Why this matters
As increasing financial freedoms arrive for athletes, they can use their wallets to make social change, provided they avoid certain well-documented pitfalls and pressures.
Our global social issues are massive in scale. From the global COVID-19 pandemic that has put front and center pre-existing economic inequalities to food and housing scarcity to national disasters and political upheaval, nonprofit organizations worldwide have been given a tall order. They are left to address these intertwined and complex economic, social, and environmental challenges and the gaping needs and opportunities that governments and the private sector have been unable to fulfill.
Sport has the unique platform to be a critical partner for change. When combined, sport and philanthropy have the power to inspire, engage, and set new trends globally. Athletes have the competitive advantage in raising awareness and mobilizing global action through their “sense of celebrity.” Over the past few decades, philanthropy, charity, and social entrepreneurship have become key pillars within professional sport, with a significant number of professional athletes donating money, soliciting funds, and volunteering their time to various public and private charitable organizations and diverse causes.
With the rise in social media and the understanding that sport and athletes maintain significant sway over public opinion, team owners and executives have become increasingly conscientious in managing the images and perceptions of their teams, both regarding the teams’ playing capacities and individual athlete on-the-court or -field behavior and how the teams and individual athletes engage within the communities they represent. As athletes build their careers, become more influential by developing their own personal brands, and increase their earning potential beyond their base playing salaries, there is a greater expectation, increased intensity, and amplified focus for professional athletes to demonstrate their charitable involvement and social impact.
While the areas of athlete social responsibility, philanthropy, and activism have grown over the past few years, there is still very little research on professional athletes and their involvement in formalized philanthropy. A 2012 study conducted by researchers at the University of Michigan sought to examine the landscape of professional athlete philanthropy and to profile the type of professional athlete who chooses to formalize charitable efforts. The study looked at National Basketball Association, National Hockey League, National Football League, and Major League Baseball rosters from 2005 to 2009. It identified key factors that influence or inspire an athlete to establish their own foundation, and it outlined the opportunities and challenges athletes might face throughout this involved process. The findings suggested that professional athletes who played longer in their respective leagues and who had higher-than-average salaries typically established their own charitable foundations.
The findings also showed that several factors motivated and inspired athletes to form their own charitable foundations. Some athletes were motivated by the positive benefits that come with being altruistic by serving the community in need and experiencing a high level of satisfaction for being and feeling helpful. Others were motivated by public recognition, enhanced social status, and the opportunity for career advancement based on the affiliation and association with recognized causes and issues. Still others were motivated by the tax relief benefits.
Importantly, charitable giving is driven by donor tastes and personal background. While it is assumed that celebrities and athletes should serve the most in need or donate to the “hot” social issue of the time, because philanthropy is often seen as a product of time, donors tend to support organizations that promote their own preferences, organizations that help others with whom they feel an affinity toward, and causes that relate to their own life experiences. Hence, athletes are often associated with supporting youth sport organizations, such as creating greater access to sport in low-income and underprivileged communities, or donating to health organizations for a particular cause or disease that may have affected a family member.
Despite professional athletes possessing a substantial amount of agency, power, and influence to create social change by taking more active roles in philanthropy and starting their own foundations, there are also a lot of inherent challenges in sustainably managing these foundations to ensure they do not fold after a few short years. A 2013 ESPN Outside the Lines report found that athlete charitable foundations often fall short of making significant measurable impact.
In surveying 115 charities of high-profile and top-earning male and female athletes, ESPN found that 74 percent of the nonprofits did not adequately meet the nonprofit operating standards. This covers a range of inadequacies, including:
- The inadequate distribution of foundation assets, with a larger percentage of funds being allocated to administrative expenses over actual charitable work.
- The appointment of board members, such as a spouse, family members, or close friends, without the appropriate experience to oversee the organization’s operations.
- The inconsistent or even negligent filing of paperwork with the Internal Revenue Service for auditing purposes.
Furthermore, because the charitable foundations are associated with very wealthy and successful athletes, it is easy to assume that these foundations have an immense amount of assets. However, the types of massive, well-endowed foundations established by celebrity athletes like basketball star LeBron James, golf’s Tiger Woods, cycling’s Lance Armstrong, or tennis’ Serena Williams are quite rare. In fact, the 990 tax filings demonstrated that a majority of athletes’ foundations have total assets of less than $50,000, highlighting the financial challenges in adequately sustaining a foundation’s purpose of social impact.
In the year since the NCAA reversed a decades-old regulation to instate an interim policy that allows student-athletes under its purview to monetize their name, image, and likeness (NIL), thousands of athletes have leveraged this dramatic shift in college sport, seeking to profit off NIL rights and establish brand partnerships by lending their celebrity platform to various advertising campaigns and businesses across the country. Following the NCAA’s decision, it has been estimated that brands are on pace to spend more than $600 million on NIL deals. While a number of students have signed lucrative and seemingly life-changing NIL endorsements with a range of for-profit businesses, nonprofit organizations have also set a stake in the NIL landscape by controversially paying athletes to promote their nonprofit organizations for a fee.
Dozens of universities have established affiliated nonprofit collectives in which athletes sign deals to work with charities. Some of the first nonprofit collectives formed include the University of Texas’ Horns With Heart and the University of Oklahoma’s 1Oklahoma Collective. Each organization has made commitments for certain athletes to earn NIL revenue – some $50,000 a year or more – by contributing to the greater good of their communities through social media promotions, in-person appearances at events, and public service announcements. In exchange, these collectives provide high-earning donors with opportunities for immense tax breaks. Classifying and valuating these in-kind agreements will be key as NIL expands and will be essential in determining how college athletes, too, can engage in philanthropy. In some ways, the creation of these university collectives has put into question the integrity of charitable giving. Should athletes be compensated for their engagement in charitable work?
While a dozen of these collectives have been formed over the past year, either compensating athletes directly or involving university donors creating donation channels to charities their athletes support, some athletes have opted to use their NIL earnings to establish their own foundations. Michigan State University basketball player Mady Sissoko, for example, established his own foundation, the Mady Sissoko Foundation. Through a loophole that allows international students to donate their NIL earnings to charity, Sissoko is supporting activities in his home country of Mali to develop new solutions to address issues of sanitation and safe drinking water as well as provide greater access to English classes. While it is uncertain whether these collectives are being used as a recruiting mechanism or simply another lucrative form of a tax write-off for university mega-donors, they are currently serving the purpose of engaging athletes in charitable events. On the other hand, while student-athletes who have opted to use their NIL earnings to start their own charitable foundations may have good intentions and there might be more immediate transparency in the charitable process, these student-athletes will undoubtedly be faced with significant challenges in their foundations’ formation and upkeep, particularly without direct administrative, financial, and legal support.
As professional athletes continue to seek new opportunities to do social good and donate on their own terms and university athletes seek to leverage their newfound opportunities to engage in social impact through NIL, it is important for these two groups of athletes to be knowledgeable about the options that exist to engage in formalized philanthropy or social impact work without necessarily opting to start a charitable foundation from scratch – an extremely time- and resource-dependent endeavor.
Here are a few considerations to start:
For the most part, athletes already engage in checkbook philanthropy, the most common charitable giving method. Checkbook philanthropy is the method in which a donor gives to causes in an ad hoc manner with little to no followup on the part of the donor or the recipient. This can take the form of donating money to a friend’s charity walk, sending a mail-in donation, purchasing food for youth groups, etc.
Another option is to partner with an existing organization by participating in in-person events such as coaching a youth sports clinic or competing in a charity golf event. As mentioned earlier, this form of philanthropy had been quite common among celebrities and athletes, but many have since opted to engage in more strategic and fulfilling philanthropic activities.
While establishing a charitable foundation was the next viable and popularized option proposed for celebrities and athletes to engage in philanthropy during the 1980s and 1990s, it is not often the most pragmatic choice. The challenges – and, more seriously, the legal implications – outlined in the ESPN report illustrate the complexities and reservations celebrities and athletes should consider before embarking on developing their own nonprofit organizations.
Decreasing overhead spending can jeopardize the very existence of these organizations and the ability to support, and eventually scale, their philanthropic activities. This creates a larger issue in that charities are forced to forego what they need to grow – such as investing in more experienced personnel and devoting more resources to fundraising activities – in the interest of keeping overhead low. These time-intensive and administrative costs are not for the faint of heart.
Managing a nonprofit organization is very intensive, not unlike a for-profit enterprise, and therefore should be treated as a business and not as a hobby. Nonprofit leaders need to both recognize and communicate to their funders the real overhead and infrastructure costs needed to responsibly manage their organizations. Building capacity is critical to the long-term health and success of the organization, and if corners are continuously being cut by maintaining low overhead costs and investments are not made to onboard experienced personnel, the opportunity to achieve greater success and impact is inhibited. Nonprofit leaders must be able to communicate a compelling and impactful story to entice funders and other granting organizations to infuse greater financial support to increase that overhead capacity. As such, nonprofits need to embrace a long-term business strategy, as opposed to questioning their survival from donation to donation.
Private Foundations vs. Public Charities
A celebrity or athlete can also consider forming a private or public foundation to further pursue a more formalized philanthropic endeavor. Charitable organizations are tax-exempt and qualify for the 501(c)(3) status, which means that contributions made to the organization are tax-deductible and that the grants, compensation, and any other payments must be made with a specific charitable purpose and not for personal or private benefit.
There are two types of foundations: private foundations and grant-making public charities. A private foundation is generally financially supported by an individual, a family, or a corporation; is identified as a 501(c)(3) organization; and must pay out at least 5 percent of its assets each year in the form of grants and operating charitable activities. Since private foundations do not receive money from the public, the initial seed donation, called an endowment, becomes an investment that is made to generate income, which is then dispersed in the form of grants to individuals or other charities. This endowment structure provides a consistent, stable, and reliable source of continuing funds, allowing for greater accuracy in budgeting and funding decisions and access to aid when needed.
A public foundation, on the other hand, is a grant-making organization that can take shape as hospitals, schools, churches, and organizations that make grants to others. Public foundations receive funds from sources such as private foundations, individuals, and government agencies and from fees charged for providing charitable services. Compared to a private foundation, a public charity must establish a board of directors to demonstrate that it is neither organized nor operated for the benefit of private interests, and the charity must receive at least one-third of its contributions from the general public.
The biggest difference between a private foundation and a public charity is the manner in which funds are acquired. A private foundation is funded by a single large endowment, makes grants to individuals and organizations, and has a high degree of individual control. This means that a board of directors can consist entirely of members of a single family. In contrast, a public charity is responsible for selecting a diverse board of directors and is at the mercy of the board’s decision-making processes.
A community foundation is one form of a public charity that typically focuses on supporting nonprofits and charitable events in a specific geographical area. There are around 700 operational community foundations in the United States. These foundations focus on addressing community needs in select cities, counties, states, and regional areas. Community foundations are funded by donations made by individuals, families, and businesses and, in some cases, by grants from governments. Compared to an athlete managing the day-to-day operations and administration on their own, community foundations are a good alternative and less intensive option for busy individuals to consider when seeking to make a tangible impact.
Community foundations have deep roots in the communities they are based in. They also have expert advisors on staff who are knowledgeable about the nonprofit landscape and can identify local and regional organizations that share the same mission and values of a potential donor. Charitable giving is simplified through the high degree of personal service that community foundations provide to their potential donors. Moreover, community foundations offer several types of grant-making opportunities, commonly through scholarships to support student education, endowments that provide permanent sources of funds for long-term growth, field-of-interest funds designated for specific issues such as healthcare or the environment, and donor-advised funds.
Many community foundations offer donor-advised funds, which have become one of the easier and more popular methods for donors to make charitable donations and receive significant tax advantages. Donor-advised funds are essentially bank accounts that are sponsored by public charities such as community foundations and are dedicated to charitable giving. Those who opt to open a donor-advised fund dictate how and where the funds are distributed or invested, with the option to receive support from nonprofit experts and staff, but they are not beholden to a decision made by a board of directors as public charities are required to do. The advantage of a donor-advised fund is that the account can be used for tax-free growth, meaning that over time additional funds can be generated; the process, however, in establishing a donor-advised fund – particularly through a community foundation or a bank – is not always the same.
Depending on whether a donor opts to open an account through a bank or through the city or county community foundation, there are differences in the minimums to open an account, fees for managing the account, available support for grant decision-making, minimums for contributions and grants, investment options, etc. In comparison to managing a private foundation, donor-advised funds have fewer associated costs, encounter fewer compliance hassles, and provide donors with a sufficient amount of control to dictate where charitable giving is made and how planning for long-term wealth generation is done.
Venture Philanthropy and Social Entrepreneurship
While the nonprofit sector exists to fill the unmet needs of government and the private sector, and there is no true replacement for what the nonprofit sector accomplishes, venture philanthropy is a new area for athletes to explore. They can scale their philanthropic contributions and create real change while also potentially generating a profit – a key factor for athletes to consider following their professional or collegiate careers.
As corporate social engagement expands to fill vacuums left by a void in government action – blurring the lines between government, nonprofits, and businesses – there is a new opportunity for venture philanthropy and social entrepreneurs to establish for-profit organizations that serve a social purpose. A for-profit social venture is a legally incorporated for-profit entity in which one or more business owners have the right to control the company and are entitled to the venture’s earnings and net assets. For-profits come in the form of proprietorships, corporations, limited liability companies, and cooperatives. Furthermore, social ventures are explicitly designed to serve a social purpose while making a profit. This means that the primary commitment is to create value within a community rather than solely generating wealth for the owners.
Beyond all that, there are complexities in measuring success in terms of social impact and balancing the idea of creating value and opportunity to ensure “no one is left behind” while also developing a for-profit structure that is guided by financial objectives. While the objectives and operations of a non-profit organization are similar to those of a for-profit venture, the key difference is that nonprofits are legally prevented from distributing their economic surplus. This means that any excess in funds must fund the organization’s charitable programs or ongoing operations. Socially responsible businesses, such as a Patagonia or Toms Shoes, are different from for-profit social ventures in that their primary goal is to create economic value. While socially responsible businesses may actively engage nonprofits and have strong ethical business values, for-profit social ventures consider their social responsibilities and goals through the entire value and supply chain from procurement, hiring, and designing to producing and final marketing.
For-profit social ventures attempt to “do well” while “doing good,” and, compared to foundations, for-profit social ventures often have more latitude to experiment and take risks. Social ventures can promote efficiency and innovation by maximizing every investment dollar to create and deliver value.
Nonprofits are cash-strapped. There is an immense amount of risk aversion in taking daring steps to experiment with scaling up fundraising efforts. The problem with this mindset is that without innovation and risk taking, it is more difficult to raise funds, and without raising funds, organizations are limited in the ability to grow and scale, and therefore can solve these large social issues only in an ad hoc manner. Moreover, with limited funds and incoming revenue, compared to nonprofits with low overhead and staffing, social ventures are capable of being more responsive to market demands and fluctuations. This is an incredibly important factor to consider given how COVID-19 essentially decimated certain sectors. Over the past two years, many non-profit organizations folded due to financial pressures.
Philanthropy plays a key role in solving immense global social issues. Celebrities and athletes alike have a profound opportunity to create social change by using their platform and public appeal. Through checkbook philanthropy, establishing a donor-advised fund, opting to create a private foundation, or exploring new avenues of social entrepreneurship, there are many viable options for athletes to create social impact. In pursuing social good, however, professional and university athletes should realistically evaluate the amount of time, personnel and support, and financial resources they are willing to invest in order to truly realize charitable impact.
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