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Sponsorship vs. advertising: What’s the difference for a nonprofit news business?

A sponsorship is not the same as advertising — and if you’re running a nonprofit news organization, it’s important that you know the difference to avoid owing taxes or running afoul of the Internal Revenue Service (IRS).

My disclaimer, as usual, is that I’m not a lawyer, so if you are unsure whether your sponsorship revenue will pass muster with the IRS, please consult a non-profit attorney. (Note: LION members qualify for pro-bono advice from Lawyers for Reporters).

That said, here’s what every nonprofit news leader needs to know about the difference between advertising and sponsorship in non-legal language.

A nonprofit sponsorship is best thought of as a corporate donation.

The line between sponsorship and advertising can be very blurry, but if you think of your sponsors as corporate donors, you will be on the right track.

A sponsoring business gives your organization money because they believe in your mission. More than that, they want the wider community to know that their business believes in your mission. So you provide the business with the opportunity to be called a sponsor in your various communications, and you agree to put their logo on your materials. It’s like you are saying, “Hey, we are partners working together to educate or support the public.”

The sponsoring business gets a charitable deduction for its sponsorship because the IRS treats it like a donation. That’s good for them, but there are limitations. For example, if a sponsoring company sells beer at your event, they still have to pay tax on the profit from those beer sales, and in most cases, they also have to subtract any profit from their charitable tax deduction.

As for your bottom line, the IRS rules around sponsorships are equally important.

That’s because sponsorship revenue is tax-exempt, but advertising revenue generally is not, and that means (with a few, narrow exceptions) that you’d have to pay taxes on anything the IRS considers advertising, even as a nonprofit.

If you want to avoid that tax bill, you can only identify a sponsoring business through its logo, tag line and contact information. You cannot offer promotion for any of its products or services, because that counts as advertising.

Here are a few examples of what counts as a sponsor message:

✅ We’d like to thank our sponsor, Budweiser, the King of Beers.

✅ Sponsored by Target. Expect More, Pay Less.

✅ Brought to you by Ace Hardware, The Helpful Place.

And here are a few promotions that cross the line into advertising:

❌ Brought to you by Budweiser. Have you gotten your NBA throwback Bud yet? Time’s running out!

❌ Sponsored by Target. Check out our Spring Sale, March 1–15!

❌ We’d like to thank our sponsor, Ace Hardware. Mention us and get 15% off your next purchase.

Still confused? Here are some rules of thumb to help you remember the difference between advertising and sponsorship.

Advertising

• The advertiser provides money in exchange for a specific benefit (clicks, sales, etc.). The advertiser expects to earn revenue directly from their investment in advertising.

• The advertiser can say anything about their product, limited only by your organization’s own values and rules. For example, you may say no to cigarette ads, but that is up to you and has nothing to do with how advertising is regulated.

• Advertising is not tax deductible for the advertiser.

• Advertising is taxable as an unrelated business activity (though you should consult your attorney if you think the advertising is a related business).

Sponsorship

• The sponsor is essentially a corporate donor who is providing money because they believe in your mission and want to be associated with it.

• The sponsor’s brand benefits from the relationship with you.

• The sponsor does not get any direct value — no promise of clicks or sales.

• The sponsor is not allowed to advertise any specific product (no listing of products, discounts, coupons, etc.)

• Sponsorship is tax-deductible for the sponsor.

• Sponsorship is tax exempt for you.

Jo Ellen Green Kaiser contributed this post to LION Publishers. A coach for the first round of LION’s GNI Startups Bootcamp, Jo Ellen spends her time consulting with independent nonprofit and for-profit news media. Schedule a free first consultation with her at https://calendly.com/jgksfconsulting/zoom-meeting

• Sponsor email template

• Sponsorship deck

  • Sponsor levels

  • Sponsor Audience Info

  • Past Sponsors

  • NewsMatch sponsor deck

• Example of how Next City explains sponsored content on their site

Resources:

• https://www.americanpressinstitute.org/publications/reports/white-papers/the-definition-of-sponsored-content/

• https://inn.org/wp-content/uploads/2021/04/INN_Blue-Engine-Collaborative_v10.pdf (pg 57)

Sponsored Content Defined:

Sponsored content / native advertising appears in many ways. There is no single form, but rather a continuum from banner ads to social media content to large microsites with articles and videos. It is better to define sponsored content by what it does than by what it looks like:

• It is generally understood to be content that takes the same form and qualities of a publisher’s original content.

• It usually serves useful or entertaining information as a way of favorably influencing the perception of the sponsor brand.

• This falls closer to the category of brand advertising — not necessarily direct-response sales pitches. It’s higher up the marketing funnel — establishing relationships and awareness. Display ads by contrast are for reminders or point-of-purchase decisions.

Why sponsored content?

It fits better with news

News audiences tend to be in the interaction/conversation mode, and so sponsored content makes more sense to reach them than transaction-focused display ads.

It solves the modern problems of brands

Brand publishing 1.0 was about companies learning to create their own websites and publish content there. They got good at it, but also realized that no one finds it.

It works for mobile and small screens

Sponsored content is much more effective on small-screen environments where you can’t stick ads next to content, the ads have to be part of the content.

Exclusive, premium value

Unlike display ads, where all traffic across the web is commoditized and prices have fallen to the floor, sponsored content on a premium site is worth more than on a lesser website. Where display ads seek impressions and clicks in any context, sponsored content seeks to tap the unique value of one brand’s relationship with its audience.

This is part of the reason sponsored content commands higher prices and is more difficult to disrupt through mass-market competition.

Biz Models

Underwriting model: 

• The brand sponsors content attached to normal reporting, or something that the publisher was creating anyway. This model preserves the most editorial independence. The brand is simply paying to have its name associated with the content.

• Examples: The Verge, the tech site of Vox Media, partnered with Ford on a feature on innovation in Kansas City as part of a series called “Detours,” which looks at cities off the beaten path that have been transformed by technology. To preserve its editorial independence, the Verge crafted the series and presented it to Ford because it aligned with the carmaker’s brand. The campaign offered Ford a 30-second pre-roll ad as well as an intro and prominent logo placement in the video series intro.

Agency model: 

• A publisher employs specialized writers and editors to help create custom content in partnership with a brand. The specialists balance the brand’s marketing goals with their own understanding of how to create engaging content, to make something that serves everyone’s needs.

• Examples: BuzzFeed and the Atlantic use this model. Each has a separate team of specialized writers, editors and other creative positions that work with brand partners to create — and importantly, revise and improve — their content ideas before publishing. The concept is that the sponsored content has to have strong editorial value — which serves both the publisher, the audience and the advertiser.

Platform model: 

• A publisher provides a dedicated space for brands to publish their own messages in their own name. The publisher has little direct involvement in the content. Here, the brand is paying for access to a publisher’s platform to access its audience.

• Example: Forbes’ BrandVoice product works this way. Marketers get access to the same publishing system as Forbes other writers and editors, which includes tools for search- and social-optimization. Their content appears throughout the Forbes site. The key, according to Forbes, is absolute transparency about who produced what.

Aggregated/repurposed model: 

• A publisher offers brand the right to use archived real journalism in a new package that serves a sponsor’s interest. This may be a complete e-book, or just content to fill out a company newsletter.

• Example: The Dallas Morning News’ content marketing agency, SpeakEasy, offers the paper’s archives for reuse by brands that want to tell stories to their customers.

Stephanie Losee, managing editor at Dell, and others reiterated that brands prefer to be offered a “menu” of these options. “We want different models for different things,” she says.

Managing risks, maintaining standards and ethics in sponsored content

The resounding consensus we heard from summit participants was that upholding the publisher’s own brand and integrity, and thereby its readers trust, is an important principle. The best protection for a publisher is to encode a set of standards and processes for handling sponsored content, so each piece is not left to varying degrees of inspection or care. 

The Atlantic established new standards and processes from lessons learned by running a much-criticized native ad from the Church of Scientology. 

Now, every native advertising campaign has to be about thought leadership and has to fit comfortably within context of the Atlantic’s brand. The publication’s new advertising guidelines state that:

The Atlantic will refuse publication of such content that, in its own judgment, would undermine the intellectual integrity, authority, and character of our enterprise.

And:

The Atlantic may reject or remove any Sponsor Content at any time that contains false, deceptive, potentially misleading, or illegal content; is inconsistent with or may tend to bring disparagement, harm to reputation, or other damage to The Atlantic’s brand.

The American Society of Magazine Editors recently released new editorial guidelines that include rules for sponsored content, based in part on the Atlantic and the New Yorker as models. Its basic overall principles are:

• Every reader is entitled to fair and accurate news and information

• The value of magazines to advertisers depends on reader trust

• The difference between editorial content and marketing messages must be transparent

• Editorial integrity must not be compromised by advertiser influence

In addition to transparent labeling, content quality and standards are essential. Publishers should have policies that uphold the readers’ interests. Each publisher has to decide what level of brand influence and control it is comfortable with, and what type of content is is willing to publish.

Separating the sponsored content teams from the journalism teams is important. But it can be hard because a publisher’s resources may be limited. Also, some summit participants suggested that readers may not understand the difference anyway.

Lau said her rule of thumb is that the content should be so useful and accurate that the reader wouldn’t care whether it was sponsored or not. If the reader would be upset to learn after reading that this content was sponsored, then somewhere you’ve crossed a line.