Naming Rights:
Deciding how much that new building is worth to a donor
By Tom Pope

A visitor to the Morristown Mem-orial Hospital in Morristown, N.J., can see the gleaming Carol G. Simon Cancer Center, the name emblazoned on the front of the building. “We wanted to raise $12 million and received $2.5 million from the late former Deputy Secretary of the Treasury William E. Simon who named it for his wife,” said Jim Quinn, chief development officer for the Morristown Memorial Health Foundation, in Morristown, N.J. “The figure was based on a similar building’s figure and was about the size we needed for the lead gift in the capital campaign.”

Donors give to honor family members and corporations write big checks to prove their community activism. The questions to ask include how much is that naming right worth to the corporate donor and how much is prudent to ask of an individual donor. A combination of factors led to setting the price. A percent of the total cost of the building is usually where planners start. Add to that the predictions anticipated from other areas of that capital campaign, the anticipated ability of the donors in the area and the level of previous gifts from those donors.

Find the intrinsic value by looking at the blueprints for construction,” Quinn said. “You can assign a higher value to the lobby because of the visibility and foot traffic you expect. So, a large lobby would be more valuable compared to an operating suite in a hospital.” Study what the market will bear and what the organization needs, is the advice from Bridget Murphy, senior vice president and managing director with Graham-Pelton Consulting, Inc., a Summit, N.J.-based full service national nonprofit management and fundraising consulting firm.

Most naming opportunities exist with universities and hospitals while some also affect human services and art organizations like YMCAs, theaters or museums. “Typically, large gifts are pledges over three, five, or seven years depending on the size,” she said. “This is usually a written agreement signed by the donor where the payment plan may be quarterly or semi-annually and arrives part intact or in part with securities.” A discussion with the donor has to be clear through guidelines on how much needs to be in cash and within a certain period of time, according to Murphy.

The securing of a donor’s assets for the amount is part of the planning. The asset part of the agreement has to show clear language regarding how the donor is making provisions in the estate plan. That helps to determine the value of those assets. If some aspect, such as real estate, goes down in value, any transfer could affect the price the nonprofit expects. “Most nonprofits have policies on receiving securities to liquidate the assets,” she said. “The sophisticated nonprofit includes liquifying assets quickly, although this is not as common in the smaller human service or environmental areas because those organizations don’t have as many brick-and-mortar facilities.”

Organizations should make the gift an irrevocable arrangement so the nonprofit has a pretty good assurance that the amount will fulfill the gift amount of the naming opportunity. “We recommend that assets like insurance policies, boats or a will should be avoided,” said Bob Carter, vice chairman of Archimede Philanthropy Partners, a New York City-based company that works with high-net worth individuals and foundations. “The execution of those instruments could suffer many changes over time.”

If those assets could be transferred irrevocably and made liquid, the funds would better aid the cost of the building. “The farther down the line you go in time to see those assets realized, the more variance you have in the amount of money the assets are worth,” he said “By the time you get to the sale point, the figure could be much less because of a market drop. You could end up with $300,000 instead of $1 million.” Of course the ideal would be for everyone to shoot for 100 percent cash, but what would the least percentage be that nonprofits should accept as cash? “Anytime you get to about 25 percent cash, then you have to think about whether to look for another donor,” Carter said.

The timing of the transfer of securities should be immediate, Carter explained. The assets should be directly sold with the date of the gift as the date of transfer. “This way the funds can be made directly into the account electronically and should be sold right away into cash so the value doesn’t have the chance to decrease,” he said. Carter pointed to the trend with Wall Street where more gifts are occurring for naming rights through appreciated securities. “People look at assets to satisfy their giving,” he said. “Right now, major gift-giving mirrors the market.”

Yet designing an opportunity over time can work when the value is known in advance. Morristown’s Quinn obtained The Gagnon Heart Hospital naming rights during a campaign that offered donors five-year pledges. Variations exist based on negotiations with donors where some want an extra year or two depending on the amount of the naming rights. The aspect of paying out debt or bonds has to also be decided, according to Quinn.

“The net value of [a family] naming rights opportunity was sufficient to name the pavilion,” he said. “We had a combination of the length of the two charitable lead trusts and the endowment that timed with our payments to support the building.” How does the charity know the assets are close to the value sought for the naming rights? “When it comes to real estate or privately held stock, the donor could have an appraiser value the amount,” said Phil Purcell, vice president for planned giving and endowment stewardship at Ball State University Foundation in Muncie, Ind. “But the charity may want independent people or private equity experts if it’s closely held stocks to see to the liquidity.”

Making the case to donors should be in a written proposal. Costs of the building are packaged into a proposal with other attachments to describe the need of the building and the uniqueness to build the case for support. “Some public institutions might have the building paid for by state governments, although ongoing maintenance is still needed,” he said.        

Part of the building maintenance could appear in a complex formula where a principle amount of X dollars would insure income flow of Y dollars. The Y might be electric, utility or maintenance upgrades on a depreciation schedule. Equipment and supplies for the building could be more expensive than the building if the area is dealing with highly scientific concerns.

The rate for the naming could depend on how important the building is in helping the mission. Documented data from independent parties about verifying the need is strong in showing donors the set price the organization desires. This verification can come from accrediting bodies or third parties essential to accreditation for the organization, according to Purcell. The next step would be to screen prospects who are people in the position of wealth for the naming rights. Prospect qualifications are based on what you know of the donors and past giving history.

Organizations should have some architectural estimates of the cost of the building, according to Carter. “Generally we will know there will be changes and costs might go up, but usually we will be around an estimated figure,” he said. The naming price could also be determined by the scope of the project. A multi-sized building could afford the nonprofit to set one section of the building aside for oncology, for example. Then the larger building could be named for someone else.

See if the types of gift levels you desire can be broken down into smaller parts. Tie the gift levels of building campaigns to ways of naming rooms, or conference halls. “The entire building naming rights doesn’t preclude people from naming alcoves, or study places,” Carter said. “Figure out with your architect the cost of the rooms, for example.”

Cost versus value On the other hand, cost by itself might not be the only factor compared to visibility. “The public nature of the item, like a scoreboard becomes important,” he said. A scoreboard could only cost $10,000, but because of the public seeing the board constantly, the naming rights could be worth $25,000.          

“You combine the cost of the project with the public nature of the visibility,” Carter said. “Another part of the symmetry is asking how many $25,000 gifts are needed to raise the total of what the campaign desires.” Consider the rate of inflation, according to Quinn. “We named a building in the late 1980s and have to see what the cost was then compared to today’s dollars when we look at a new building or a renovation.”

Quinn hasn’t factored in the life of the building as a figure, but thinks this element will rise in importance as organizations become more sophisticated. “We’re going through a process now that is similar -- an area that’s been dedicated has been closed down or relocated,” he said. “We have to decide what the institution’s obligation is to the donor in extending the name to the new area, compared with the idea that time has fulfilled the obligation.” Finding an exact guideline to naming rights is hard because a case-by-case basis is needed to deal with the varying degrees of the situations. An organization might have funding so philanthropy isn’t required.

Quinn doesn’t agree with the idea that the rule of 50 percent of the cost of construction is a good figure to set for the naming rights. The Gagnon family asked privacy in the amount given to the 250,000-square-foot building during the campaign that raised $44 million. “That building cost $120 to 130 million,” Quinn said. “A donor couldn’t give half of that figure -- that’s way off the scale.” One problem organizations face is setting too low a price on the rights, according to Graham-Pelton’s Murphy. “The naming opportunity should have some stretch or meaning to it,” she said. “Also, organizations often give away a naming opportunity without any fundraising with the effort because of a relationship with the donor.”

At other times the nonprofit goes after a celebrity, hoping for more gifts in the future. Those chances might not develop. “That’s naming just for sentimental reasons or a meager memorial gift,” she said. Naming rights allow organizations to broaden the donor base, according to Quinn. Some donors don’t like to fund brick and mortar facilities, but do support the need for equipment.

“Fundraisers have to be creative to find ways to maximize what they want,” he said. “If a building costs $50 million, the fundraisers might obtain $25 million by dividing that up between equipment and endowments to have $20 million for the construction with $2 million for equipment and $3 million for endowments.”

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Tom Pope, a New York City-based journalist, writes on management issues. Mark Hrywna is senior editor of The NonProfit Times.

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