Trends, Pitfalls and Opportunities in Celebrity Philanthropy

Stinson LLP

Athletes and celebrities have a long and storied track record with charitable causes. A celebrity can turn an otherwise unknown cause into a charitable powerhouse simply by lending a high profile name and likeness. Today, athletes and celebrities alike are becoming activists and experts in their own right by starting their own charities. Examples of celebrity activists who are successful in their philanthropic endeavors are Angelina Jolie, Sean Penn, Tiger Woods and Andre Agassi.

Individual giving has always formed the lion’s share of the charitable capital pool in America, but the ways in which individuals make these gifts is evolving. Online fundraising and crowdsourcing of grants is playing a greater role every year, with celebrities often leading the charge in coordinating and producing these donations.

The modern trend in philanthropy is toward results-oriented giving. Donors large and small, individual or corporate, are taking a business-like approach to giving. As with any investment, donors are seeking the greatest social return on each dollar given, and never has more information been available to track the impact of gifts which have been made. Websites such as Guidestar, Charity Navigator and Look to the Stars place a wealth of information at the fingertips of even the most casual donor. The velocity of information over the internet and social media has increased the transparency of giving campaigns as well. The stakes are now higher for public figures entering the philanthropic realm. A misinformed attempt at philanthropy may do more to harm a giver’s image than to burnish it.

Philanthropy requires more commitment today than in eras past, but the potential for impact is greater. Many of our public figure clients are charitably motivated and have the desire to step into the charitable arena by founding their own organizations. Below are some important considerations for beginning the process.

Private Foundation v. Public Charity

As athletes and celebrities have transitioned into founders of their own organizations, private foundations have been on the rise. Under Section 501(c)(3) of the Internal Revenue Code, an organization is presumed to be a private foundation unless it falls into one of several exceptions and the applicant requests a public charity determination. The primary difference between public charities and private foundations is the source of donations. Private foundations are often funded by one or a limited few individuals or corporations. In contrast, public charities are primarily funded by the public-at-large or the government. As a result, private foundations and charities are subject to different operating requirements and financial disclosure rules. There are also differing rules regarding deductibility of contributions to private foundations and public charities for donors with respect to their income tax returns. The charitable form which our clients select often comes after a detailed conversation about the anticipated goals, activities, and fundraising efforts of each individual client. Like any business, choosing the proper charitable form for your mission is the key to a successful, thriving charity.

Pitfalls and Opportunities

Celebrity philanthropic endeavors share some of their most common failures with most other non-celebrity philanthropic endeavors. However, unsuccessful celebrity efforts share a common top three list. First, compliance failure leads the way for celebrity charities and foundations. Many organizations lose exempt status for failure to file annual tax returns. An organization loses its exempt status if the appropriate Form 990 is not filed for three consecutive years.

The second common misstep may be due to floundering celebrity organizations with poor or inexperienced management. While it is laudable to have a charitable organization run entirely by family members, it could spell the beginning of the end if they do not possess the requisite skills or expertise to ensure proper management and oversight. The most successful organizations strike a balance between family members and independent individuals serving as board members. For example, the Dikembe Mutombo Foundation, started in 1997 by former NBA star Dikembe Mutombo, strives to improve the health, education, and quality of life in the Democratic Republic of Congo. Although Mutombo’s wife serves on the board, several board members are doctors or otherwise involved in the health field who have direct experience with the organization’s exempt purposes.

Rounding out the top three most common points of failure are due to celebrity charities who often operate under a skewed charitable work-to-expense ratio. Most celebrity charities spend far less than the recommended 65 to 75 cents per dollar towards their charitable purposes. Many athletes, in particular, have been highly scrutinized for their organization’s failure to spend even 5 or 10 percent of funds on actual charitable work, while throwing lavish fundraising events that produce little to no revenue. The most successful celebrity charities spend over 80 percent and upwards of 99 percent of their budgets on charitable programming or giving. We suggest you that you meet with both your attorney and your accountant before starting a charitable organization to determine how your organization will raise funds and effectively operate within its means.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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