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What is a Naming Rights Agreement
A naming rights agreement is a contract between two parties or more that grants one of the parties the exclusive right to name a location, a section of a property, an entire building, a program, or an event while also allowing donors/sponsors and their families the prominent recognition and honor. Naming opportunities examples are a library named after the sponsor, a sporting event, or a scholarship fund.
Naming rights have become a significant source of funding and are essentially gifts that come with special conditions. Clarifying the nature of these conditions is essential to ensuring the expectations of both the nonprofit and the donor are met.
Naming Rights Best Practices
1. Set Naming Policies
To maintain consistency of naming opportunities, it is best that a nonprofit has an organizational policy that clearly sets the details of the naming rights agreement, including the type of naming rights, duration, the types of organizational gifts, the sponsorship benefits, and other inclusive terms and conditions.
2. Establish the Duration of the Naming Rights
Nonprofits often fail to specify a termination date for naming rights. If the naming right is associated with an endowment gift that will continue in perpetuity, it may be reasonable for the name to continue in perpetuity. However, in most cases, it is unrealistic to expect naming rights to go on forever. Buildings eventually crumble. Programs end. Also, by specifying an end date, nonprofits will be able to sell the naming rights over and over again and again.
3. Set the Details of the Promotional Expectations
It’s a good idea to clarify how and where the name will be listed including publication and signage expectations, particularly when a facility or section of a facility will be named. Donors expecting to see their name on a building from a block away will be disappointed with a small plaque or interior sign.
4. Include a Morality Clause
Including a morality clause protects the nonprofit in the event the donor’s reputation is seriously damaged. Nonprofits often avoid including a morality or bad boy clause for fear of offending donors; however, this is arguably the most important provision in a naming rights agreement. Most nonprofits depend on public goodwill to attract donors.
Close association with someone whose name has been badly tarnished can taint the nonprofit’s reputation and harm its ability to attract support. When negotiating a morality clause, it’s important to clarify whether the provision is triggered based on criminal indictment, criminal conviction, or the more extensive acts of moral turpitude.
For example, in one well-publicized case, Alfred Taubman donated money to Brown University to name the Alfred Taubman Center for Public Policy. Alfred Taubman was later convicted of price fixing. In another case, the recreation center at Seton Hall was named for Tyco’s former chairman, Dennis Koslowski, who was later convicted of tax evasion.
5. Retain Termination Rights
It’s important to specify how the gift will be satisfied. If the nonprofit is relying on the gift to begin a building project or kick off a major program, ensure the gift agreement is drafted as an enforceable contract rather than a mere pledge. This includes termination rights wherein a nonprofit may want to distance the organization from a donor with a tarnished reputation.
Conversely, a donor may want to have termination rights to ensure that the organization they are giving sponsorship to does not align with the donor’s values.
Another case where termination rights are applicable is when the named item or facility ceases to exist.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.