Mega-gifts Are Rising and Alumni Giving Is Shrinking. Which Means What, Exactly?

yale university

yale university

A new survey by Marts & Lundy, a fundraising consulting firm, looks at giving at the higher education level and presents a mixed bag for campus fundraisers.

On one hand, "mega-gifts"—those exceeding $10 million—topped $6 billion in total for the first time, continuing a post-recession surge in eight- and nine-figure donations to colleges and universities. The total is 11 percent higher than the $5.6 billion figure recorded in 2015. Donors made 194 mega-gifts last year, also a new high.

On the other hand, giving at the middle of the "gift pyramid" has dropped off somewhat, suggesting fundraisers are having a difficult time engaging younger alumni and growing the donor base. Hyperbole notwithstanding, this is paradigm-changing stuff, and so I'd like to take a deeper dive into the moving parts behind this shift and explore what it means for fundraisers moving forward.

Let's start with the good news.

Mega-gifts have been coming fast and furious over the past two years, as we've been reporting. The Helen Diller Foundation kicked off 2017 with a $500 million gift to the University of California, San Francisco. It came just three months after a record gift of equal size to the University of Oregon by Phil and Penny Knight, and 18 months after John Paulson’s $400 million gift to Harvard.

Given the enormity of such gifts, Paul Allen's $50 million endowment gift to the University of Washington in mid-March looks paltry in comparison.

A big underlying driver, here, is the vast new wealth that's been created in recent decades. There are more billionaires in the United States today than can fit on the Forbes 400 list‚ which had just 13 billionaires when it debuted in 1982. Now, more of these fortunes are being harnessed to philanthropy, and it's easy to be surprised at the appearance of a billionaire you've never heard of bearing eight- or nine-figure gifts.

If you're a university fundraiser in receipt of a mega-gift, what's not to love? But don't break out the champagne just yet. Due to a decrease in alumni giving and a significant shift in the mechanics of the fundraising apparatus—two developments I'll expound upon momentarily—giving at the middle of the pyramid has dropped.

The net result? A disproportionate reliance on a handful of wealthy donors. If this trend sounds familiar, it should. A recent post, "Hollowed Out: Big Donors, Inequality, and the Threat to Civil Society" illustrates this phenomenon, which has been playing out across most segments of philanthropy since the Great Recession. The super-rich are giving more and middle class and lower income Americans are giving less. This reflects broader trends in household income. Nearly all of the economic gains in the past decade have gone to the top 1 percent, while most Americans have been treading water and, as a result, have less spare income to devote to philanthropy. 

In the higher education space, though, that's not the full story. A February report by the Council for Aid to Education found that gifts from alumni declined 8.5 percent, and gifts from non-alumni individuals declined 6 percent. These declines come on the heels of strong growth (10.2 percent and 23.1 percent, respectively) in 2015.

The council argued that the weak stock market during the 2016 fiscal year likely depressed personal giving while giving from organizations was buoyed by commitments made amid strong market conditions in the 2015 fiscal year. But there may be other factors that also contributed to diminished alumni giving.

Among these may be the tumultuous political climate on the American college campus. Donors, alumni or otherwise, like stability. But given the political turmoil over the last few years, college campuses seem anything but stable. In a recent post, I looked at how on-campus turmoil can be very bad for university fundraisers.

Under this scenario, donors chafe at what they consider to be school administrators' unwillingness to check political correctness run amok. Carolyn A. Martin, Amherst's president, said she was "not surprised" that student protests had contributed to a 6.5 percent decline in alumni giving for the fiscal year that ended June 30, 2016.

The drop in alumni giving also runs parallel with the rise of "effective altruism" among younger donors who doubt whether giving to their alma mater is the way to get the most bang for their donation buck. 

Back in September, I called "effective altruism" a university fundraiser's worst nightmare. The idea stipulates that the best metric in gauging a philanthropic gift is "lives saved per dollar." How can donors in good faith give $1 million for, say, a new football stadium scoreboard given the Syrian refugee crisis or looming cuts to the National Institutes of Health? 

A February 2016 Yale Daily News article titled "Alumni Donating Hits New Low" illustrates "effective altruism" in action.  

Paraphrasing the sentiments of one Malcolm Gladwell, Alison Brody, ’95, who serves on the board of governors of the Association of Yale Alumni, said, "What I hear from my peers in their 40s is that writing a check to a local nonprofit feels more impactful than writing the same check to an entity with a $25 billion endowment." Some alumni—Yale graduates, no less!—don’t understand the restrictions on endowment spending and that a donation directed to financial aid, for instance, is meaningful, and not a drop in the ocean.

The issue of relative impact is further compounded by the fact that, thanks to social media, the community at large can name and shame "unnecessary" gifts. Donors like John Paulson and Stephen Schwarzman have taken a lot of flak for giving to wealthy institutions. And smaller donors aren't immune from similar scrutiny. Case in point: That $1 million for a new football stadium scoreboard I mentioned earlier was a real gift, bequeathed by former University of New Hampshire librarian Robert Morin. Governor Maggie Hassan wasn't impressed. She said there were "more appropriate uses" for the $1 million, "such as a new science building or holding down tuition costs."

Clearly, a state governor doesn't think $1 million for a new scoreboard generates an impactful return on investment. Fair enough. But this sentiment seems to be spreading to the larger alumni community.

Last December, I wrote a piece on the Council for Aid to Education's newly expanded Fund for Academic Renewal (FAR). The fund provides donors with a vehicle for making "meaningful donations that will have a beneficial impact on U.S. colleges and universities," suggesting that a percentage of current donors aren't exactly meaningful.

Consider the evidence. According to the American Council of Trustees and Alumni (ACTA), donors have watched as universities have cataloged "cost increases far exceeding the rate of inflation, lowered academic standards, and attacks on campus free speech."

Employers also report an epic mismatch between the skills young people are learning in college and the skills required for today's jobs. Meanwhile, universities keep training certain kinds of credentialed professionals—like lawyers and humanities Ph.D.s—who find themselves unable to secure employment.

Some return on investment.

At this point, it's important to interject and clarify the grounds for debate, here. The Marts & Lundy data shows a rise in mega-gifts. This suggests billionaires may not be particularly swayed by the "effective altruism" or "bad ROI" arguments. Or they have enough money to throw around that they're immune from such existential deliberations. This checks out: Inside Philanthropy is littered with mega-gifts that effective altruists would consider ethically dubious, given the state of the world.

Rather, I'm proposing these considerations to help explain the drop in giving across the "middle of the pyramid."

So let's take this logic a step further by examining the demographics at play. 

A recent post in IP looking at the crowdfunding platform GiveCampus frames universities' disconnect with younger donors as a communications challenge. Schools simply aren’t engaging recent alumni the right way, according to GiveCampus CEO and co-founder Kestrel Linder.

Sometimes, technology is the issue: Mailers and even emails are less likely to catch the millennial eye. Tone-deaf direct appeals coming in with those first loan statements don’t help, either. And as Yale's Allison Brody's comments illustrate, fundraisers need to educate younger alumni about the machinations and nuances of giving.

This explains why a recent $25 million donation from alumni Kevin Chou and his wife, Dr. Connie Chen, to the University of California-Berkeley Haas School of Business was such an outlier. Chou is 36 years old. In a higher education space dominated by baby boomer and silent generation donors, Chou is abnormally young.

Campus unrest, a low return on investment, crushing student loans, communication challenges—it's no wonder alumni and "middle of the pyramid" donations are dropping. But what if this is an expected and intentional consequence of the modern university fundraising apparatus? 

In the movie The Social Network, Sean Parker tells Mark Zuckerberg, "When you go fishing you can catch a lot of fish, or you can catch a big fish. You ever walk into a guy's den and see a picture of him standing next to fourteen trout?"

This is modern university fundraising in a nutshell. It has been fundamentally and structurally altered to appeal to the "big fish." If that means a drop in "middle of the pyramid" gifts? C'est la vie. The end result—a larger total pool of donations—justifies the means.

The Marts & Lundy study found that many institutions are directing resources to "major-gift fundraising" and away from annual fund efforts, which can be more expensive per dollar raised. These colleges often make this shift hoping to raise more dollars while spending less, says Marts & Lundy President Phil Hills.

"Should institutions be investing for the long term in the entire spectrum of giving?" he asks. "Yes, but that’s difficult to do when you’re under pressure to raise a lot of money at the lowest possible cost."

Analysis of alumni giving at Yale—yes, Yale again—corroborates this theory. The 2016 article from Yale Daily News notes that while the number of alumni to whom the university solicits donations continues to increase, fewer donated than any year in the past 20 years:

In 1994–95, nearly 50 percent of solicited Yale College alumni gave back to the university. But alumni participation has decreased markedly since then, bottoming out at 33.7 percent last year. At the same time, the number of solicited alumni—roughly a measure of all living graduates the university can reach—has increased steadily to more than 73,000.

Despite these figures, university administrators continue to sleep soundly. Why? Simple. The total dollar amount raised by the university has increased dramatically during this timeframe. Thank you, mega-donors!

And therein lies the challenge moving forward. If a rise in total dollars is the price universities must pay for targeting mega-donors at the expense of those in the middle of the pyramid, is that really a problem? Well, yes, actually, it is. First off, fundraisers may leave money on the table.

Young alumni donors aren't a lost cause. If anything, our exercise here today underscores the obvious fact that "alumni donors" can't be easily pigeonholed. Some of these donors have zero interest in making campus gifts on principle. Others are likely to be red-hot prospects. Many are somewhere in between. 

And so precision is the key: Fundraisers need to better understand the wide spectrum of attitudes that today’s new, emerging donor class has toward universities.

Yale President Peter Salovey, meanwhile, speaks to the tangible and intangible benefits of a broader and deeper donor pool. "Participation by new donors is very important, and I would love to see that trend at Yale reverse," he said. "High rates of participation are good for the university financially, and create a sense of psychological commitment by alumni to the university."

In other words, low rates of alumni participation, coupled with a disproportionate mega-donor influence, will leave a school financially and psychologically hollowed out.