How to evaluate an athlete's nonprofit
Looking to give back? More than 850,000 public charities are registered with the IRS, which means you have plenty of choices.
For the past four decades, the amount of money Americans donate to charity has remained the same -- about 2 percent of gross national product. By taking the time to research where your money goes, you can increase the effectiveness of your donations.
"People can exponentially increase the good of a contribution with just a little bit of effort," says Daniel Borochoff, president of the American Institute of Philanthropy. "Looking at what's happening with the money and what's being accomplished would be really key factors."
Athlete charities constitute a fraction of the total number of charities but should be held to the same standards. The first question to ask: Is the athlete leveraging his celebrity for charity - or leveraging his charity for celebrity?
Steps that help in selecting a charity:
1. Distinguish between private foundations and public charities
A private foundation usually is established by funds from a few sources or single source. Many private foundations do not accept donations. Public charities generally draw at least one-third of their income from public support. Most sports nonprofits are public charities. On the 990 tax form that most charities are required to file with the IRS, those that say 990-PF refer to private foundations. Their tax-reporting requirements also are different.
2. Find the size
A public charity with more than $25,000 in revenue is required to file a 990 tax form with the IRS. Most can be viewed at guidestar.org, and a public charity is required to send its 990 to anyone upon written request.
The first page of the 990 shows the total income for that year (Line 12). Net assets are listed under Line 21.
• The amount of income gives an indication of the size and scope of a charity's possibilities. Organizations with smaller amounts of money have a hard time making a large impact.
Example (see PDF of tax filing): In 2004, Warren Moon's The Crescent Moon Foundation had $727 in direct public support and provided no programs and services. A charity with that amount of money probably isn't out soliciting donations.
On the other hand, organizations with large net assets may not be using their funds. If net assets exceed three times that year's spending find out why.
Example: We found no public charities for athletes with Seattle ties that have too much money sitting around. That says something about their typical size.
3. Basic ratios
Measuring a public charity's efficiency requires not just looking at how much money a nonprofit organization raises, but how it spends that money.
• Program services (Line 13) compared to expenses (Line 17): This shows how much money is spent on charitable purposes (grants, programs, some events) and how much is spent in other areas (rent, computers, paperclips).
Industry standard: At least 60 percent of money should go to activities donors think they are supporting. No more than 40 percent should go to management and fundraising.
Example (see PDF of tax filing): In 2005, the Gary Payton Foundation spent $10,910 on programs and services. Its total spending that year: $112,459. The charity's ratio for that year? 1:11. An acceptable ratio is 6:4. A ratio of 10:1 is exceptional.
• Cost of fundraising (Line 15) compared to total contributions (Line 1). Fundraising is like an investment for a charity, and this shows how efficient the charity is in raising money.
Industry standard: Spending $1 to raise $4 is good investment.
Example (see PDF of tax filing): In 2005, The Moyer Foundation listed fundraising expenses of $365,209 and contributions of $1,393,382, slightly more than the 1-4 ratio.
• How much an event costs compared to how much it raises (Line 9a, 9b, 9c): Gala dinners and golf tournaments are staple events for athlete charities. Understand how much money goes to the charity and how much underwrites the cost of an event. Then it's a judgment call. Does enough money go to charity? Is the event worth the money it costs? What's the nature of the event? Charitable? Fan development? Advertising?
Something else to consider: Where else would the money for that event have gone? A more effective intermediary? Or does the athlete actually draw new donors (and more money) because of his fame?
Industry standard: Children's Hospital & Medical Center in Seattle uses strict guidelines -- expenses shouldn't exceed one-third of gross revenue. Others don't demand -- or reach -- as high a percentage.
Example (see PDF of tax filing: Page 1 and Page 2): in 2005, the Darrell Jackson Family Foundation held a charity basketball tournament in Florida. The foundation gave $10,000 in grants that year. The basketball tournament raised $55,000 and cost $113,922.
Don't jump to conclusions when ratios are below industry standard. Instead, ask questions and look deeper. Maybe start-up costs explain higher expenses.
4. What you can't see
The 990 provides a snapshot of a charity's finances, but doesn't provide the detail or context behind them.
Measurable outcomes: It's one thing that X dollars went to X program. It's another thing to find out what that program actually accomplished. This is the difference between "a program that will help foster children" and "50 children will receive clothing before they go to school next year." It isn't always that straightforward. Some goals are too abstract to measure. Some foundations are too small to afford studying their impact. The key is to ask questions and find concrete examples.
Example (see PDF of tax filing): In 2003, the Reggie McKenzie Foundation, started by the former Seahawks lineman and executive, broke down its programs and services on its tax return. You can tell that $88,366 went to a summer mentor and after-school program for kids 13 to 18, $119,827 went to a football clinic, $20,901 went to a basketball clinic and $3,742 went to a golf, track and tennis clinic (all in Detroit). That's certainly more informative than indicating the total spent on fulfilling the foundation's mission or helping kids. But even those numbers require further examination. How was the money used? And how well?
In-kind donations: Services, fees or expenses that are donated show up on the 990 as expenses, even if the foundation doesn't pay for them.
Example: In 2006, The Moyer Foundation generated nearly $4.19 million in income. About $1.1 million came from in-kind donations -- rent, donated computers, printing costs, etc. So printing costs show up on the 990 as a $40,000 expense. The reality is the foundation spent no money on printing. Taking expenses at face value, without learning what was covered by donations, can make expense ratios misleading.
Beyond the numbers: The 990 is a good starting point or guide. Look for numbers that arouse suspicions or appear inconsistent or perplexing. A 990 should help you form questions, but don't expect it to answer them.
Examples: In 2001, Shawn Springs, a former Seahawk, gave a cash grant to Purple Mountain Media for $20,000. On its Web site, the company says it "is an affordable, high-quality Web design and multimedia company." Springs also donated $100 to Ohio State University. But how did that further the foundation's mission of "providing financial support and personal involvement to programs serving at-risk and underprivileged youth"?
In 2005, The Detlef Schrempf Foundation listed an expense of $57,153 for commissions. What, exactly, does that mean?
Executive-director salary: If the director makes more than $50,000, the salary must be listed on the 990. A salary greater than 10 percent of total revenue should prompt questions. Factors to take into account include the size of the organization, complexity of the mission, revenue and qualifications of the director, including experience. Some directors are worth more than the high salary they command. Some are worth less.
Find out if the charity has a conflict-of-interest policy. Find out the executive director's qualifications. Maybe he's worth that salary.
5. The next steps
Finding full answers requires looking for more than just what is found on a tax form.
• Nothing beats personal experience. Talk to staff members, clients and partners. If possible, volunteer.
• Several watchdog groups rate the effectiveness of private foundations and public charities. One is the American Institute of Philanthropy. Another is Charity Navigator. The problem is that only a fraction of nonprofits are rated, mostly those with budgets of more than $500,000.
• Audits provide details to numbers that prompt questions on a 990. Some organizations also produce annual reports. These should explain or answer any questions from a 990. If they don't, then those numbers likely pose a problem.
• How clear is the charity's mission? And how does its spending reflect that mission? For instance, does a charity whose mission is to help children also donate to organizations that have nothing to do with children? Several athletes donated to their alma maters, a direct conflict with their stated missions.
• Ask how much the athlete donates to his or her own foundation. A private foundation must indicate all contributions greater than $5,000. Public charities do not disclose the name or amount of donations. They're not required to give you this information, but reluctance to provide even a ballpark estimate should send up a red flag.
— Danny O'Neil and Greg Bishop, with input from the Sports Philanthropy Project, the Giving Back Fund and the American Institute of Philanthropy
Copyright © 2007 The Seattle Times Company
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