Rare is the professional athlete these days who doesn’t have, or want to have, a charitable foundation. While a foundation can be a powerful and effective tool for having a philanthropic impact on a community, the athlete needs to be careful what he wishes for.
If a foundation director is not fully familiar with all the legal issues, it is unlikely that foundation will be in compliance with the IRS, much less have maximum philanthropic impact.
For a professional athlete in today’s celebrity-driven economy, reputation is his No. 1 asset. Any charitable activity to which he attaches his good and marketable name that does not scrupulously adhere to all IRS rules and regulations can and will compromise his integrity and negatively affect endorsement opportunities. Few things are more exasperating than taking a public hit for trying to do some good.
A charitable foundation that seeks and accepts contributions has a good-faith obligation to the public. When an athlete associates his name with a foundation, it constitutes a commitment — legal and otherwise.
In the public’s mind, there is the expectation that anything done in the name of that foundation is backed by the full faith and credit of the person whose name is on the door. If the foundation is a public charity — and most started by athletes are — the public should feel good about supporting its mission.
If the average fan who forks over $100 to support the charity discovers that a disproportionate amount is spent on overhead (usually anything above 25 percent), the foundation is not holding trust with the public. And the public long remembers when its trust is violated.
With the advent of the Internet as a daily reference guide, information on charity ratings is readily available. More and more people are checking those ratings before writing a check.
There are few PR nightmares worse than a charity scandal driven by a wealthy and famous person. There is simply no substitute for integrity, and integrity demands playing strictly by the rules where public trust is involved.
Many athletes, however, fail to appreciate just how complicated professional foundation management is, and they entrust the job to well-meaning but unqualified friends and relatives.
Those athletes would never entertain the notion of asking those very same friends and relatives to handle their contract negotiations, their money management or the subcontracting for their new homes. Yet the skills and knowledge necessary to perform those functions are no more complicated than the professional stewardship of a charitable foundation.
Foundation management, in one respect, is a lot like loaning someone a credit card. If that person misuses the card, it is the loaner’s credit profile that will suffer the consequences.
If anything goes wrong with the foundation — and plenty can go wrong — legal liability always seems to find the deepest pockets. And never fear, the press will be there to cover it.
Here are just a few examples of how trying to do good can lead to potential disaster:
You create a scholarship program for your foundation. But you decide that the first five recipients of the college funding should be your best friends’ children.
Such a charitable distribution could easily result in serious sanctions and penalties for your foundation. Scholarship programs need to have established criteria and an open application process.
You decide your foundation should hold a fundraiser. With all good intentions you rent a venue big enough for 700, hire the band and caterer, engage a party planner and end up selling 37 tickets. It is your charity that sustains the loss, and that loss will throw your 990 (tax return) into chaos and your charity’s efficiency rating off the charts.
You want to help the youth in your community. You bought some property for investment purposes and decide to build a youth center on it and donate it to your foundation. You hire a childhood friend to run the center and keep an eye on the property. One day a child falls down some slippery stairs and is seriously injured. Can you spell liability!
Aristotle said, “To give away money is an easy matter … and in any man’s power. But to decide to whom to give it, and how large and when, for what purpose and how, is neither in every man’s power nor an easy matter.”
A charitable foundation can be a useful and important way for athletes and others to give back to their communities. But it also can be a double-edged sword.
Consider your options carefully before proceeding with your efforts. And remember, starting a foundation is only the beginning of the charitable work.
Navigating the obstacles to a stable foundation
- Hire a qualified director who knows the legal and financial rules of running a foundation.
- Keep overhead spending in check (no more than 25 percent).
- Be committed to upholding the public’s trust.
- Establish and stick to guidelines for how to award grants, scholarships, etc.
- Remember that a foundation is only part of charitable giving.
Marc Pollick is president and founder of The Giving Back Fund, a national nonprofit organization that
