Negotiating and Documenting Nonprofit Naming Rights

Catch moneyWhat’s in a Name? For an increasing number of nonprofit organizations, the sale of naming rights have become a significant source of funding. The assets that can be named are limited only by a nonprofit’s imagination. Nonprofits commonly sell naming rights to programs, scholarship funds, endowed chairs, sections of a building, an entire facility, and even the name of the entity itself.

Naming rights gifts 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. Key considerations include:

  • The duration of the naming rights
  • How and where the name will be listed including publication and signage expectations
  • The nonprofit’s ability to terminate the naming rights in the event the donor’s name is tarnished due to criminal acts or unethical behavior

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.

It’s a good idea to clarify 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.

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.

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.