It was a scene likely played out countless times around the nation in the early days of the summer just passed.
The nonprofit executive, who had wearily watched as the COVID-19 crisis ravaged her organization’s budget and operations, was buoyed by the wave of optimism from the vaccine rollout. It was the right time, she told the board, to schedule a September reopening fundraiser.
During the shutdown, she had (virtually) cultivated a new contact from the town’s business community. A sports entrepreneur, he had expressed admiration for the nonprofit’s mission. And she learned that the launch of his fledgling minor-sport-league franchise had been postponed due to the pandemic.
Their conversations over the bleakest months turned to examples of quite-common and mutually beneficial collaborations between charities and businesses. The “kids-in-need and sports stars” angle bubbled up as a perfect fit. The charity CEO and the start-up owner agreed to announce and then quickly plan the details of a joint outdoor carnival event for late September. They would tell their supporters and the community at large that they were developing additional activities and cooperation for the upcoming year. This “partnership” would likely include turning over a portion of the sports-ticket sales to the nonprofit.
Enter – at this critical point – a seasoned nonprofit consultant, retained for the challenging job of pulling off, in just a few short months, the September fundraiser.
From her first hours on the task, she spotted far more questions than answers. The details of the big day itself were only haphazardly sketched out. Which kids would be involved or invited? What types of carnival activities would grab and hold the attention for many hours of all attendees including adults? Would there be an admission fee? Would loyal supporters be asked for a charitable contribution? What would be the financial contribution from the sports entrepreneur? There are multiple hazards with an impromptu scheme like this in such a vaguely defined relationship.
An additional “red-flag” here is that this type of arrangement is defined as a “commercial co-venture” and is tightly regulated in almost half of the states including California.
Tactfully but firmly, the wise consultant pulled the emergency cord on this runaway train.
Collaborations-Model Origin
We explained in Cause-Related Marketing: The California Rules (November 17, 2015) that one of the nation’s finance giants, American Express, “took a huge marketing gamble” in 1983 “with a creative but entirely untested concept.”
The credit-card behemoth teamed up with the nonprofit group that was spearheading the fundraising campaign to restore The Statue of Liberty on its 100th anniversary.
[Loyal readers of this blog may recall our tale in Charitable Crowdfunding: Then and Now (May 5, 2021) about the original fundraising effort for the beloved monument back in 1883. The French people generously donated Lady Liberty herself but shipped her off to our shores in many pieces and without a foundation upon which to rest. Conventional fundraising appeals failed until flamboyant newspaper publisher Joseph Pulitzer pulled off a spectacular (pre-internet-era) crowdfunding campaign to raise the needed money.]
The centennial fundraising effort centered on a new advertising campaign launched by American Express in which the company donated to the nonprofit a portion of each credit card purchase and an additional contribution for each new, approved credit card application.
It was a huge success for each side; the rest is history. This marketing experiment spawned a flood of copycat money-raising efforts joining the philanthropic and the business communities. It has morphed into a “billion-dollar-a-year industry” as the “model of choice” for collaborations between nonprofits and for-profits.
Ticket-Sale Splits
The sales-proceed split model is just one of several variations in what is now commonly referred to in the business world as “cause-related marketing.” In government and legal circles, it is more often termed a “commercial co-venture.” Either – and both – are correct, but state statutes governing these arrangements typically use the “commercial co-venture” label.
A “commercial co-venture” is typically defined as “[a]n agreement between a nonprofit organization and a for-profit business that serves to support charitable causes while generating commercial goodwill. Common features include, but are not limited to, a share of revenue being donated to the charity, a charitable event underwritten by a business, and activities of any kind that are advertised to benefit a charitable organization.” See Commercial Co-Ventures and Cause Marketing, harborcompliance.com.
“For-profit companies with well-developed corporate social responsibility programs are increasingly partnering with charities. These partnerships serve two purposes: the for-profit brand is able to more closely align itself with the interests of its customers, and the charity benefits from the financial support the business provides.”
But governments take an interest in these arrangements, particularly to guard the interests of the nonprofit (and thereby the general public). In many, though not all, situations, the fundraising collaboration is national in scope – which complicates the regulatory environment.
California Regulation
Our kids-at-risk and sports-stars collaboration tale here is more or less “adapted” from an actual situation that occurred recently in California. It was strictly local in nature, though, so the applicable law would be limited to this state’s.
See Cause-Related Marketing: The California Rules, referenced above, as well as our Taking Fundraising Outside The Organization (September 3, 2015)
See also, for instance, Commercial Co-Ventures and Cause Marketing (undated), Jeremy Chen, Esq., jeremychemlaw.com. [In CA, commercial co-ventures are regulated by the California Attorney General. The reason … is to curtail companies from misleading the public by overstating the amount actually donated and to ensure that the company follows through with its promised contributions in full.”]
See most particularly, the website of the California Attorney General as well as the newly revised (June 2021) version of The Attorney General’s Guide for Charities, Chap. 9. There is a live webinar discussing the Guide and additional resources on the Guide for Charities page. The video is also available on the California Department of Justice’s YouTube Channel.
See also the key charitable-solicitation regulation statute in California: the Supervision of Trustees and Fundraisers for Charitable Purposes Act, Gov’t Code secs. 12580-12599.8.
Conclusion
During the pandemic, there has been a laudable easing up of certain of our laws because of the emergency. But many statutes that apply to nonprofit organizations continue in full force and effect. The California statutory scheme for charity-solicitation regulation is one of the latter.
As nonprofit organization execs and boards happily begin to consider the way forward out of this crippling pandemic, it’s critical to review major plans with experts. The consultant in the case study here did not pull the plug entirely on this proposed collaboration with a business. Instead, she paused the action until more of the details could be nailed down and the plan would comply with all applicable laws and safeguards.
— Linda J. Rosenthal, J.D., FPLG Information & Research Director
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