Monday, December 2, 2024

How Matching Grant Offers Have Gone Awry

I was an early advocate of matching grants.  However, most matching grant programs now are unethical, deceptively telling prospective donors that their donation will have much more impact than is the case.

Non-profits continually send out appeals such as: “Generous donors will match our [Giving Tuesday] donations [5-to-1], up to a total of [$500,000]!  So, each $1 you give now will go [five] times as far!”

However, in most cases, that $500,000 has been fully committed.  The non-profit will get that $500,000 even if no one responds to the solicitation.  If you donate $1, the non-profit gets only $1 more, not $5 more.

Not only have non-profits falsely re-characterized donations as a “matching grant” so they can mislead donors into donating more money, some non-profits have brazenly solicited funds to be pooled into a false matching grant fund.

In an open-ended true matching grant program, if there is 1-to-1 match, the non-profit gets $2 for every $1 you donate.  If there is a 5-to-1 match, the non-profit gets $5 for each $1 you donate.  The higher the multiple, the better for the non-profit.

If a true matching grant program is going to be fully-subscribed, it is better for the non-profit if the match is a lower multiple.  That is, if the full $500,000 is going to be used:

·       With a 1-to-1 match, it will take $500,000 of donations to secure the $500,000 match, so the non-profit will end up with $1,000,000.

·       With a 5-to-1 match, it will take only $100,000 of donations to secure the $500,000 match, so the non-profit will end up with only $600,000.

The 5-to-1 true match is better only if there is no cap or the cap is not reached.

With a false matching program, a higher multiple attracts more donations but the deal for the non-profit is worse.

·        If donors contributed $500,000 for a fund to do “1-to-1” matching that is fully subscribed, the charity leverages that $500,000 into $1,000,000. 

·        If donors contributed $500,000 for a fund to do “2-to-1” matching that is fully subscribed, the charity leverages that $500,000 into $750,000.  That is, $250,000 were “matched” 2-to-1, resulting in a $500,000 “match”.

·        If donors contributed $500,000 for a fund to do “10-to-1” matching that is fully subscribed, the charity leverages that $500,000 into $550,000, as $50,000 soaks up the full $500,000 “match”.

The incentive is to create as high a ratio as people are likely to believe, which exposes that the messaging is intentionally misleading.  It would be honest to say that they've received a "challenge grant" hoping that people will complement that donation.  Donors who think their donation is being leveraged by a false match are being deceived.  

If a for-profit organization used such misleading messaging, these non-profit executives would think it is horrible, even if the for-profit company is seeking a cure for cancer!

Why would non-profit executives resort to such unethical approaches?  Probably because their mindset is that they are just trying to help people.  Therefore, anything is justified if it helps them raise more funds so they can do more good.  “Ends justify the means” is a slippery slope.  

You might want to question non-profits which offer such "matching gift" programs.  You might even want to reduce your annual contribution or defer it to encourage them to be honest.

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