Restricted donations usually involve large sums of money and can create legal issues for years. Here is one example.
The Lincoln Center’s home for the New York Philharmonic announced in early November that it will be renaming Avery Fisher Hall as part of a renovation of the space. Avery Fisher was an amateur violinist and a pioneer in the field of sound reproduction. He founded Fisher Electronics and many of us over the age of 50 once proudly owned a Fisher stereo system. Mr. Fisher served on the boards of the New York Philharmonic and the Chamber Music Society at Lincoln Center.
In 1973, Fisher donated $10.5 million (about $56 million in today’s dollars) to the Philharmonic and Lincoln Center renamed Philharmonic Hall after him. Fisher, who passed away in 1994, was very humble and had to be persuaded to permit the hall to be renamed after him. Today, donors do not have to be persuaded to lend their names and institutions such as Lincoln Center fully understand the value of naming rights when soliciting large donations.
However, 12 years ago, when Lincoln Center first approached the Fisher family about renaming Avery Fisher Hall after a new donor, the family threatened legal action. In a 1973 pledge agreement, Mr. Fisher set forth the conditions of his gift toward the establishment of the venue, including the stipulation that the venue name, Avery Fisher Hall, ''will appear on tickets, brochures, program announcements and advertisements and the like, and I consent in perpetuity to such use.'' Without the approval of the Fisher family, Lincoln Center proceeded with the renovation of other portions of the Center complex while leaving Avery Fisher Hall alone.
Faced with a renovation budget of over $300 million for Avery Fisher Hall, Lincoln Center again approached the Fisher children. The Center pointed to the $100 million that David Koch donated to the renovation of The New York State Theater at Lincoln Center, in the process becoming the David H. Koch Theater in 2008. The Center noted that such a large donation was needed if Avery Fisher Hall was to be renovated. Over a three-month negotiation, the Fisher children agreed to give up the perpetual agreement that their father had established.
Lincoln Center sweetened its deal with the Fisher family in several ways. Mr. Fisher will be inducted into a new Lincoln Center Hall of Fame in the renovated building, which will celebrate artists, leaders and philanthropists who have played central roles at Lincoln Center. Their contributions will be explored in interactive installations that highlight all 11 of Lincoln Center’s constituent organizations.
A Fisher family member will serve on the Hall of Fame’s advisory board and on the selection committee for inductees into its Avery Fisher Classical Music Wing, which will contain archival materials about Mr. Fisher. The agreement also promises to give a higher profile to the Avery Fisher Artist Program, established in 1974, which awards prizes to established American instrumentalists of distinction and career grants to emerging young artists.
And, lastly, the Fisher family received $15 million in cash from Lincoln Center.
Some interesting questions arise in my mind from this transaction. Do the Fischer children have the right to terminate the provisions of their father’s gift instrument? The courts might conclude that the Fisher children comprise the only party with any legal standing regarding the name of the hall. However, what if the Fisher Electronics Company were still operating—might the company have a say in the removal of the name? If the Fisher children have the power to sell the naming rights back to Lincoln Center, did they have the ability to sell the naming rights to some other third party? Could they have sold the naming rights to Pepsi for $100 million?
I don’t know if the children have the right to terminate the restrictions in their father’s gift instrument. The $15 million appears to seal an agreement not to sue Lincoln Center over the name change. There may be no other party with a legal right to challenge the name change so the Fisher children are merely being compensated for not taking an action that the center was concerned that they had a right to pursue. In this scenario, the children have not sold the naming rights. They have merely agreed not to execute a right they may have as heirs of Avery Fisher. Fisher Electronics is no longer in business, so there is no concern that it might complain about the name change.
In matters of ongoing endowments, the state attorney general has the responsibility for assuring that the terms of the gift instrument are met by the recipient institution. Of course, this one-time donation by Avery Fisher was exhausted in the 1973 renovation of Philharmonic Hall, so there is no ongoing fund as with an endowment.
If the Fisher children had not been around, the center would probably have changed the name without giving it a second thought. Should the New York attorney general be on guard for such actions? My guess is no—unless someone complains, the AG’s office stays out of the charitable world. Would Lincoln Center have felt the need to negotiate with Fisher grandchildren or great grandchildren? What is your guess?
These are interesting questions whether you are a donor or a recipient organization.
Frank A. Monti, CPA is a not-for-profit specialist providing consulting services to donors and institutions regarding restricted gifts and endowment funds. (email@example.com)