition from the Christian online school Grand Canyon University (10,000 students), acquired a couple of years ago by Significant Education, a Phoenix, Ariz. private equity group.
Getting recent Liberty alums to cough up has proved challenging. The Falwells say they have $163 million pledged to Liberty's endowment in the form of wills, bequests, trusts and gift annuities from contributors to Jerry Sr.'s ministry, but only $20 million of that is in cash. Father and son are at work on scads of other, unconventional ideas. Falwell père, who carries a $46 million life insurance policy, convinced a wealthy couple to take out a $100 million second-to-die policy making Liberty the beneficiary. A former Detroit auto engineer, Charles S. Clark, donated a design to reduce the cost of making printed circuit boards. Jerry Jr. filed a patent for the process and is marketing the idea, claiming it could be worth "north of $250 million" but admitting that this number is speculative.
That said, the Falwells have a history of persuasiveness in Lynchburg (pop.: 65,269), where 56 relatives are buried. Jerry Sr.'s father, Carey Hezekiah Falwell, ran a string of gas stations during Prohibition, using his fuel trucks to smuggle bootleg whiskey. After Carey shot his younger brother to death in self-defense, he became an alcoholic with a nasty knack for keeping his staff in line. An employee called in sick one day, so Falwell caught the man's cat, killed and cooked it, then delivered the remains to the employee's home as a complimentary lunch. And once, after a drunken patron turned belligerent at a Falwell-owned restaurant, Carey grabbed the customer and threw him into a bear cage, where he was maimed by the beast, then set free. Tough dudes, these Falwells.
hadn't heard that part of it.
saying "rich people still give money, so it must be God's will". 
- By Purple Haize
- By Dalegarz1