Paul L. Caron
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Monday, January 31, 2022

Jeff Bezos’s $200 Million, 50-Year Naming-Rights Deal With The Smithsonian Does Not Include A ‘Morals Clause’

MarketWatch, Exclusive: Jeff Bezos’s $200 Million, 50-Year Naming-Rights Deal With the Smithsonian Does Not Include a ‘Morals Clause’:

Smithsonian Air SpaceAmazon.com founder Jeff Bezos’s name will be displayed on a new building at the National Air and Space Museum and in several additional places throughout the Smithsonian Institution for at least 50 years in exchange for his $200 million donation.

The terms of the agreement, which MarketWatch obtained through a public-records request, do not include a “morals clause,” a provision that would allow the Smithsonian to terminate the naming rights if Bezos’s behavior brought disrepute to the institution. ...

Big-dollar donations like this one are typically trumpeted by institutions (this one was covered in major media outlets and came with an inspirational video), but the legally binding contracts that surround the gifts are usually kept private. Bezos’s gift agreement with the Smithsonian offers a rare glimpse into how institutions and their wealthy benefactors engineer a mutually beneficial exchange. ...

[T]he requirement to prominently display Bezos’s name for the next 50 years comes as naming rights have been under scrutiny. Most notably, the Sackler family name has been removed from museums and other institutions they helped fund with profits from OxyContin maker Purdue Pharma, which is now seen as playing a pivotal role in the opioid epidemic that’s killed some 500,000 people since 1999. ...

In light of the Sackler controversy, and amid broader debates about the soft power exercised by elite philanthropists, nonprofits are rethinking how to recognize benefactors’ generosity without tattooing themselves in perpetuity with a donor’s name.

There’s now consensus that institutions should have the right to refuse a donor’s name or take a name down, said Melissa Berman, president and CEO of Rockefeller Philanthropy Advisors, a nonprofit consultancy that advises individuals, corporations and foundations on their philanthropy; it spun off from the Rockefeller Family office in 2002. What’s less clear are the grounds and principles used to determine those decisions, Berman said.

Some institutions now include “termination rights” or “morals clauses” in their gift agreements, which allow them to remove a donor’s name if the person’s reputation is tarnished and it’s more of a liability than a benefit to be publicly associated with them.

Termination rights also protect an institution in the event that 100 years go by, a building needs a renovation, and the original donor (or their fortune) isn’t around to pick up the tab. The ability to remove the name from the building lets the institution sell the naming rights anew and raise fresh funds.

Bezos’s agreement with the Smithsonian contains no morals clause or termination rights. ...

The Smithsonian’s standard expiration date for naming rights is 20 years, but Bezos got an exception, in part because of the size of his donation, but also because the learning center is brand new and expected to last longer than 20 years, a spokeswoman said.

The Smithsonian enacted the 20-year policy in 2011, because it “wanted to get away from perpetuity” in gift agreements, a spokeswoman said.

Case in point: A legally binding contract to display a name forever is one reason the Smithsonian says it won’t remove the Sackler name from its Arthur M. Sackler Gallery, despite calls from a U.S. senator and activists to do so. ...

In addition to protecting against reputational risks, there’s another argument for putting time limits on naming rights, says Linda Sugin, a Fordham University law professor. A single large donation that bestows permanent naming rights discourages future gifts, Sugin says. She’s called for changing tax laws around charitable giving to discourage perpetuity. Her theory is that limiting the amount of time donors get naming rights would clear the way for more donations — and promote “competitive philanthropy” among the wealthiest philanthropists.

“If you can keep reselling the same naming rights, then it’s the gift that keeps giving,” Sugin told MarketWatch.

Many institutions see themselves as “supplicants at the mercy of these donors,” Sugin said. “That’s not a good situation for anybody. We want a law that gives institutions some power when they go into these negotiations.”

She added, “The super rich have a lot of power and influence over our public space and it’s important that we regulate that power and influence in a way that the public gets the most benefit from it.”

Congress could, for example, pass a law saying that donors can’t get a charitable tax deduction on donations if their naming rights last more than 20 years, she said.

(Hat Tip: Ellen Aprill)

https://taxprof.typepad.com/taxprof_blog/2022/01/jeff-bezoss-200-million-50-year-naming-rights-deal-with-the-smithsonian-does-not-include-a-morals-cl.html

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