by Rebecca Princehorn, Partner, and Paul Rutter, Partner
Bricker Graydon
Naming rights are a popular way to raise revenue without raising taxes. Popular, yes, but they have minefields of their own. Here is a checklist of considerations when presented with a naming rights revenue plan.
- Statutory Authority – ORC 3313.36 permits a district to accept gifts, including gifts with conditions that do not abrogate district management and control. The right to name district facilities is a district asset thus under district control.
- Naming Rights Policy – Most districts have a naming rights policy, particularly if they subscribe to a policy service such as OSBA or NEOLA. Sometimes the policy has provisions for renaming facilities over time or because the name has fallen into disrepute. There may be provisions for names in keeping with the educational mission. “Smith’s Marijuana Farm” on the press box is not a joke anymore! Finally, the policy may have provisions for a committee to make recommendations to the district about naming facilities.
- Boosters – There is no statutory authority for naming rights payments to go to the boosters or an independent education foundation. However, those types of groups can be compensated on a “fee for service” basis, such as soliciting ads for a scoreboard.
- Capital Projects Fund – If the board of education wants to set aside naming rights revenue for a specific project, one strategy would be to accumulate those monies in a capital projects fund (USAS 070) pursuant to ORC 5705.13(C). Those monies could then be directed to a booster-favored project. Note that ORC 5705.13(C) imposes a number of requirements for opening and using a capital projects fund, including that a board of education cannot stockpile monies there indefinitely. Once a capital projects fund has been opened, the board of education has 10 years from the date it was opened to at least enter into a contract for constructing, acquiring or improving the fixed assets for which the monies were accumulated in the capital projects fund.
- Tax-Exempt & Tax-Preferred Financings – If tax-exempt or tax-preferred obligations that financed the facility to be named are still outstanding, naming rights payments (usually excluding naming rights for individual persons or families) constitute “private business use” as they are essentially advertising. While the Internal Revenue Code allows for small amounts of private business use, naming rights revenue that exceeds certain thresholds could jeopardize the federal tax status of those obligations, which would result in significant negative financial repercussions for the district. Note that all private business use of a facility, including naming rights, is evaluated in the aggregate, and so a sizable number of naming rights arrangements could be problematic even if none of the naming rights agreements are individually substantial. It is advisable to consult with your bond counsel before entering into any significant (either individually or in the aggregate) naming rights arrangements.