They Look Good on Paper, But Challenge Grants Can Be...Challenging

Pardon the macabre gallows humor, but we couldn't help but think of this kernel of wisdom from the great Samuel Johnson in light of two recent gifts from the Andrew W. Mellon Foundation: "When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."

In other words, people and organizations tend to get their act together when the pressure's on. 

Such is the underlying logic behind big challenge grants. "We'll give you this much money," says a foundation, "And if you do this and this and this, you'll get even more money." But there's a catch, of course. Most challenge grants withhold funding until the matching funds have been secured. Indeed, the challenge grant can "concentrate the mind wonderfully" by compelling organizations to do all the strategic nitty-gritty they should be doing anyway: growing the donor base, embracing social media, reaching new audiences, and so on.

Clearly this logic resonates with the Mellon Foundation, which recently awarded a $30 million challenge grant to the National Gallery of Art (NGA) and a $3 million challenge grant to Art Conservation to Guggenheim Museum. Let's briefly walk through both grants.

The gift to the NGA is $15 million with a mandate to match that amount with $45 million in permanently restricted donations from other individuals and institutions. Once that $45 million is received, Mellon will provide another $15 million, totaling a $75 million investment.

The gift aims to solidify and grow four key program areas: digital programs, education, conservation science, and the NGA’s Center for Advanced Study in the Visual Arts. The NGA has five years to raise the matching funds; gifts must be permanently restricted and support these same four areas. National Gallery Director Earl "Rusty" Powell III hopes the grant will incentivize donors to give, noting, "Endowment is always difficult. It is the hardest money to raise, and that’s why this is so important. It will stabilize key core programs."

As for the Guggenheim give, the $3 million Challenge Grant for Art Conservation will be matched two-to-one to support the continuing work of the museum’s Conservation Department. Specifically, the grant will endow the position of deputy director and chief conservator, held since 2007 by Carol Stringari, and a new position: director of engagement, conservation and collections.

Clearly, Mellon is using both challenge grants as a tool to create long-term financial sustainability predicated on expanding and diversifying the funder base at both museums. From a financial and operational perspective, this is a good thing. If a challenge grant provides the necessary carrots and sticks to help set an arts organization on a path toward financial sustainability, who's to argue? 

The arts organization, that's who.

In fact, challenge grants can have Draconian consequences. For example, under some grant structures, if the organization fails to match the funds upfront, the funds will be denied. An organization can commit thousands of hours and resources to hit that goal, only to fail and lose that funding. And that's a bad thing. It's bad for morale and it's bad for the relationship between the foundation and the organization. For some organizations, it may not be worth the headache.

Although we've seen examples of challenge grants in the arts space, this is why the amounts are generally much smaller and the stakes far less severe. 

For example, last year the Salah Foundation awarded a $150,000 challenge grant to the Miami-based Broward Performing Arts Foundation. Under the grant structure, all private donations received by Sept. 30, 2015 were matched 100 percent by the Salah Foundation, up to $150,000. Broward never faced the risk of walking away with nothing. Similarly, Newman's Own Foundation awarded a $75,000 challenge grant to the Westport Country Playhouse was designed as a dollar-for-dollar match. 

Mellon is also aware of the risks associated with a Draconian challenge grant. The foundation's gift to NGA will provide a portion of the grant upfront without requiring the challenge funds to be secured first. The first $5 million will be distributed immediately — as good as an incentive as they come — with $10 million being transferred over the period of time that NGA is raising the matching $45 million.

Therefore, we're happy to report that while the stakes are a bit higher under this structure, they're not high enough to justify the hangman analogy.