Among wealthy donors, gifting large sums to charitable organizations is widely considered a virtue that helps institutions thrive, and fulfills the adage of not being able to take it with you. So why do an increasing number of those gifts come with strings—or rather names—attached to them?
As it happens, according to some donors and institutions, naming rights are actually a great way for big donations to beget even bigger donations. Similar to the dynamic that prompts major brands to pay celebrities and athletes millions for endorsements, philanthropic naming rights can be lucrative for the institutions on the receiving end of that cash.
Charitable giving from individuals, foundations and businesses totals more than $350 billion a year, according to the latest data from the National Center for Charitable Statistics, and that public charities hold more than $3 trillion in assets. It underscores how donations to colleges, charities and cultural institutions are attracting vast sums from wealthy investors who expect the money to be used wisely—and sometimes expect top billing for the privilege.
All of which is just fine with the recipients, at least in most cases.
"You'll find those in the charitable world argue that naming rights help them raise money. This is why (big brands) are willing to get a celebrity for an endorsement deal," said Ric Edelman, founder of Edelman Financial Services, with $16 billion in assets, told CNBC in an interview. "At the end of the day, philanthropy is a big business."
Earlier this week, Edelman and his wife Jean announced a $25 million donation to a fossil park at Rowan University, the couple's alma mater. The gift was the second-largest donation in the school's history, and a record for an alumni donation. Edelman explained that in his view, giving a specific pledge for research and education was far more effective than funding an endowment.
"We've never understood why so many billionaires donate hundreds of millions of dollars to university endowments that already have tens of billions in them," he said. "I really don't know if Harvard, with $35 billion in its endowment, needs another $500 million in its kitty."
Still, countless numbers of charities "are trying to convince wealthy donors to contribute to them," Edelman said. "All philanthropies are going after a relatively small pool of donors. That's their form of currency."
Given that there may be some limitations based on the type of charity, or the funds they can accept, "they do the next best thing which is naming rights," he added.