Securing airtight naming rights with help from a private foundation
Naming rights have become an increasingly popular strategy as companies seek high profile public exposure through their sponsorships – think SoFi Stadium, which set a 2019 record for naming rights as part of a a 20-year deal reportedly valued at more than $30 million a year. . Similarly, charitable individuals and families also use naming rights, as part of a gift as a way to honor a loved one, establish a family legacy, enhance a personal brand, or strengthen bonds. with a community.
We spoke with Jeffrey Haskell, Chief Legal Officer of Foundation Source, to understand how giving through a private foundation – instead of giving directly to the organization – offers significant benefits and what should be included in such agreements.
Russian Prince: What naming rights benefits are possible when donating through a foundation rather than directly to the organization?
Jeffrey Haskel: Many donors use their foundations to ensure that there is a party to the naming rights agreement that will last beyond the death of the donor. In many areas, heirs may be denied the right to enforce naming rights agreements entered into by individuals. A private foundation, however, can indefinitely bear to ensure that there is a party to monitor the grantee’s compliance with the agreement. In addition, in the event of a violation, it is much easier to negotiate the return of funds when the donor is a private foundation than when the donor is an individual.
Using a foundation can also have tax advantages. For example, if the beneficiary is not a US charity, the donor will almost certainly be better off using a foundation, since an individual generally cannot get a tax deduction for donating to a non-US charity.
Prince: Are there any risks associated with obtaining naming rights through a foundation?
Haskel: Although donors are generally not permitted to personally profit from their private foundations, tax rules primarily treat public recognition, including naming rights, as a “merely incidental” benefit to the charitable purposes served by the donation of the donation. foundation. Perhaps because it recognizes that public charities generate a lot of revenue by facilitating naming donations, the IRS has generally blessed the use of foundations to make grants in exchange for naming rights. This does not mean that there is no risk, and much may depend on how the distribution is framed. However, if done correctly with a carefully drafted agreement, using a private foundation to secure naming rights has long been proven successful and generally poses no tax risks.
Prince: What are the key elements of an effective naming rights agreement?
Haskel: The written donation agreement should address some or all of the following:
1. Parties to the Agreement. Usually this will be the foundation giving the grant and the charity receiving it.
2. Grant Amount and Timing. Some grants will be awarded as a lump sum. In other situations, grant payments may be more desirable and may be conditional on meeting certain milestones.
3. The name and its appearance. The donor, of course, will want to specify how the name will read. It can be very specific, like requiring a certain font and size. There is no need to mention the foundation unless you want to.
4. What the name attaches to. Charities will want flexibility to provide other naming opportunities in and around the named space. The agreement should be clear about the extent to which these other naming opportunities will be offered and ensure that no other naming opportunities will receive greater treatment.
5. Destruction. What happens if the named space is destroyed and not rebuilt during the term of the naming right? Can the name be transferred to another space? If it is important for the donor, everything must be specified.
6. Advertising. What are the rules here? Should all advertisements for the space use the space’s full name? Will the foundation have the right to pre-approve promotional materials involving the name?
7. Deadlines and morality clauses. Charities are increasingly looking to place time limits on naming rights and ensure they have a way out if circumstances change, particularly if the name becomes a cause for concern or embarrassment. These arrangements are very delicate and must be carefully negotiated between the donor and/or foundation and the charity.
8. Remedies for Breach of Agreement. These may include reversion of funds or “donation” provisions, in which breach of agreement results in transfer of funds to another charity or coordinated alternatives.
When all parties to a naming agreement respect each other’s needs and imperatives, the agreement can align the two sets of goals by providing much-needed resources to the charity and cementing the philanthropic legacy of the charity. donor for years to come.
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