Toronto Star investigation: The high cost of Canadian sport foundation charities

April 24, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: Canadian Charity Law

The Toronto Star looked at the high fundraising costs of certain Canadian professional team foundations in an article entitled “The high cost of sports charities”.  It would appear to me that Canadian registered charities need to spend a little more time reading CRA’s Fundraising Guidance and changing some of the techniques and cost structure of fundraising activities.

For more information on the CRA’s Fundraising Guidance see: http://www.globalphilanthropy.ca/index.php/blog/canada_revenue_agency_guidance_on_fundraising_by_canadian_charities/

The article is located at http://www.thestar.com/news/investigations/article/800061—star-investigation-the-high-cost-of-sports-charities?bn=1

Some may say that the Toronto Star article is just another piece criticizing charities for high cost fundraising but I think that there is a little more here.  Reporters are starting to use the CRA Fundraising Guidance to evaluate charities’ fundraising initiatives.  Instead of journalists using the notion, supported by about 40% of Canadians, that charities should somehow magically bring in lots of revenue without any cost because everything is donated and only volunteers are used, this article is starting to talking about ratios that are much more realistic and as provided in the CRA Fundraising Guidance, although they still refer to the 80/20 ratio which is unrealistic for many charities and a left over from the disbursement quota system which harkens back to the 1970s.

There are many legitimate reasons that a good charity will costs that are higher than 20% including (quoting from the CRA Fundraising Guidance):

“a. The size of the charity (which might have an impact on fundraising efficiency).
b. Causes with limited appeal (which could create particular fundraising challenges).
c. Donor acquisition and planned giving campaigns (which could result in situations where the financial returns are only realized in later years).”

The guidance is not claiming to be exhaustive on that point and other factors can be relevant as set out by AFP:
http://www.afpnet.org/ResourceCenter/ArticleDetail.cfm?ItemNumber=3299

It appears that with these sport foundations if anything they should have lower costs than average not higher because they have a number of advantages accruing to them that many charities would love to have. 

Let’s face it - these sports foundations can do better.  They are pretty much admitting that in the article.  Also it shows that fundraising is not easy and that it is a big mistake for a corporation to think that setting up a foundation will always be a good thing - it is only a good thing if it is effectively done.  Corporate social responsibility initiatives can bring tremendous reputational benefits to a company and its brand but if not handled correctly it can bring negative media attention. 

Sports foundations with all their access to sports stars who are doing work to benefit children (hardly the most difficult sell) should put on their thinking hats and they can come up with some ideas to substantially reduce their fundraising cost to revenue. 

As these foundations are being set up in part by virtue of their names and affiliations to provide reputational benefits to certain for-profit enterprises (the sport teams which are business) I think that it would not be unfair to hold major professional sport organizations to a slightly higher standard than the average charity that does not even have revenue of $100,000 and may not even have one full time employee.  I think that it would be interesting for the Toronto Star to write a follow-up article in a few years time on whether there is any change.  Certainly in the short term with the negative publicity such a change will not be easy. 

For those that are interested in knowing more about the Fundraising Guidance here is a free 1 hour webinar on the guidance - you can download it here https://ocsa.webex.com/ocsa/lsr.php?AT=pb&SP=TC&rID=440027&rKey=482cc2c6dcf99042&act=pb


————
The Toronto Star did a followup article “High costs trip up sports charities - Charity begins only after paying hefty overhead”

http://www.thestar.com/news/investigations/charities/article/800383—high-costs-trip-up-sports-charities

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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