Many years ago, I worked with an organization that had just built a performing arts center. The funds they needed were mostly provided by state money, but now they needed private funds to help support the programs that would happen inside that building.
In creating the plan to raise the money, one idea was a community fundraising effort to offer the opportunity to put your name on the back of the seats in the auditorium. The theatre had 1500 seats—and we suggested pricing them by location. So for front and center the price would be much higher than to have your name adorning a side, rear seat. And even at prices much lower than I suggested, the amount that could be raised was significant.
“So,” said a committee member, “I purchase the seat in the third row, center—and that is my seat for whenever I come to the theater?”
Uh, no. You are not purchasing the seat—any more than someone giving multi-millions to name a building, or 6 figures to name a room buys your that space. Indeed, the IRS does not consider naming rights as having a significant return benefit to the donor—so the entire gift is tax deductible. If the donor were buying something very tangible, like that seat, the IRS would take a very different view.
Over the years, price for naming rights has taken into consider to cost of construction or renovation. Typically, we look to 50% or more of the actual cost for the naming right. But that assumes that you are only offering naming rights when you are engaged in capital campaign. More and more, that is not the case for smaller nonprofits who are just recognizing the value of having their donors’ names very visibly connected to the organization. It is critically important that you do not undersell.
A number of years ago, the board chair at a “friends of….” group very proudly came in with a check for $15,000—a gift that for them was very large. After accepting the applause of his board, he mentioned that he would be meeting with the donor in a week to work out the signage.
Sinage? For what?
His gift was to name the lobby of the organization that the Friends of group supported. And here we had two serious problems:
#1 was the fact that $15,000 was hardly enough to name a lobby. But equally important was #2—the lobby belonged to the parent organization. Without their permission—and input on price—the Friends of group had no right to sell naming rights.
This points out the importance of a complete naming rights plan that is approved by your board and by any other entity that has ownership. Your plan must outline not only the costs of various opportunities, but the length of time your donor’s name will adorn that space. Nonprofits have historically given “perpetual” rights, but many nonprofits have discovered problems with giving that much away. What happens if a named building is no longer needed or a space within a building must be redone? Or the building itself undergoes a complete rehab? Naming rights are often the major vehicle for raising the high end gifts needed to do the work.
Other considerations include what you do if the person whose name adorns your building (or an endowment fund or a program) does something that goes against your mission and your values.
Finally, you must ensure that you are documenting each and every naming gift with a formal (approved!) and written gift agreement. This gift agreement should clearly spell out what is being named, for how much, how the donors are making the payments and if there are any restrictions the donor has put on the gift. Smart organizations will also include language that lays out the term of the naming and the triggers and processes for changing or terminating the rights.