Determining Sponsorship Value

As one of Canada’s leading sponsorship consulting firms, the Partnership Group – Sponsorship Specialists™ deals each day with brands and rights holders that are trying to determine the value and distinction between an investment made with a charity for sponsorship versus philanthropy. This is critical to ensure that Canada Revenue Agency (CRA) guidelines are met.

The key to evaluating a sponsorship is understanding the business value returned to the investor. It can be difficult to know where to draw the line between advertising, and the recognition that comes with naming a building or other item after a sponsor.

The distinction between sponsorship and gift recognition is important. The Canada Revenue Agency does not consider gift recognition as a benefit bestowed upon a donor. However, if there is a benefit, the law requires that the amount of the charitable receipt be reduced by the amount of the benefit returned. This requires an accurate measurement of the value of the benefit. An improper valuation could lead to issuance of an inaccurate receipt and consequences to both the donor and the charity, if it is discovered by the CRA.

The CRA recommends using an independent valuator such as the Partnership Group – Sponsorship Specialists™ when the estimated value is greater than $1,000.

Corporations can deduct from their income any expenses incurred to earn income. So, assuming the corporation can reasonably justify its sponsorship as having been incurred to earn income (say, marketing), the amount of the benefit is deductible by the corporation on these grounds.

Similarly, charitable donations are also deductions for corporations. So, if a given payment to a charity (as opposed to a not-for-profit) has mixed business and charitable purposes, the corporate sponsor could deduct the entire amount-part as a business expense and part as a charitable donation.

The split of the payment between business and charitable amounts can be useful as it may allow charities to appeal for a total sponsorship paid in part from the sponsor’s marketing budget and in part from its charitable donations budget.

When we sought this understanding for our clients, we reached out to Adam Aptowitzer, a former session presenter at the SMCC Western Sponsorship Congress™ and partner at Drache Aptowitzer LLP.  Adam is our “go to person” in this area. For a more full description of this process and understanding, I welcome you to visit the White Papers section of our web site or go directly to Adam’s web site.

Both businesses and rights holders need to know the value of the sponsorship assets being bought and sold. They need to be able to differentiate between what has marketing value and what is philanthropic in such an investment. Using an outside evaluator, as many of our brand clients do, is the safest method of getting the right numbers, as CRA notes as well.

These are just one person’s thoughts. Yours are welcomed as well. Please add your thoughts or comments below. Thank you for reading and your feedback.

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