What’s in a name? Charities have a long history of extending naming rights to top donors. Quoting Richard Armstrong, director of the Solomon R. Guggenheim Museum:
“Social recognition has fueled philanthropy for centuries, which is why offering naming rights has been one of the most powerful fundraising tools. Not only does it acknowledge a donor’s generosity, it inspires others to give.”
However, considering issues of donor behavior and criminal associations, nonprofits need to consider the risks associated with naming rights. Nonprofits want to ensure they avoid legal issues or damage to their mission and reputation.
One recent example of naming rights becoming a liability rather than as asset is the Sackler family and their association with several major museums.
The Sackler family, owner of Purdue Pharma, is an excellent case study in what can go wrong with naming rights. Very briefly, the Sackler family made their fortune in pharmaceuticals. They were very generous philanthropists to many arts institutions. During the opioid crisis, Oxycontin, a drug manufactured by their company became the focus of many lawsuits. They filed for bankruptcy and paid the federal government over $200 million to avoid further lawsuits.
The Metropolitan Museum of Art and the Guggenheim museums in New York City, among many others, had accepted huge philanthropic gifts with naming rights attached. These museums and other institutions ended their agreements and relationships with the family members.
How does a nonprofit organization protect itself when offering naming rights to a major donor?
The first rule is to have an attorney represent your agency. This should be someone who is knowledgeable on this type of negotiation.
Have a written agreement, a contract that spells out every detail, including payments.
Avoid perpetual naming rights. There needs to be a time limit.
Specify how the donor will be recognized and where.
Are there transfer rights?
Spell out termination options.
Document your organization’s naming right standards in your gift acceptance policies
Naming rights can be a wonderful way to recognize a donor. But a nonprofit has an obligation to its donors, clients, and the community to do its due diligence by having gift acceptance policies in place and by carefully planning and documenting the transaction. This will help everyone avoid difficult situations in the future.
Cheers,
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.