Previously, we discussed what defines nonprofit corporate sponsorships, how to establish a good sponsorship relationship, and how to service the relationship. This post is how to avoid external problems with laws, taxes, and control over your organization’s brand.

1. Legal

Nonprofit Corporate SponsorshipsBe aware of the rules regarding the language you use to promote your sponsor. There is a fine line between sponsorship and advertising. It is illegal to advertise your sponsor’s goods or services. Using qualitative terms to describe the sponsor are generally off limits. You cannot call them the best, biggest, brightest, most, or anything else that describes a perceived quality. Don’t be surprised if your sponsor tries to push this to the limit. Remember, this is marketing and they want a good ROI. They may not fully understand the rules behind what constitutes a statement of sponsorship versus an advertisement.

To get a better understanding of what can and cannot be said about your sponsor, listen to the sponsorship announcements on public radio and public television. What you’ll hear will be something like, “XYZ Corporation, makers of international widgets since 1795, is a proud sponsor of Your Organization.” This is perfectly acceptable, however if you simply add one word it is no longer considered a sponsorship statement, “ XYZ Corporation, makers of spectacular international widgets since 1795, is a proud sponsor of Your Organization.” Neither would, “XYZ Corporation, the world’s first choice in international widgets since 1795, is a proud sponsor of Your Organization.” As soon as you make a qualitative statement, regardless of whether or not it is true, you’ve crossed the line from sponsor to advertiser changing how you are perceived by the IRS (the US authority overseeing taxation).

You’ll also need to be careful about the value of what you provide to your sponsor in exchange for their paid or in-kind sponsorship. It needs to be worth less than the sponsorship or it is no longer a sponsorship, it’s a purchase. This has tax ramifications and potentially legal ramifications if you get the tax ramifications wrong. Be sure to check applicable laws for your organization before embarking on sponsor promotions.

2. Budgeting

Nonprofit Corporate SponsorshipsIt is an expectation that both the org and the sponsor can/will/should promote the relationship. Does your sponsor have reasonable expectations for what you are to deliver in terms of promotion? Is what you are delivering consuming the entirety of the sponsor’s payment? See above. If it even comes close, see above. Your organization is still in business to fulfill your stated mission, not promote your sponsors. Make sure that the budget you are provided by your sponsor clearly stipulates how much of the funding is to go toward promotion of the sponsor. They are sponsoring you to fulfill your mission because they believe in your cause. Hopefully they will also benefit from the public perception gained from being associated with your cause and your organization. Their greatest benefit should be the symbiotic relationship seen by the public in your two organizations working together for your cause. This is why it is important to qualify your sponsors before entering into an agreement.

3. Control

Nonprofit Corporate SponsorshipsClearly spell out roles and responsibilities of both your organization and your sponsor’s. On rare occasions sponsors have been seen demanding a one-way street where they create and distribute any and all marketing communications, including what appears on any of your communications. It’s easy to end up with a sponsor who is only providing cash. That’s a tenuous relationship.

If your sponsor is proposing that any mention of the program that they are sponsoring must be approved by the sponsor prior to public distribution, they are overstepping. If they insist that any mention of their name needs to be approved prior to public distribution, they are very close to crossing the line of cooperation. This isn’t a legal issue untill it becomes part of your contractual agreement. If you are concerned about the level of scrutiny or reporting that your sponsor is requiring, bring it up and resolve the issue before you sign an agreement. Once you sign, the level of control stated or provided by both parties is legal and binding.

An exception to this in the US happens when the sponsor is in the financial services sector. They are usually required by law to approve any public information provided directly or by their designees prior to distribution. This applys to all communications that they are involved in other than news. If your sponsor is in this sector, or some other regulated sector such as medecine or law, you may face restrictions that require compliance review prior to publication. If this is the case, roll with it, it’s just something they have to do.

Nonprofit Corporate Sponsorships

Nonprofit corporate sponsorships can be one of the best funding mechanisms that your organization can use to fulfill your mission. The added funding and association with your sponsors can exponentially boost your public awareness and public standing bringing in donations, volunteers, employees, and other sponsors that you otherwise would not be able to attract. Because the relationships are so different from a typical donor relationship, it is important to understand the details and be ready to dedicate resources to making the relationship work for everyone involved. If you do, the rewards can be just what you need to move your organization into position to fully accomplish your mission.




Photo source: legal, budget, control, funding

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