World Vision, the new 100,000 shirts
Posted on February 8, 2011 at 6:02 pm
So World Vision is the new 1 million shirts. Except instead of sending 1 million donated shirts to Africa they’re sending 100,000 misprinted Super Bowl shirts to Zambia, Armenia, Nicaragua, and Romania. And unlike Jason Sadler, who was a well-intentioned but ill-informed social entrepreneur, World Vision is a multi-national, billion dollar budget, 57 year old aid organization.
In the comment section of their post about the shirt donation, World Vision claims that they’re different from 1millionshirts. While it’s good that they provided their criteria for distributing donated goods, their argument doesn’t hold much water if you followed the whole 1millionshirts controversy. Shipping unwanted goods overseas is still not smart aid. Rather than rehash the whole debate here, I’d suggest anyone interested in this topic read a few of the 60 blog posts written during the heated debate. Or read this open letter to World Vision on the blog Wanderlust.
Instead, I thought I’d focus the finances behind why these gifts-in-kind keep happening. I’ll use this particular controversy as an example of the substantial financial benefits to both non-profits and businesses to provide donated goods.
The companies benefit from tax write-offs
According to World Vision’s website, here’s how the NFL shirt donation system works.
“The NFL pre-prints about 300 shirts and hats for both Super Bowl contenders for after the game. At the same time, retailers like Sports Authority, Dick’s, and Modell’s place their merchandise orders in advance according to the market location of their stores and the potential winning teams. Basically, a retailer in Green Bay, Wisconsin, would order the pre-printed Super Bowl Champion Packers gear the same way a retailer in Pittsburgh would buy pre-printed Super Bowl Champion Steelers gear. But a retailer in Florida might not order either contender’s pre-printed merchandise, because their market doesn’t have much of an interest in buying Super Bowl Champion gear for either team.
Once the gear is pre-printed, it is shipped from the printing center to the retailers’ distribution centers, where it is counted and distributed to individual stores. Once at the stores, staff members hold the gear until the winning team is determined, at which time shelves are stocked and gear is sold. This is where World Vision comes in.
At this point, all unused gear for the team that does not win is repackaged, shipped back to the retailer distribution centers, counted again, and donated to World Vision.”
Richard Wiercinski of Huggins and Scott Auctions says, “There’d be very little value and very little interest.”
World Vision and the merchandizers estimate the value of this merchandise to be:
“On average, this equates to about 100 pallets annually — $2 million worth of product — or about 100,000 articles of clothing”
So essentially the company prints off an equal number of Super Bowl shirts for each team, knowing that they won’t be able to sell any of the shirts with the losing team’s logo. They then donate the shirts to World Vision claiming a value of $20 per shirt. This is the amount that the business then deducts from their taxes for their charitable donation. (For this particular example, I’d wondered if the NFL itself was actually making the donation in which case the tax deduction wouldn’t matter as much because – believe it or not the NFL is a registered nonprofit. But an article about this same program from 2008 contained an interview with the president of World Vision, Richard Stearns, “Stearns noted that the donation is beneficial in many ways including being tax-deductible and eco-friendly.”)
Being able to donate hard-to-sell or unwanted goods and receive a tax write-off is appealing to businesses. The NFL merchandisers are not alone, expired (or nearly expired) medicine, outdated equipment, and old machinery are regularly donated as tax write-offs. Nonprofits and aid workers come under tremendous pressure to accept these questionable donations. This is one of the reasons the Interagency Gifts-In-Kind Standards Project of AERDO (the Association of Evangelical Relief and Development Organizations) was created and subsequently included in InterAction’s PVO (Private Voluntary Organization) Standards. These are standards that non-profits who are members of InterAction – which World Vision is – agree to follow.
According to AERDO standard 3.5, the company must be able to sell the goods independently for the same amount they’re claiming as a donation.
3.5 Fair Value: GIK donations are to be valued based upon “The price that would have been received to sell an asset or paid to transfer a liability in an orderly transaction between market participants” as of the date of the donation (FASB ASC 820-10-35-2). This is known as an entity’s “exit price.” This assumes the transaction would be an “arms-length” transaction….
Personally, I question whether the NFL Super Bowl merchandizers could sell 100,000 t-shirts with the losing team’s logo for $20 each.
UPDATE: Here’s an article by a sports fan trying to buy last years shirts.
As it turns out, misprinted NFL gear doesn’t seem to command much interest from collectors as the league may believe:
Brandon Steiner, founder and CEO of Steiner Sports, tells Minyanville that there’s “not really a market” for the items the NFL makes World Vision keep under lock and key.
“Sometimes people buy them here and there,” Steiner says. “But there’s not much value.”
So apparently every year these merchandizers know in advance that they’re not going to be able to sell half of their shirts, but they print them anyway because they can pass on the bill to the American public in the form of a charitable deduction. This means that the US government could have essentially subsidized the production of approximately 30 million dollars worth of unsellable t-shirts over the 15 years of this partnership between World Vision and the NFL.
In addition to receiving a tax write-off for the donated shirts, the companies can also deduct the cost of transporting them. They also save money by not having to pay to dispose of the unwanted shirts. It’s easy to see how partnering with a nonprofit is an appealing option for businesses. If the company had to bear all of these costs themselves, they would likely print far fewer t-shirts – and create far less waste.
UPDATE #3: After quite a bit of back and forth there is now a much better, and very long, explanation as to how much the NFL saves by donating the shirts the organization is a corporation. See this comment and this comment for the full explanation. In short, it’s not enough to justify printing the shirts without the added motivation of the profit made in the immediate sales of the winning shirts. If it’s an individual or sole proprietorship business it can write off fair market value up to 50% of adjusted gross income.
Non-profits benefit by claiming higher percentages spent on programs
World Vision benefits from this partnership because they get to claim that same $2 million in donated goods annually as part of their program expenses. In their 2010 financial statement they claimed $251 million in gifts-in-kind, almost one quarter of their revenue (gifts-in-kind can also be donated services – although from the CFO’s letter it appears that this is mostly donated goods).
When these items are distributed, this $251 million of donated goods is recorded as “program costs” rather than administrative costs. This improves their ratio of program expenses to management expenses, thereby giving them higher scores on several of the nonprofit rating sites. Non-profit websites commonly boast about low administration costs, but as this example shows, it doesn’t really mean anything.
World Vision’s percentages would look very different if they were to remove all gifts-in-kind.
So this partnership is a win-win for both World Vision and the merchandizers. The merchandizers get to print 100,000 unneeded t-shirts every year without having to shoulder the full cost, and World Vision gets $2,000,000 worth of “program costs” to improve their expense ratios. And they both get free PR with photos and news stories of happy people receiving the unsellable t-shirts.
Although World Vision claims that there is no pressure to accept Gifts-in-kind, I’ve heard otherwise from staff members. Several previous conversations with World Vision staff have centered around the pressure they are under to accept and distribute donated goods.
While there are clearly financial benefits to shipping unsellable goods overseas, it’s not Smart Aid and it’s often of minimal benefit to the people posing for the cameras. But worst of all, by engaging in this type of activity World Vision and other non-profits are sending a clear message to all the Jasons of the world that handing out stuff we do not want (SWEDOW) is the solution to the world’s problems.
Jason has changed his work based on feedback and criticisms he received from the blogosphere. Are the larger non-profits up to the same challenge?
UPDATE: To read an explanation of the corporate taxes see this comment and this comment for the full explanation. Which is not quite what I’d written. According to him the tax breaks aren’t enough to justify printing the product with the other motivation of the immediate sales of the winning team. Thanks very much to the accountant that lent his expertise.
NOTE: World Vision has responded to the criticisms they’ve received. Their response does not address the financial points brought up in this post and does not provide any proof for their claims. World Vision says they don’t have enough gifts-in-kind, including clothing, to meet the needs in the field. But these claims are not backed up with needs assessments or market analysis. Instead it’s based purely on staff request. For staff under the gun to keep the program/administration cost ratio low, requesting these items is one way to do that.
Their gifts-in-kind amount to one quarter of their revenues and one quarter of a billion dollars. Financial statements from similarly sized nonprofits doing similar work – such as Plan USA, Save the Children, American Red Cross, and Oxfam show very small or no gifts-in-kind. Why are gifts-in-kind so much more crucial to World Vision’s work?
Response to GIK discussion - World Vision
UPDATE: This article states two interesting points
- “But it’s a costly process to lease shipping container space. Fields said that shipping costs to Africa range anywhere from $8,000 to $10,000 per container.”
- “In the past 5 years, World Vision has placed $1.1 billion of donated goods from major corporations, such as clothing, shoes, medical supplies, books, school supplies, personal care, sporting goods and building materials.”
To read all the blogs written about this controversy see Tracking the World Vision / NFL Shirt Donation Controversy
Lies, White Lies, and Accounting Practices; Why nonprofit overheads don’t mean what you think they mean.
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An example of why the percent spent on administration is meaningless – Looks at the program/admin ratio of the NFL shirt donation.