Accounting for Sponsorship Revenue When Events are Postponed
Sponsored Blog Post: MANP is pleased to present the following sponsored blog post by Jon Osterburg of Jitasa, a Sustainer-level Friend of MANP. Sponsored posts reflect the views and opinions of our guest blogger and do not necessarily reflect the views and opinions of MANP.
So you’ve had to postpone an event. You’ve already collected the funds from your dedicated sponsors in exchange for promoting their brand during the event itself. At this point, what happens to the funding and to that agreement?
The last thing your organization wants is to disappoint your sponsors or hurt the partnership. Do you give the money back? Can you assume they’ll still help you when the event does finally take place? What should you do next.
Events are challenging enough without the difficulties associated with pivoting to the digital space, postponing or canceling functions altogether, and managing other necessary changes in response to COVID-19. In order to answer the questions above regarding your event sponsorship revenue, we’ll start by discussing what this revenue is typically used for, then move into potential next steps your team can take.
Ready to get started? Let’s dive in.
Event Sponsorship Revenue Basics
When it comes to nonprofit budgeting, sponsorships play a key role in events. Sponsorships allow your organization to fund different aspects of your fundraising event in exchange for low-cost marketing of the sponsoring organizations.
You may offer several sponsorship packages to your partnering organizations. Doing this presents a great opportunity to attract sponsors while providing specific benefits in return. For instance, you may offer tiers that look like this:
- $500 sponsorship – The sponsoring organization’s logo will appear on the website and on the back of event t-shirts.
- $750 sponsorship – The sponsoring organization’s logo will appear on the website, t-shirts, and all marketing materials leading up to the event.
- $1,000 sponsorship – The sponsoring organization’s logo will appear on the website, t-shirts, and all marketing materials leading up to the event. Plus, speakers will mention the organization’s name in their presentations.
If you’ve created packages like this from the beginning, your organization will find it easier to renegotiate the terms of the sponsorship if your event is moved online. You can offer equally appealing options for online events and check-in with sponsors to ensure the shift will work for them.
For instance, tell your sponsors that instead of adding their logo to flyers for your virtual event, you can instead add it to your event announcement in your email newsletter. This may actually get more attention so your sponsors likely won’t have an issue with the plan.
Next Steps Regarding Sponsorship Revenue
While the majority of sponsorship agreements are unconditional, meaning you don’t need to return the funds if the event is postponed or canceled, not all of them are. You should read through your own sponsorship agreements to ensure the legality of the funding before moving forward with your plans.
As you review your agreement, you may find yourself in one of a few different situations:
- Your agreement is unconditional but the event is postponed. Check to see if there is a clause in the agreement about putting funds on hold until the event takes place. Even if there isn’t, putting the funds aside is still an option you should consider and discuss with the sponsor. This way, you can be sure you have the funds you need to make it happen. You should also loop your nonprofit’s bookkeeper into these agreements so that they can organize the funds correctly.
- Your sponsor has not yet submitted the funds to your organization for the event. Sponsors may prefer to hold onto the funds they promised until the event takes place. In this case, be sure you have the funds recorded as pledges received, but don’t post it as fundraising revenue just yet. Wait until you have actually received the funds before recording the revenue.
- Your sponsor wants the money returned to them if the event is postponed. Make sure you reach out to your sponsor and openly communicate with them. To create a working relationship, you should respect their wishes. However, be sure to offer to leverage the funds in exchange for alternative projects before giving it back.
If your event has been postponed to a new year, talk to your accountant about what impact any donated or promised sponsorship revenue could have on your Form 990 process this year as well.
For instance, you might ask questions such as the following of your accountant:
- If you’re able to keep the sponsorship revenue, are there any restrictions as to how it can be used? Will those restrictions impact how it is reported?
- If the money is seen as a pledge, will you need to report that funding on your Form 990 now or when it’s actually contributed? (The answer to this question will depend on how your organization records funding and the nature of the pledge agreement.)
- If you return the sponsorship revenue, where on your finance documentation should that be noted so that you are sure the reported revenue is adjusted on tax forms?
How you report your revenue depends highly on your system of accounting and the agreement between yourself and your sponsor. Therefore, seeking professional guidance is the best way to make sure that your reports remain correct.
Sponsorships can be tricky in the best of times. Right now, as we shift everything around, be sure you preserve your relationships with your sponsorship partners with open communication regarding the funding and their benefits.
About the Author
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.