This article originally appeared as a column for the Cleveland Jewish News.
Philanthropy happens at all levels of giving. Some donors are comfortable writing checks with one or two zeroes at the end. Others may add a few more zeroes or, perhaps, sponsor a table at a gala or donate a valuable item. But the pinnacle of philanthropic giving involves naming rights.
Who isn’t familiar with Carnegie Hall or Rockefeller Center? Cleveland’s local universities are filled with buildings named for donors. Naming rights can be very useful for a nonprofit institution. After all they are very expensive, and naming rights can encourage major donations. A wing, hall, or building becomes part of the local landscape, and the name lives on beyond the person. There is something very appealing about leaving a lasting legacy, and the right to do that can encourage the sort of major donation that can help an organization meet its philanthropic goals.
Large anonymous gifts get publicity. Each December, for example, we hear news blurbs about generous but anonymous donations into Salvation Army buckets. But publicity surrounding large public donations tends to be much more beneficial for the organization overall, attracting more attention and often more donations from other large donors.
But naming rights require a delicate balance between satisfying the donor’s (or donor’s heirs’) wishes for the name to live on and the need to attract future large donations by having the latitude to bestow further naming rights. After all, the things that get named require upkeep. Maybe a wealthy donor provided needed funds for a facility overhaul and negotiates naming rights as a condition of the gift. What then happens when the next overhaul is required? Do those same naming rights get bestowed on the next donor?
There are differing schools of thought surrounding the “best” way to manage these types of issues. Many donors and organizations believe that revolving naming rights are the best way to further the organization’s mission, by enticing new donations. On the other hand, many large endowments have fallen through when an organization refused to honor certain naming demands. And sometimes rights that were to be in perpetuity are bought out or otherwise terminated in some way in order to meet future goals.
For tax purposes, the Internal Revenue Service has long taken the position that public recognition does not count as a measurable benefit that would impact any tax deduction. So, a $20 million gift has the same tax benefit irrespective of whether or not the donor gets a new museum wing named after him in perpetuity, for a limited period of time, or not at all.
Ultimately, significant consideration and negotiation goes into giving at this level, both from the standpoint of the donor, as well as the nonprofit organization, and lengthy legal contracts must be drafted to carefully spell out the terms of the naming rights and the contingencies surrounding the donation.