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Charities, Christmas and Cause-Related Marketing - Commercial Participators

on Friday, 18 December 2020.

At this time of year many of us are busy buying gifts for friends and family. It is an added bonus when the price of the gift includes a payment to a good cause.

There are many such promotions, whether you are buying a cosy winter hat, a fancy face mask or a bottle of gin.

Such cause-related marketing can be an enormously effective way for charities to raise awareness of their work and generate much-needed income. However, these partnerships must be carefully managed to avoid misleading the public or breaking the law. The aim of making clear how much goes to charity from a cause-related purchase is an important one but the regulations on 'commercial participators' are not as well-known as they should be. Charities that fail to meet their obligations risk attracting the attention of the Charity Commission or other regulators and, perhaps more importantly, alienating supporters.

What Is a Commercial Participator?

The term is defined in section 58 of the Charities Act 1992 (the 1992 Act) but essentially a commercial participator is a person or business promoting the sale of goods or services on the basis that part of the price will go to a charity or a philanthropic or benevolent organisation (the charitable institution) or that a donation will be made to it.

The charitable institution gains income from the sale of the product concerned and an opportunity to raise awareness of its work. The corporate partner has the chance to increase sales, to generate goodwill from its association with the charitable institution, and to support a good cause.

What Obligations Apply to Such Partnerships?

A full treatment of the issues arising from commercial participator agreements is beyond the scope of this blog. Key obligations include the following:

  • a commercial participator must have an agreement with the charitable institution before it begins to promote the partnership,
  • the agreement must contain information specified in the 1992 Act and associated regulations,
  • as well as the details of the parties, a description of the partnership and some other practical provisions, the agreement should specify how potential buyers will be informed how much of the money they pay will go to the charitable institution concerned.

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Have You Made Clear How Much Will Go to the Charitable Institution?

It is not always easy to agree exactly how the seller will make a statement to potential customers explaining what contribution will go to the charitable institution.

At the point of sale, there should be a statement which includes the 'notifiable amount', that is, in essence:

  • the amount donated for each item sold (eg '£2 per hat sold will go to Charity X'), or
  • the total amount to be donated as a result of the promotional venture.

The negotiation of this statement can be difficult. The legal requirements can be met easily by a statement such as the one above. However, the corporate partner is likely to be concerned at the risk of making a loss if the volume of sales is lower than planned and both parties are likely to be reluctant to solve this problem by choosing an unattractively low level of payment to the charitable institution.  It is not unusual for the result to be a statement that is less precise than it should be. Common problems include:

  • the use of vague or ambiguous phrases such as 'proceeds', 'all proceeds' or '10% of profits' without further detail,
  • the failure to include the estimated amount to be paid to the charitable institution over the life of the promotion,
  • a failure to ensure that the estimated payment is calculated as accurately as is reasonably possible in the circumstances.

The challenge is even greater where the staff members negotiating the partnership for either party is unfamiliar with the regulatory framework. This has been the case for a number of partnerships forged during 2020 as charities sought urgently to diversify their income streams as other forms of fundraising became impossible and businesses looked for opportunities to help.

This 'section 60 statement' is not the only important element of a good commercial participator agreement. Both the corporate and the charity are likely to want to include other terms including, for example:

  • a licence of the charity's trade mark,
  • warranties that use of the charity's branding by the commercial partner will not infringe third parties' rights,
  • assurances from the commercial participator that it will do nothing that damages the charity's name and reputation,
  • brand guidelines,
  • rules on data sharing,
  • provision for the disposal of unsold stock bearing the charity's brand,
  • an obligations to comply with the Code of Fundraising Practice.

However, a clear, concise and compliant section 60 statement is a strong indicator that the underlying agreement has been well-negotiated by someone who understands the legal framework. If you find yourself reading a list of '50 perfect charity gifts' over the festive period, ask yourself whether the listed gifts all meet the above criteria. Do those negotiated by your charity? If you are unsure, it may be worth reviewing your policy on corporate partnerships or updating the training of relevant team-members.

For more information on commercial participator agreements please contact Shivaji Shiva in our Charities team on 07788 313 298 or complete the form below.

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