Naming Rights Agreements for Nonprofit Organizations
Many nonprofit organizations rely heavily on community support and donations to operate. Some organizations may have a donor who wishes to gift a substantial amount of money and be recognized by having their name on a building or program. There can also be times where a building or program is named in honor of an individual even without a donation — typically when an individual has made a substantial impact on the organization through leadership or volunteer work.
In either situation, a naming rights agreement helps clearly outline the expectations and terms that go along with that person’s name being prominently displayed. It’s a legal agreement that helps reduce reputational risk and protect both the individual and the organization from future disagreement about the specifics of the naming rights.
Here are several things to consider when it comes to naming rights agreements for nonprofit organizations.
Policy considerations
Nonprofits should have a policy in place related to naming rights even before they encounter a substantial donor and begin the discussion around naming rights. As in many situations, a policy protects the organization and makes sometimes difficult decisions less personal. For example, a policy may include a prohibition about naming a building after someone who is still alive or using a name that may have a double meaning. The rejection or acceptance of the name can be made based on policy rather than personal reasons.
Donor expectations
Expectations of where and how prominently a name is displayed should be clearly stated in the naming rights agreement. The donor and the organization need clarity so there are no surprises after the project is completed and signs are hung. A name displayed on a small sign at the entrance to the building might not have the same appeal to a donor who was expecting their name to be visible from a distance on the side of the building. If the donor’s name is being added to a program, the specific name of the program and how it will be referenced in all uses should be outlined in the agreement.
Morality clause
In naming a location or an event after someone, the nonprofit takes on the reputation of that person’s name. In most cases, it’s a positive relationship for the organization because it’s tied to a philanthropic family or a local public figure who has made a difference in the community. But, sometimes people make poor choices. If something negative about the person after whom the building is named comes to light, it suddenly puts the organization in a difficult situation.
“A morality clause protects the organization through an option to revoke the naming rights in the event of damaged reputation.”
A morality clause protects the organization through an option to revoke the naming rights in the event of damaged reputation. While no one likes to think about the negative possibilities, this is an essential clause to include in any naming rights agreement. When you are dependent on the goodwill related to a specific name, you must be sure the name continues to bring goodwill and not harm to the organization.
The clause should stipulate what triggers a name change, whether a criminal indictment, a conviction, or any action that may tarnish the reputation even if the person is not indicted or convicted.
Termination rights
How naming rights end can be as important as how they begin. An organization may be ready to move on from a donor because they no longer align with their values or because the donor’s reputation has been tarnished. Similarly, a donor may find they no longer want their name associated with a particular organization because the organization’s priorities have changed.
Organizations should always have the legal right to terminate the naming rights agreement, as should the donor. However, you don’t want to create a situation where naming rights can be terminated based on a passing whim of one board member or a perceived slight by the donor. The termination rights section outlines under what circumstances and through what procedures the rights can be terminated.
Longevity
Naming rights agreements should be for a specified period of time. Consider things like how long the organization may run a particular program or event, or how long a new building may serve the needs of the organization. As a building ages over time and needs to be remodeled or completely rebuilt, the organization needs flexibility to create a new naming rights agreement with a new donor. If a clear end to the first naming rights period was never defined, the organization may find it more difficult to make the transition to a new donor and a new name for a building or program.
Any time a nonprofit receives a substantial donation, such as for an endowment, there should be a written agreement in place. The same is true of any donation that involves naming rights. Naming rights agreements for nonprofit organizations ensure that expectations are clear for both parties and minimize any potential risk for the individual and the organization.
