In the second episode of the new Showtime series Billions, lead character / billionaire hedge fund manager Bobby Axelrod (played by Damian Lewis) visits with the head of a prestigious venue named Ellis Eads Hall (think a fictional Carnegie Hall). Axlerod is after one thing: the naming rights to the building. (Set aside the fact that his motives are not altruistic.)
The problem is that the rights were granted to the Eads family “in perpetuity.” So, like any good negotiator, Axelrod offers the school $100 million to rename the building and another $25 million as a payment to the Eads family, as payment for having their name removed.
I won’t spoil how this all plays out on the show, but the scenario does have some basis in recent history, such as when a real-life billionaire was given naming rights to a prestigious venue that had been named some forty years earlier.
Charities offer naming rights during fundraising campaigns for one simple reason: naming opportunities work. Naming opportunities appeal to donors who appreciate the public recognition their mega-gift provides, not to mention the lasting impact of having a physical space bear your family name – no matter how big or how small. And this isn’t a recent phenomenon – it’s been around a very long time. (How do you think Harvard University got its name?)
As a donor considering a major gift in exchange for a naming opportunity, you need to approach the transaction not just as a charitable gift, which ultimately it is. A successful naming opportunity gift requires a clear understanding of the terms of the gift and the recognition offered by the organization – before a single dollar exchanges hands or before a single letter gets affixed to a wall:
1. Agree on a length of time for the naming rights. “In perpetuity” is no longer an option, and for good reason. What if the building needs to be torn down as part of a campus overhaul? Does it make sense for the naming to transfer to a new building? Of course not. This is an area where charities have found themselves hamstrung by long-ago agreements that are difficult if not impossible to renegotiate. Charities must reserve the right to “un-name” a building. Today, many charities are offering naming rights for a period of 30 years or the useful life of the building, which is a reasonable length. If you prefer something that lasts longer, consider a gift to something that is not bricks-and-mortar, like an endowed chair or scholarship fund, which also offer naming rights.
2. Have contingency plans for fulfilling the gift. Depending on how you intend to fulfill the gift financially, some planning may be required. Few donors will write a check for the full gift amount once an agreement is reached. The more likely scenario is a pledge over a number of years, or part current gift and part testamentary gift. But what happens with the naming rights if due to death or some other calamity, full payment does not reach the charity? A charity can’t be expected to fulfill a $16.5 million naming opportunity if they only receive $7.5 million. As part of the agreement, include plans for making good on the money or for a reduced naming opportunity in the event the original gift intention cannot be fulfilled down the road.
3. Put it all in writing. Never enter into a naming opportunity on a handshake (or even a simple “intention form”)! Be sure to have a fully executed gift agreement that has been reviewed by your legal counsel and which addresses points #1 and #2 above, among others. There can be no vagueness or ambiguity about each party’s responsibility here.
The goal is a successful gift to a worthy institution which, in exchange, provides public recognition to the donor for a certain period of time. With some advance planning, a naming opportunity gift can provide significant benefits for all – especially those being served by the organization.
Questions or comments? Contact me on Twitter @juanros or LinkedIn.