I often hear people talk about their upcoming capital campaign for the building of a new performing arts centre, arena, pool, or classroom block. They might need to raise anywhere from a few hundred thousand to hundreds of millions of dollars. Of course, they think sponsorship is the solution. “We’ll get ABC Bank to give us a million dollars for sponsorship, including the building naming rights for 25 years. We’ll get the money up front and then we’ll have the $1million we need for our capital fundraising campaign.”
This is bad advice.
If your consultant thinks it is a good idea, find another consultant.
If ABC Bank or Telco wants to make a philanthropic gift of $1 million and give you the money up front, that is awesome. Take the money. But in case you aren’t aware, the law says it’s a gift only if they get nothing (no recognition) in return. If I was a shareholder at ABC Bank, I would want something in return, like a naming right. If ABC Bank’s marketing and communications folks are involved, and this is actually a sponsorship marketing investment, then I’m not paying up front. I’m paying $40,000 a year for 25 years! (Who the heck pays 25 years in advance for a marketing investment? That is like saying to your local radio station or Google, “I’m going to buy ads from you and I have extra cash, so instead of paying you monthly for the ads—I’ll pay you for the next 25 years in advance. You keep the money and do whatever you want with it.” So, if it’s truly a marketing investment, your partner is going to pay you annually for the term, not up front. That means you don’t get the money to use in the capital campaign.
Let’s look at it from a practical perspective.
Capital building projects are expensive and typically, buildings and programs are even more expensive to maintain and operate! Operating budgets are never adequate. Ask any organization that builds a public swimming pool, hockey rink, or performing arts centre. They cost tens if not hundreds of millions to build, but over fourty years (average life expectancy of commercial buildings in Canada), operating costs escalate and will amount to 25-35 times the capital cost. So, organizations will need annual revenue from sponsors to help sustain the infrastructure and building from an operating cost perspective.
I’ve seen it too many times. A fundraising consultant or agency that dabbles in sponsorship marketing, thinks there is no difference between a sponsorship naming right and a charitable naming right. As a result, your organization gets into trouble. It could be tax issues with the CRA, but more often, it’s about “raising all the capital campaign money we can.” They “sell off” everything in the name of the capital campaign. All the money is pledged and paid up-front or in the first few years of operating the facility but the naming rights to the building, dressing room, or atrium, or alignment with the afterschool program or the mom and tot swim are all sold for a term of ten years or more. Because everything was sold by the consultants/staff managing the capital campaign, there is NOTHING left to sell for sponsorship on an annual basis for at least 10 years.
All the money that came in went to pay for the capital build.
Those “brilliant” consultants also built you a 10-year annual projection for your operating budget showing $200,000 a year in sponsorship—but you have nothing to sell for sponsorship— it’s all gone. That line item of $200,000 in annual sponsorship revenue that gave you confidence is a fraud. You cannot generate $200,000 a year. Now, your annual revenue is $200,000 short. What do you do?
In a few years, you are at risk of bankruptcy because you can’t balance the books. Who will want to sponsor you in 10 years’ time when those assets open up? Your organization is in shambles! But those capital campaign consultants did their job! They got you the money to pay for the building. What they failed to do was understand that sponsorship is not capital money—it’s operational money paid annually—or money that comes in as value is delivered, not up front like a gift.
They got the glory for exceeding the campaign goal, but your organization suffers and possibly closes because your advisors did not understand the difference between capital and operational revenue (which is ALWAYS harder to come by). That is why sponsorship dollars need to support operations, not capital fundraising.
Let me be clear. There are some amazing philanthropic consulting firms out there that get this. We work with many of them. They understand that they are NOT experts in sponsorship, but rather experts in philanthropic giving. As we do when asked about gifts, philanthropy, capital and annual campaigns, they clearly state, “We are not sponsorship professionals—here is a list of great companies that can help you directly or that we can bring on board for this capital campaign to support your sponsorship program overall and integrate those opportunities into capital asks.” Whenever we are asked about areas in which we are not the experts, such philanthropic giving and capital fundraising campaigns, we also share a list of great firms that can help them in those areas.
Like the soothsayer said, “Beware the Ides of March.” I urge you to be wary of people and firms that say they can help you in your capital campaign through a sponsorship or corporate sponsorship naming approach. Sponsorship revenue is operational income, not capital income.
Learn more about this and other topics around sponsorship expertise at the Western Sponsorship Congress® Alberta Forum.
Brent Barootes has spent almost 35 years in the sponsorship marketing industry, developing and delivering profitable sponsorship programs that result in returns on investment for non-profits, charities and other properties and rights holder as well as sponsors. As President and CEO of the Partnership Group – Sponsorship Specialists® he leads a dedicated team of professionals delivering measurable results for their clients.
