As a former nonprofit CFO, I got the well-deserved reputation for being really grumpy about gala events.
ME: We’re spending more than we’re making on this.
THEM: But it’s really a friend-raiser!
ME: Awesome. By the way, I’m paying you in friends this Friday.
I understand the concept. Fundraising is all about getting people thoroughly familiar with your mission and impact so that when you ask them to give, they say, “yes.”
And for fundraising teams and board members, I understand the appeal of the gala event. Most days we’re selling nothing but warm glow – the feeling donors get when they know they’ve done something to really help. But with a gala we’re selling sponsorships, food, wine, dancing, silent auction items, entertainment, raffle tickets, and maybe (please, no) a puppy. Actual things!
Social vs Monetary Transactions
This has come up before: People view social transactions and monetary transactions very differently. For example, how would you respond to these two requests?
- Will you help me put this couch in my truck?
- Will you help me put this couch in my truck for $1?
Most people would probably agree to the first request, and decline the second request (or turn down the $1).
Heyman and Ariely showed that people are more likely to expend effort with no reward than with a small monetary reward. But somewhat charmingly, charities get this exactly backwards with their gala events. Here’s an actual example of the benefits in an event sponsorship proposal.
A $10,000 sponsorship gets you;
- 16 tickets to the event, including cocktails, dinner & wine
- A celebrity sitting at one of your two tables
- Exposure to 500+ guests for five hours
- Full page, 4-color program ad
- Company name on printed and e-invitation
- Video and display signage at event
- Live company mentions during the gala
- A table in the reception area for your representatives to provide company promotional information
- Transportation to and from the event for all of your guests
- Mentions in 50 30-second radio spots on both AM & FM stations
Which of these things would the corporation actually buy if there weren’t a charity attached to them? Probably none.
The fair market value for that sponsorship is $11,180. What does this say to the corporate sponsor?
“You really don’t want to support our cause, so we’ve put together a package of benefits (that you also don’t want) that are worth more than the value of the sponsorship.”
Fundraising events take what should be a social transaction and convert it into a monetary transaction with a low reward. Which is why everyone (not working at a nonprofit) thinks gala events are horrible.
The economics of gala events
This is usually where nonprofit CFOs start going wrong when trying to kill off fundraising events. They talk about all of the time and effort that staff expend on the event. They talk about the additional expense (even the best run events cost 35% of what they make, and many don’t break even.)
But fundraisers, boards, and Executive Directors don’t care.
“We’re selling actual things! And we’re auctioning a labradoodle!”
So instead, let’s look at it from the corporation’s side.
What corporations see
KEVIN: Wow, nice drive! Right down the middle of the fairway.
STEVE: It’s only the first hole. Hey, by the way, you know I’m on the board of Sunscreen for Whales, right?
KEVIN: [wary] Right…?
STEVE: Our annual gala is coming up next month. Do you guys want to sponsor a table again?
KEVIN: [there’s no way to say no] Sure!
It’s basically a trap. And people who are trapped are probably not in the best frame of mind to appreciate the finer points of your mission and impact. But what about all of those benefits that come along with the sponsorship? Surprise! Nobody cares. It’s the dollar offered to help move a couch into a truck.
Let’s go back to that $10,000 sponsorship with a fair market value of $11,180. Only the charitable component (total amount less FMV) of a gift can be tax deductible, so the tax deduction the corporation gets on that sponsorship is $0.
One potential solution (for corporations)
In a recent sample of event sponsorships¹, the tax-deductible portion ranged from 0% to 75%. That means that on a $10,000 table sponsorship, the corporation could deduct $7,500 at best. Assuming an average effective tax rate of 19.8%, that’s a maximum tax savings of $1,485 (and a minimum of zero).
An outright gift of the same $10,000 to an organization is 100% deductible, and saves the corporation $1,980 in taxes. Nearly every nonprofit would actually prefer the $10k gift over the sponsorship anyway, so we won’t be hurting Steve’s feelings or making the remaining 17 holes of golf awkward.
One potential solution (for nonprofits)
I readily admit that this is going to be a hard sell. Taking away the actual things crutch will make people unsteady. But corporate sponsors just don’t want to hurt your feelings. They hate gala events, but would never say that because it makes them sound uncharitable, which they’re not.
Some Susan G. Komen® chapters advertise Sleep In for the Cure®, but I’m pretty sure they still send you a race bib and a t-shirt. The Neighborhood House Association did an all-online gala back in 2008, but they still had sponsorship packages. Maybe it’s possible to take it even a step further.
Introducing the Not-A-Gala! For each $150 ticket, we will give you permission for a night on the town – for charity! Eat wherever you want, take in any entertainment that you like, and invite guests that you’ll enjoy being around. All for charity. And it’s 100% tax-deductible!
Ok, that idea probably needs work.² But I’m sure there’s a good replacement for the horrible old gala out there somewhere.
¹ A wholly unscientific sample, by the way, because it was done by me.
² But I’m copyrighting it just in case…
Image: I took that picture. That’s my labradoodle, Sascha, and I didn’t win him at a charity auction. (CC BY 4.0)