Philanthropy and Sponsorship are Different

Philanthropy and Sponsorship are Different

Let’s get right to the point. Sponsorship and philanthropy are not the same. They are different—very different. Typically, philanthropy is done by individuals, not companies, but some companies still give for the sake of giving expecting nothing in return. Actually, that is philanthropy, especially when it comes to the Canada Revenue Agency. Philanthropy, or a donation by a company, is a gift made to a charity with no expectation of anything in return—no event passes or tickets to a gala, no logo inclusion, banners, tweets, or posts. Nothing! Zilch! Nada! Philanthropy comes from the heart; donations should be altruistic.

Sponsorship, on the other hand, is a business transaction. The sponsor pays/gives the property money. In return, the sponsor receives benefits that will help them make more money, be it through alignment with the property, through sales, brand development, PR/GR, or employee engagement and such. It is a form of marketing, and like buying social, digital, outdoor, TV, or radio; they receive value in return for their investment.

Here are my most recent observations or “beefs.”

  • Recently, I was with a brand. They expressed to me that their “investment” with a hospital foundation was not delivering the ROI they had hoped for. They had agreed to a donation and took a tax receipt, but they had wanted an announcement, some fanfare, publicity, and PR. The foundation had agreed to this in a limited way. I told the brand that, if you agree to donate (versus sponsorship), then don’t expect a PR campaign. If they had told the hospital foundation that they wanted a PR campaign, specific exposure, and branding, then the foundation could have agreed or declined the contribution. Brands need to understand that, if they want ROI, they should do a sponsorship deal. If they want to just feel good, promote internally, and contribute to a worthy cause, then they should do so, but not expect ROI.
  • Another case I heard was a brand that had bought a sponsorship, but really did not get value. They were complaining about the fact that they had invested $25,000 in a gala sponsorship and just gotten logos, tickets, name mentions, and banners. They had asked for more specific assets, such as a speaking opportunity, opportunity to sample product (a high-end gift for attendees), and content in the quarterly newsletter. They were told they could not have those assets and their “package” was set. They accepted that. I told them it was their problem and fault, not the fault of the charity. Really, the charity was providing maybe $2,000 worth of marketing value and $23,000 in philanthropic contribution, and the brand should get a tax receipt for the $23,000 donation. I said that, alternatively, they should have passed on the opportunity. If you cannot get what you need, don’t buy the product!
  • On the property side, I had a real doozy! The organization was getting $5,000 to $50,000 from different brands. In each case, they called the contributions “sponsorships.” There was no real value, but lots of assets—worthless assets such as a logo on the organization’s web site “sponsor page,” banner at the event, logos on banners, etc. Most, if not all, the brands were really there to support the organization and its event. None were looking for any sort of marketing coverage or ROI. They were being philanthropic and wanted to make a difference in the community, and the event was a vehicle for doing so. But the organization insisted that they were providing value and didn’t want to issue tax receipts (too much work, they told me), and because they were contributing to an event versus directly to the organization, it was a sponsorship and not a donation! So, they called them sponsorships and refused to provide tax receipts! I voiced my disbelief and walked away when they clearly had no interest in doing what was right!

Come on folks! We need to understand these are different and treat them accordingly! We need to know when it is philanthropy and when it is sponsorship marketing—and do the right thing!

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6 Comments

  1. Thanks Brett for continuing to educate people about the difference. The more companies and organizations come to understand the difference and the expectations and deliverables for each, the more successful the charities will be with more satisfied organizations/people who support them.

    Reply
    • Kathy,
      Thanks as always for reading…. and you have nailed it. The more that charities and brand understand the difference, the better they canset expectations and be satisfied with their programs. Hope to see you soon.

      Reply
  2. I wonder about your point about a $25K gala sponsorship with a $23K receipt or the last example about ‘worthless assets’. I understand that the value of a logo can be questionable, but in CRA’s eyes, my understanding is that a logo is an asset therefore can’t be receipted.

    Reply
    • Chris, great question. Actually the logo does have value, but it is minimum. CRA stipulates that the “donor” can receive up to 10% of the value of the donation, to a maximum of $75 I think… in “recognition”. There are not many galas that a log or even banner exposure would exceed $75. And anyway you have already deducted the value of the marketing assets (including goodwill and associated value through a logo) so the $23,000 is receiptable… just like the residual value say on a golf playing position in a tournament that exceeds the value of the goods provided. It gets tricky and that is what makes this question so great. Thanks for reading and the question. I hope to see you again soon when I am in Calgary again.

      Reply
  3. Great topic!
    I am well aware of the differences between sponsorships and donations but I have often wondered about the value of a charitable tax-receipt vs. a sponsorship transaction receipt for a company. Does a company claim a tax-receipt in the same way as an individual? Can’t they also claim a sponsorship receipt as a marketing expense?
    Sometimes when a company asks for a receipt, I don’t think they are even clear which they are actually asking for.

    Reply
    • Wendy, you nailed it! Like us personally, companies can claim about 17% credit for donations against the taxes they owe. Typically from a business perspective and from an accounting perspective they are better off to do a sponsorship than a donation. AS you note, the sponsorship is an operating expense.It is a 100% deduction against revenues so decreased the taxes you owe.

      I agree, often these companies don’t know what type of receipt they really need… charitable or marketing receipt!

      Thanks for reading and the comment.

      Reply

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