Episode 115: Naming Opportunities Challenges - Understanding the Implications

Welcome to another edition of "Around with Randall", your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett philanthropy, Randall Hallett.

It's another great day right here on "Around with Randall" and of course I'm Randall. Interesting confluence of events at least in my life in watching an interesting situation in California, which I have nothing to do with, no relation at all. But find the legal issues involved with it entertaining, interesting, enlightening. And then a client going through challenges dealing with a campaign, or at least the planning of it, which brings us to our conversation today around naming opportunities.

Now if you're a regular listener you might remember that in episode 82 we talked about the strategy behind naming opportunities and the philosophy and maybe some of the tactics that you might use. We're not going to relive that, but if you're interested in some of those details that are maybe even a setup to today then go back and listen. That's episode 82 on naming opportunities, and are they really necessary. Today we want to delve a little bit deeper into this idea of how if you already have things named, what's going on. Or if you're choosing to make naming opportunities possible in your organization what you need to be paying attention to from a legal perspective.

I started with a case, or a situation or story in California. Plus a client. Let me describe both situations. The first is the wanting of the University system in California to change the name of the Hastings Law School. The law school is founded in the 1800s, late 1800s, with a generous donation from a well-known political and business person prior with a gift of $100,000 in somewhere about 1878 or 79 to create the law school, and that gentleman's name was Hastings. And he established that law school with that gift with the recognition it would be named the Hastings School of Laura Hastings Law School. In the last several years there's been some controversy. I think both sides have their own opinions that Hastings was an individual that may have done some things in California that people aren't pleased about today. You can do your own research and make your own decisions on whether that's true or not. I know there's two different stories. I'm not going to get into the validity of either story, I'm just going to talk about the situation. And the university system wants to pull the name and the family said well I guess you can try that but with the present value of that $100,000 in the gift agreement that we signed in 1878 or so, you can owe us $1.7 billion. Well that's something that nobody wants to pay. And now they're going to end up in court.

At the same time I have a client going through some campaign planning and the conversation's been around naming opportunities. And the organization's hesitant towards naming opportunities. It's not they're not in the industry or par sector of the nonprofit world where it's as normalized with philanthropy, and so they're going through this. And what we came up with was the strategy of well let's set out naming opportunities for a set period of time where they would sunset and really in some ways that was the first time I've had those kind of conversations, and even entered into negotiations with some of the prospects in terms of what that would mean. And a little bit new and unconventional and not in perpetuity, and how would this happen. And you know, do we have the first right of refusal, and does that mean the lower gift level. Lots of issues to consider in both cases.

It brings us to kind of the the intricacies of what are naming opportunities in perpetuity versus over a set period of time. What are the logistics of those? What's the legalese of those?

There's two other, I'll call them cases because they went to Supreme Court, that or at least into the court systems that need to be discussed because when you sign a gift agreement it's a contract. And as long as the organization's intact and the organization is doing the same things and every, the parameters were met, contracts are meant to be followed. The Supreme Court weighed in on this in a case called Robertson versus Princeton University, and the Supreme Court came down in the early part of this century based on the contract that was done in the, I believe was about 1961, to establish the Woodrow Wilson School of Public Affairs or International Affairs excuse me. And the Robertsons made a very large gift and it was supposed to be used in certain ways and it turned out that Princeton wasn't living up to its contractual obligations and the family sued, actually the foundation sued, that the family had set up, and what ended up happening was that the Supreme Court said you owe them the responsibility of that contract and ended up having to pay hundreds and hundreds of millions of dollars back to the foundation because they had abandoned the gift agreement. The court said no, can't do that.

Another case was the Tennessee division of the United Daughters of the Confederacy versus Vanderbilt University. I think this was more in state court but it got into the court of appeals and they said much the same. And this dealt with a dormitory that was built in the early part of the 1900s. It had to be named for the Daughters of the Confederacy and maybe not what people think of today as an appropriate name, and the court gave them, the Vanderbilt University a choice. You can keep the name or you can pay them back. And with with the inflationary costs year-over-year for more than a century the university said no, we'll keep the name.

All of this brings us to what we're all dealing with in trying to create stewardship or recognition opportunities for donors. And a new trend is this idea of maybe not creating things in perpetuity. But you have to have the language correct. You have to have the process correct. Let me give you a kind of, one of the first I had heard of this. And it actually came, it was inspired by a donor, not by the organization. David Koch made a gift to the Lincoln Center, I believe was $50 million and what he said was I'm willing to let the naming opportunity of the theater drop after 50 years from my gift, and you can put it out there. We'll have my children or grandchildren have a right to maybe re-up it. Maybe somebody else wants to, so that was one in terms of a trend that was actually being driven by the donor.

We're seeing this more and more often. How do we handle naming opportunities? And what I want to spend some time with is the tactical today of what are the things you should be thinking of when you think of, when you contemplate naming opportunities. Not in terms of philosophy or strategy, that's episode 82. But can you look at this in perpetuity versus a time frame limitations. What are the consequences? How could this be used to your advantage? What are some of the disadvantages in one or the other?

So let's start into the tactical and bring in some stories and pieces that might help you contextualize all of this as many people, non-profits are going through building projects and endowments and other things. The first thing is to consider is basic economics, at least to me. When I was in college my favorite class was the Basic Finance class because it was the first time I really had been introduced, in terms of mathematics, to the concept of the time value of money and to use a previously discussed here situation, the Hastings school of law in California was started with a gift of $100,OOO. Well the time value of money is basically that $100,000 in today's money or you could do today's money into the future for 50 years and you have to make some assumptions in the future, but you know going back inflation at the particular time, investment policy, investment returns, things of that nature. So you can actually calculate how much something's worth. And I'm not going to get into whether I agree or disagree, but the argument that the family, the Hastings family and relations, obviously many generations down the road are arguing is that $100,000 in 1878 or so is worth $1.7 billion today. That's the time value of money.

The reason that's important, looking back, is looking forward if you're making that decision now. What is a $25 million dollar gift today, which would draw attention with any organization, any sector of the nonprofit world, education probably not as much at Harvard or Stanford. but $25 million still a lot of money. Certainly would be earth-shattering in healthcare or in other places because they're not the norm.

But if a name is attached to that, what is that $25 million worth in 50 years, and at four or five percent? That might be worth $100 million or $75 million depending on compounding interest. Are you putting a stranglehold for a lower level gift now? That stranglehold then accounting for some time down the future to a board, or leadership, or development operations, or fundraising group in 30, 40, 50 years. That's really hard to estimate. But what I found was in working with the client at the story that I began with as they're thinking about naming, it's not normalized. I got out my old and my my trusty old phone used to be a calculator, a scientific calculator, financial calculator, the time value of money conversions. If we have this for $1 million today that million dollars using some assumptions, conservative ones, might only be worth $7-$8 million in 20 years. So is that dollar figure high enough are we putting something out that would be a problem in some way, shape, or form in 20 years? Well that's with a set time frame.

Think about it in perpetuity. If you name something too low, what you end up with is hamstringing possible opportunities down the road. In episode 82 where I talked about the concepts of naming opportunities just in general some good stuff there. I cited someone I have a great deal of respect for and that's David Flood. He talks about that we're, we don't sell naming opportunities. We steward people to recognize their generosity. And I think that's important to realize here because when you put a time frame on it, does that adjust that concept any? Is that maybe more towards a sale thought process? I'm not saying it is or isn't, but those are philosophical things you're going to have to think about. Time value. The impact. Does it hinder us? Are are we doing this for a specific gift? We'll get into that here in a moment, but I think that philosophically the organization needs to have conversations, in particular if you're not normalizing naming opportunities on a regular basis.

One other thing to keep in mind, if you set your naming opportunity too low you will handcuff yourself tremendously in the future. There's just no way around that. I have a client that was fortunate. I was fortunate enough to be asked to come in and help them ask, negotiate a very, very large gift here recently. And what came of it is the donor wanted to name something but the organization had set a pretty good, and I think using metrics, and numbers, and math, time value of money, and all kinds of stuff set a really good number as to what that might be named in terms of recognition, a dollar figure that we will begin that conversation. The donor kept coming in lower. The organization held tight and they got a really nice gift, but they didn't get the naming opportunity. And frankly, it's kept open other options so keep that in mind that one decision can affect another.

Number two, there are good strong reasons for naming opportunities beyond financial in terms of philanthropy or charitable gifts. I think about the trend in naming opportunities when it comes to places like law schools and medical schools. So we can look at places that have had famous people attend those schools. I'm a proud graduate of the University of Missouri Kansas City School of Law. It's not a named place, but Harry Truman went to law school there. I'm not sure if there's a naming opportunity from The Truman family. He had the one daughter Margaret and then I think there's a grandson who I think is still alive. I hope. But it's not a big family and not a wealthy family so they're not doing that kind of charitable giving. But what's the value of naming your law school The Truman School of Law at the University of Missouri Kansas City with no monetary philanthropic effect? Does that elevate you? And you might think of medical schools or law schools that have those names.

I'll give you a better one in healthcare based on a $50 million gift. 15, 17, 20 years ago Children's Hospital in Columbus, Ohio changed its name. It's now named Nationwide Children's. The Nationwide Insurance Company. What kind of credibility does that hospital have when you changed its name? Because Children's Hospital of Columbus is one thing, but Nationwide is, no pun intended, nationally Nationwide in terms of a brand. And that brand is positive. Does that leak over?

Let me give you another one. Packard Children's Hospital. A lot of children's hospitals, Packard, the Packard family in terms of computing out at Stanford. Nicholas in Florida. Palmer in Florida. We almost just say their name. Those are all synonymous. Over time they've cemented so not only is there a marketing aspect to this, and you're connecting to Arnold Palmer, or the Packard family, or or Jack Nicholas I mean these are high level quality people that raise your brand. They bring philanthropic revenue from their particular families, or events, or golf, or whatever but will those names hold weight in 30 or 40, 50, 60 years when people may not know who these people are? How many of you knew that the Packards were that computing or did you think of the car or was there a Packard Hardware? There were, so those all are thought processes in the larger conversation and discussion.

Also a part of this is the idea of abandoning, number three, that there are times at which we have donors who say I want the naming opportunity. I want it in perpetuity. And if I don't get it I'm walking. They're abandoning. They're walking away. I am or was slightly involved, my dad was, after he's gotten out of his first professional life I guess, second technically because he was taught at West Point, I had sold his company and started a foundation, or restarted, where I went to high school. And they were dealing in a situation where somebody wanted to name something and it was transactional. There was no transformational interaction here, and if they weren't willing to name that for that cost he was taking the money and walking away. They valued that as such an increase in their philanthropy that it would have a catapult effect to other conversations down the road. So they took the money and named The entity and while today you might name it for a little more it had a catapult effect because the abandoning principle would be that this gentleman would have walked away. So this becomes very complicated when you think about people who are maybe more inclined to think about naming opportunities as more of a right, and certainly in perpetuity, than a stewardship chance to recognize their generosity.

What this all comes down to is a series of conversations, internally, about who it is we are, and what we believe, and what's really needed. Is this really needed in the overall process? We still, and you will know this as well as I do, have many donors don't want their name on anything. I'm one although I don't have that kind of money, but I would never want my name on something. That's just not who I am. Many people are like that. But the ability to know how to develop and stay out of trouble, I.E Robertson and Princeton or Daughters of the Confederacy, and Vanderbilt where you really don't need that problem.

This new trend of setting time limits is interesting, and now you maybe have some tactical tools to think about the time value of money and the idea of perpetuity versus that time frame, and are we handcuffing ourselves. Does it bring us prestige? Are we connected in the right way? And then the idea of if we're not willing to do it will people walk away. All are worthy conversations inside your organization to ensure you're doing this correctly. Done willy-nilly, you will regret it eventually or the organization will. So having active conversations in particular about what this means in the short and more importantly long term are critically important.

Don't forget to check out the blogs online at hallettphilathropy.com. RRS feed. You can get them right to you. That's at Hallettphilanthropy.com/blogs. And if you want to get ahold of me, simple, podcast@halletphilanthropy.com. Appreciate you and what you do and I want you to know that as we move into 2023 it's my belief, check out the 2023 predictions a couple shows ago, that philanthropy is going to be in for some challenges, and your value and what you do for your community when people need it the most has never been more needed than now. And realize my all-time favorite saying, some people make things happen, some people watch things happen, then there are those who wondered what happened, that you are someone who's making things happen. You partner with those in the community who are trying to make things happen. You come together and you're changing based on that mission, your community in a positive way. You're making a difference, and we need that right now. It's critical and I hope you feel it, know it, and can believe it because without you and without that, nonprofit people are wondering what happened. Wouldn't get the help they need. And this world needs more of that each and every day. I appreciate your time. Thank you for joining me on your drive, on your walk, sitting in your office, sitting at home, wherever. Tell a friend about it if it's helpful. But I look forward to seeing you next time right back here on "Around with Randall". Don't forget make it a great day.