Elements of Nonprofit News Management Chapter 2: Money: Where to get it

By Richard J. Tofel

October 4, 2022

Gifts of money are the indispensable fuel of nonprofit journalism. This next section considers a range of key questions and concerns about where that money can come from, and how it should be deployed. 

Foundations — institutional and otherwise 

There are, broadly speaking, three types of donors. The first — and the one that comes most often to the minds of outsiders — is the institutional foundation. By this I mean not just (or even necessarily) entities organized as private foundations under the tax laws, but places staffed by people whose job is to give away other people’s money, usually the money of the deceased.  

There are three key things to bear in mind about institutional foundations, other than their shrinking market share in philanthropy itself.  First, they are not doing you a favor by giving you their money — it is their job to give it to someone. Second, they tend to be relatively fickle donors, with strategies changing as staff turns over and fashions shift. Finally, while foundations like to believe they have a high tolerance for risk, in practice many rarely invest in completely unproven nonprofits. (There are exceptions to these rules, and bless them.) The bottom line: Institutional foundations are much more likely to be in your second wave of donors than your first.  

I don’t mean to dissuade anyone from seeking institutional foundation support, but it is necessary to recognize that such donors are, in several important respects, the least desirable type. On the plus side, they tend to travel in packs (another symptom of risk aversion), so that if you can attract one, others may well follow. But drawbacks include their fickleness, especially risky when a new foundation president is appointed, often resulting in a “strategic review” having nothing to do with how your organization has been performing. Then, too, particularly for small grantees, there is considerable paperwork that often accompanies institutional foundation grant applications (even if pro forma, with the decision on the grant already effectively made) and periodic grant reports (the vast majority of which, in my experience, seem to go unread). 

Rich people — where the money is 

Willie Sutton, a noted bandit, once told a reporter (perhaps apocryphally) that he robbed banks “because that’s where the money is.” In the last century, those seeking philanthropic support, for similar reasons, would have looked to institutional foundations. Philanthropy was dominated for much of the century by the institutions left behind by such industrial giants as Andrew Carnegie, John D. Rockefeller, Sr., and Henry Ford, institutions originally driven by what Carnegie wrote in 1889 in “The Gospel of Wealth.” Referring to the wealthy who do not share their bounty during their lifetimes, he asserted, “the man who dies thus rich dies disgraced.”  

Carnegie didn’t actually take things quite that far; he did give away a large part of his fortune, as did both Ford and Rockefeller (likely the most effective successful philanthropist at least until Bill Gates, and perhaps still). But in our own century, the Carnegie Corporation and the Rockefeller and Ford foundations have been overtaken by the new wealth forged in the technology revolution of the last 40 years. MacKenzie Scott, the former wife of Jeff Bezos, gave away in 2021 about five times as much as Ford, Rockefeller and Carnegie combined. 

This brings us to the second cohort of donors, increasingly the one with the greatest potential for giving. They are what are euphemistically these days called “high-net-worth individuals”— more commonly, rich people. Often they operate through family foundations, sometimes even with paid staff, but the decision-makers usually remain those whose money is involved, frequently the same people who made the money.  

Compared with institutional foundations, these people tend to be less fickle, provided you can realize the dream you sketched or sustain the level of performance that attracted their support in the first place. They are often willing to take more risk, including coming in earlier. That said, the dynamic here is different: Wealthy people do not need to give their money away, and it’s important to remember that. When they do so, sincere gratitude is in order. Ideally, and especially over time, more of your support will come from this group than from the first. 

Program grants and general operating support 

Larger contributions generally come in two flavors, with strings attached and without. The term of art for the former is “program” support and for the latter, “general operating” support. A program grant may specify the subject area of reporting, the type of reporting or a geographic focus, or it may be tied to some special project or specific undertaking. General operating support is for whatever you need to do the work.  

Clearly, general support is always preferable from the recipient’s point of view, but sometimes program support is all that’s available from a particular donor. Many institutional foundations and even a few wealthy individuals offer only program support. If that’s the donor’s policy or invariable practice, there’s no use arguing about it. If a donor makes both types of grants, it’s almost always worth seeing if you can nudge them to more flexibility. 

Even program support should (and usually does) have a general support component, often denominated as an allowance for “overhead.” The theory of this is that any activity draws on general resources, such as office space, central administrative staff and top management time. If you accept too many program grants that either lack an overhead component or have allowances that are too small, you will quickly find your organization under financial pressure. Don’t do that. 

Standard overhead allotments range from 10% to 20%, and these are rarely negotiable with a particular donor, but there has been some movement in recent years toward higher allotments, as there should be. It remains a blot on the record of many institutional foundations that they spend more on administration as a percentage of their own spending than they offer to grantees as a proportion of their grants. There is no good excuse for this. 

Funder vs. editorial priorities 

After almost 40 years in and around the news business, I have come to believe strongly, as I said earlier, that all successful news organizations start with visionary editors. There are no exceptions. But funders will frequently have agendas on what deserves more coverage. It is a significant error to let them supplant your editors’ vision, and never ends well.  

Yes, in the short run, chasing funder fads can be lucrative — but the key phrase there is “short run.” I will always remember a Fortune 500 CEO who sat on the Dow Jones & Co. board of old. A taciturn Midwesterner by birth, he rarely spoke at board or committee meetings. But when he did it was often to say one word, Yoda-like: “Focus.” He was right. Don’t let transitory money distract you. 

This is one of the pitfalls of program support. If you are offered such support for a project you were already considering, or which your editors think fits with your work, great — by all means, accept it. But if funders want you to go beyond your mission, or move away from your priorities, you need to have the discipline to decline. 

And even as you maintain that discipline in the funding you seek out and accept, make sure you also maintain it in how you organize your newsroom. Division into silos based on funding is a really bad idea. You need to manage your newsroom coherently and holistically, with the structure dictated only by editorial considerations, not funding ones.  

That’s one key reason why only a very small number of editorial employees should ever, in my judgment, interact with funders. One of the least successful models I have seen is that in which subordinate editors or reporters are empowered to seek out their own funding (or even tolerated if they go off on their own trying to do so). 

Whose money should you take? 

Just as there is some money you should forego, are there also people and institutions from whom you shouldn’t solicit or even accept donations?  My view on this is more permissive than that of many others, and I want to explain why. 

If you start making a list of people whose money you won’t take, I think you’re also making a list of people who might not be able to expect you to cover them fairly in your news work. Is the liberal billionaire George Soros, for instance, acceptable but the conservative billionaire Charles Koch not? Why? If the answer relates to their politics, should your readers believe you when you claim nonpartisanship? 

Many organizations place two restrictions on acceptable funding that I simply don’t understand. One is to ban corporate contributions. ProPublica gets very few of these, but I have never grasped the logic of why we shouldn’t take them. Where do the people who favor such a ban think our other donors got the money they are giving us? Corporations, in almost every case. That’s where almost all wealthy people’s fortunes come from, and it’s just as true of almost all foundation endowments. A ban on corporate contributions seems to me to invite some sort of pointless money laundering. 

Next is a fairly common aversion to truly anonymous contributions, in which the recipient really does not know the source of the money. (With so much of philanthropy these days flowing through investment companies like Fidelity, Vanguard and Schwab, this happens quite a lot.) Again, I simply don’t get the problem. If you don’t know who’s giving you the money, what possible conflict could it pose? Yes, I acknowledge that you could later learn you had received a gift you wish you hadn’t, but then you can always give it back. And, at least at ProPublica, over my 14 years there, we never had a truly anonymous gift unmasked, either by the donor or anyone else. 

Smaller donors 

Smaller donors in large numbers bring many of the advantages of larger wealthy donors without the concentration of risk. As we have seen in recent years in politics — especially in the presidential campaigns of Barack Obama, Bernie Sanders and Donald Trump — this source of funding has enormous potential. In news, public radio also provides some inspiring examples. Bear in mind, though, that fundraising from large donors, with whom you should have individual relationships, and from smaller donors, where that is impossible, are fundamentally different. The former is an art and the latter, largely a science, so the staff you need to manage the two sources will likely be different. 

For nonprofit digital newsrooms in particular, a word of caution: Smaller donations in large numbers are, at best, a third-wave revenue source, and are unlikely to be meaningful until your content is fairly widely known and distributed. For ProPublica, it didn’t happen until we had been publishing for more than eight years. By 2020, however, it accounted for almost 20 percent of revenues, from more than 40,000 donors. 

Why do they give? 

It is important in any business to understand what motivates the people from whom your revenue derives. For nonprofit news, there seem to be four different strands of motivation. First are those concerned about the threats to journalism from the modern business crisis of the press, which provided the impetus for creating these organizations in the first place. This is what drives many of us in journalism, and we are not alone. I am frequently struck by how many of our large donors, for instance, are former high school newspaper editors.  

Next, and especially in the last six years, come those who may or may not care about journalism per se, but who are deeply worried about threats to our democracy, and see the critical role the press can and must play in safeguarding it. It is this group that Trump drove into our corner by the hundreds of thousands; the threats, obviously, remain. 

In addition, from the beginning, there have also been funders who care about particular issues — criminal justice, education, health care, racial or gender equity, environmental concerns and more — and see the important role of journalism in surfacing and addressing these concerns. A powerful argument can be and has been made that, in this sense, almost all philanthropic funders should consider investing in nonprofit journalism.  

Finally, particularly in recent years, a fourth group of potential funders has emerged: those focused on specific local communities or, in a variant of the journalism-centric donor, those especially worried about the decline of news at the local level. Unfortunately, so far the latter motivation seems more prevalent than the former — that is, there is more national than local funding of local journalism.  However, some early signs are emerging of a change in this trend in some places, and I remain hopeful about the growth of local funding, fueled in important part by the continued decline of local newspapers and the growing awareness of it. 

Donor independence and transparency 

I believe most of the answers to questions about the proper relationship between donors and the journalists they fund are analogous to guidelines developed long ago about the appropriate relationship between advertisers and the traditional news organizations they funded. 

I was a lawyer as well as a publisher, and this entire debate reminds me of another one from about 25 years ago, as Internet distribution of news content first became widespread. At that time, conferences and papers — and then courts — asked how the new medium would change the law of libel. The answer, in the main, was that it would not change it very much. The elements of libel, and its key principles, endured. Sure, some new facts emerged, and old rules had to be applied to them. But that was the ultimate point: The rules were generally not new ones. 

Perhaps the best way to think about this problem is to recall some of the rules long ago developed about the proper role of advertisers — and limits on that role — and then to consider what these rules suggest as answers to similar questions about donor funding. 

Old rule: Transparency is key in these relationships. Thus, it’s important, to begin with, to know who a publication’s advertisers are, and have some rough idea of what they are spending. In legacy print, the identity of advertisers was almost always clear (and trade association rules sometimes helped ensure this in marginal cases), while rate cards and various tracking services helped police the question of who was paying how much. 

With donors, much greater precision is available via tax returns on Forms 990 filed with the Internal Revenue Service. But two important matters remain. First, is a news nonprofit making public, ideally through its own website, Schedule B from its 990, which reveals how much each donor contributes? My own view (and the practice of ProPublica) is that any even arguably significant contributions should be disclosed in this way. Without such disclosure, it is impossible for anyone to gauge whether the publisher is maintaining its independence in the face of donor pressures. Surely we don’t want to see publishing suffer the corrosive effects that “dark money” is inflicting on our politics. And if your auditors try to suggest — as I have seen some do — that you might be violating the privacy of donors by disclosing this, tell them, nicely, that they don’t seem to understand what business you are in. 

One aside: It is important to note that when donors contribute to for-profits, as an increasing number of institutional funders have been doing, there is a 990 only on the donor side to serve as a mandatory disclosure vehicle. Again, there is the question of disclosing the appropriate schedule, but beyond that, for-profit journalism organizations taking donations from public charities should consider themselves under an obligation to disclose a range of details about this funding, including its annual amount. Certainly, they should not take steps to conceal it, just as they would never do with advertisers. 

The next area in which transparency is critical is determining whether particular content a publisher distributes is advertising or sponsorship, on the one hand, or news, opinion or analysis on the other.  

One way in which transparency should be limited in nonprofit journalism is in the relationship between the governing board and editorial content. To be sure, governing boards have fiduciary responsibility for the nonprofit overall. But especially given that these boards often include major funders, it is probably the best practice (and was ours at ProPublica) that boards not be aware of the content of stories until they are published. The necessary fiduciary responsibility can be exercised in monitoring editorial performance on a post facto basis. 

Old rule: Advertisers cannot dictate editorial content, and shouldn’t know about it in advance with any specificity. The practice in legacy media was also fairly clear here: Advertisers could choose the section of a publication or broadcast against which their advertising would appear. Topic pages or sections or broadcast segments were often created in part to attract such advertising. But advertisers were never — at least at high-quality publications — permitted to advertise against particular stories, or indeed to know about them before they were published. 

In the newer environment, it is not at all clear why these standards should be relaxed. The risks of advertiser influence that gave rise to the rules in the first place remain. (If advertisers can choose which stories to subsidize, the pressure on publishers to produce stories amenable to those advertisers, and not to produce others, can become overwhelming.) But some nonprofits have convinced themselves that asking particular donors to fund specified stories is somehow acceptable. This is in neither their interest nor, in the long run, that of the funders, because it poses a significant risk to the reputation of the grantee. 

One way to understand why it is a mistake to blur this previously bright line is to recognize that it puts funders in a preferred position with respect to what should be editorial confidentiality. If a source, for instance, or a public official asks the specific focus of a forthcoming story, reporters and editors generally reserve the right to decline to say. But how can this be justified if one or more funders have already been told? And conversely, what is the point of policies that wall off nonprofit governing boards (which may include large general support funders) from advance knowledge of editorial schedules if project funders have been permitted to purchase this same knowledge? 

It should be noted that this resolution of the proper role of funders can pose special challenges in the case of crowdfunding. One of the clear early lessons in this sphere is that specificity of output helps drive results. This is almost certainly one of the reasons why crowdfunding has proven more effective for documentary film projects (where the end of the story is often clear before work begins) than for investigative journalism (where, at least for the best work, it is not).  

Old rule: Diversifying the number of advertisers you have is one of the most critical ways of assuring continued independence. Diversity of funding sources makes enormous business sense. It is the best insurance against shocks and challenges of all kinds. But beyond that, such diversification also fosters editorial independence, as the influence of a single funder or even type of funder declines. 

Old rule: But no matter what you do, and what rules you have in place, you may sometimes need to remind advertisers of the limits of their influence. Editors, in fact, do well not to think much of advertisers (or donors) at all. That is the job of publishers. When editors are too eager to please funders, unfortunate compromises can ensue. When they refuse to do so,  they can actually strengthen their news operations. 

The classic case of this sort occurred nearly 70 years ago, when General Motors squared off against The Wall Street Journal. GM was then the largest company in the world, and the largest advertiser in American newspapers. The Journal, then on the rise and just creating the idea of a national newspaper but still not widely known among broader publics, published two stories that angered GM management. The first effectively forced auto manufacturers to drop their opposition to a dealer sales tactic they did not like, and the second unveiled the designs of new cars in a manner that threatened short-term sales. 

GM retaliated by ceasing all advertising in The Journal, and briefly even cutting off relations between GM publicists and Journal reporters. But The Journal, under the legendary publisher Barney Kilgore, held fast. As the paper editorialized once the dispute became public, “the fact that a company happily chooses to advertise with us cannot be allowed to put the newspaper under any obligation to the advertiser which breaches its obligation to all its readers.” In short order, GM backed down publicly, and The Journal actually gained prestige from the fight. Within 10 years, it was the nation’s third-largest paper; 25 years after the battle with GM, it was the biggest. As a young ad salesman who later went on to head advertising for the paper recalled, “Our future was assured.” 

This is a tale all publishers should bear in mind when confronting pressure from advertisers — or donors. The rewards for compromising principles are transitory, while those from the preservation of independence and integrity can be enduring. 

Earned revenue 

One common dream of every nonprofit, including nonprofit news organizations, is to achieve “sustainable” revenues. And the most sustainable revenues are those that are “earned,” received in exchange for goods or services. That is to say, capitalism works. Except when it doesn’t, which is why nonprofits exist, and why they depend on contributions of various sorts. 

In the early days of the current wave of nonprofit journalism, many observers, especially in some of our leading institutional foundations and graduate schools, posited that there was some magic in diversifying the number of revenue sources a newsroom could draw on. They would count them up — three was better than two, four even better. This was largely a fallacy, albeit one based on an important insight. 

The insight is that diversification of revenue sources is critical for a healthy nonprofit. Two donors of $500 are better, all else being equal, than one of $1,000, and 1,000 donors of a dollar each are even better. The reasons include bolstering editorial independence and being less vulnerable to the moods or changing circumstances of any one donor. Moreover, as noted, earned revenues, precisely because they are transactional, are likely to be more sustainable. 

But each source of revenue requires a different type of effort, and the transaction costs (especially in staff time) can be considerable. In my observation and experience, $1 million in contributions is far better than $900,000 in donations and $5,000 each in net advertising, data and syndication sales. Indeed, we can measure the difference: It’s about 9% better (assuming roughly the same cost of obtaining the donations). 

A good bit of the silliness about counting revenue sources has faded in recent years, but one vestige is what I often see in a nonprofit’s effort to count various kinds of donations as different “revenue streams,” unrelated to others. Yes, there are important differences in raising money from institutional foundations, wealthy people and smaller donors (“members”) solicited through email and direct mail. Yet while the techniques of approaching these constituencies differ significantly, I think it’s very important to remember that all are donors, giving out of belief, and that none of these relationships are, at base, transactional. 

I will never forget one enormously smart observer of the field, a distinguished figure at Harvard, who wasn’t sure about earned revenue, but seemed confident that, without it, sustainability for nonprofit news would prove elusive. I remember chuckling as I looked out that person’s office window: What about Harvard? I asked. It feels sustainable to me after more than 375 years. In fact, if I look forward 375 years, I believe Harvard is one of the American institutions I am most confident will persist, notwithstanding limited earned revenue. 

There are many fundamental differences between for-profit and nonprofit organizations, but one of the most critical is that nonprofits cannot be sold. They can merge, or absorb other organizations, or even be given away, but you can’t buy them — there is no one to pay, and while nonprofits have balance sheets, they do not have what bankers might call “enterprise value.” 

One consequence of this is that, where many for-profit ventures (especially in their early stages) focus on revenues as a key indicator of progress, nonprofits look more closely to net results (growth in reserves) or even just expenses (which must, ultimately, be offset). 

This is especially true of earned revenues. If you take in $2 million, for instance, from a series of live and virtual events, that’s great; only a very few nonprofit news organizations in this country achieve such a result. The events have intrinsic value, of course, in serving attendees, building lists and brands, pursuing mission. But it makes a big difference whether that $2 million in revenue cost $500,000 or $1.9 million to produce. In the former case, you have a revenue stream that will meaningfully and directly offset other news costs; in the latter, you don’t. 

That’s why, in any effort to raise earned revenues, managers need a solid accounting of what the revenue is costing them: not just what bills are incurred to mount the events, but also how many employees, paid what salaries and benefits, are spending what proportion of their time bringing in those revenues. The same analysis needs to be undertaken for advertising or data or syndication or film rights sales. 

I don’t want to be misunderstood here. More (net) earned revenues are generally better than less. Sources of net earned revenues are worth exploring and exploiting. 

That said, almost 15 years into the current flowering of nonprofit news, very few organizations have developed any meaningful amount of earned revenues. (ProPublica puts its figure for 2021 at less than 1% of total revenues.) When you see that frequently as a common thread across hundreds of efforts, I think the world is trying to tell you something. 

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