Granting naming rights to buildings and programs can be a double-edged sword for nonprofits if the proper legal protections are not in place to mitigate the risk of potential harm to the organization’s mission.
A recent Forbes article highlighted the potential risks to nonprofits of mishandling donor naming rights in a story about the Sackler family, owners of OxyContin maker Purdue Pharma. Purdue was forced into bankruptcy due to a backlash against its role in fueling the opioid crisis in the U.S. Several nonprofits, including Tufts University, subsequently removed the Sackler name from their buildings and programs. However, a donation agreement required The Smithsonian Institution to keep the “Arthur M. Sackler Gallery” name in perpetuity.
Granting naming rights is an excellent way for 501(c)(3) organizations to provide recognition without reducing the value of a donor’s charitable deduction. However, organizations must give careful consideration to addressing some legal complications that could arise from granting these rights. Executing a contract that addresses the following will help protect the organization from damage to its reputation and, ultimately, its mission:
Manner of recognition.
Charities should be sure to specify where and how a donor’s name will be displayed. Will the name be displayed on a wall sign or chiseled in stone on a building (and thus not easily removed)? Will the inscription bear the donor’s name or a statement that the structure or facility was made possible by the donor’s gift? Is the manner of recognition dictated by donor preference or does the charity have a naming policy?
Duration of recognition.
Per the Smithsonian example above, charities should consider limiting donor name recognition to a specific period of time. There may come a time where it is no longer desirable or feasible to maintain a donor-named program or structure.
Contingency planning.
In addition to time limits for donor name recognition, charitable organizations should also address contingencies for things like donor misconduct, lack of funding, building damage, or other potential factors that would trigger early termination of naming rights.
Transferability.
What if a donor wants to change the name that has literally been carved in stone? Who would be responsible for paying for the changes? What if the donor refuses to pay for modifications? A provision to address this and other potential transferability issues should be considered and communicated properly to the donor.
General naming policy.
Consider setting your organization’s standards in a general naming policy that will govern the naming rights for all donors. Having a policy can help make terms that may be a little unpalatable to some donors more acceptable. Provide your policy to every donor and reference it again when acknowledging the gift in writing.
The Church Law Center of California advises churches and other nonprofits on how to protect themselves from risk while furthering their mission. Call us today at (949) 892-1221 or reach out to us through our contact page.
