Wednesday, December 31, 2008
Yesterday (December 30, 2008), the Salt Lake City Tribune highlighted the pitfalls of starting a foundation or charity without proper legal guidance. The article focuses on NBA players who, with good intentions, setup foundations and charities in their names. Based on a study of tax records and other resources, the article concludes that many of these foundations and charities underperform in charitable giving -- meaning that 51% of every dollar raised reaches the charitable cause while the national average is 65%. Also, many of these charities maintain poor records and experience difficulties with federal and state reporting requirements. I teach an introduction to nonprofits law course, and one of the main motivators for teaching this course for me is to produce a cadre of lawyers who are capable of properly advising persons, athletes or just common ole' folks, who want to setup and run nonprofits, and the nonprofits themselves. This Salt Lake City Tribune article suggests that there is plenty need. Please see the brief excerpt below:
But an analysis by The Salt Lake Tribune of hundreds of tax documents filed by NBA player charities has found these foundations face a dizzying array of problems, especially those set up by the athletes themselves, without outside expertise.
Among the findings of The Tribune's analysis of 89 stand-alone NBA player charities:
Together, they reported revenue of at least $31 million between 2005 and 2007, but only about 44 cents of every dollar raised - or $14 million of that $31 million - actually reached needy causes. The average NBA player foundation put just 51 cents of each dollar it spent toward charitable programs, well below the 65 cents most philanthropic watchdog groups view as acceptable. Tax records show budgets are quickly eaten up by poor planning and administrative costs.
While a handful of player charities appear to be well-financed and tightly managed organizations that do good, a larger number are unimpressively funded and their activities poorly documented. Up to a quarter of NBA player charities analyzed lacked even basic documentation required by the Internal Revenue Service.
Few player-run charities hire full-time directors to manage daily operations, and players commonly put family members, friends and former sports associates on their boards, despite IRS rules requiring that a majority of board members be nonrelatives.
Some player charities hold lavish fundraising galas that cost tens of thousands of dollars but actually lose money.
Though shining examples of NBA charity work abound - including noteworthy efforts by the five Jazz players, all of whom run effective charities - player foundations' noble motives often go awry, as even the league acknowledges.
'We don't shy from it,' said NBA Senior Vice President Kathy Behrens, adding the league has tried with limited success to maintain a database on player foundations. 'There are horror stories . . . of guys who set them up because their agent said to or they thought it was a good idea and they had good intentions, but not a good plan. That causes trouble.'
For the full story, please click here.