My first reaction on seeing that the Naples Wine Auction raised $5,000,000 this year is that every thing is a matter of perspective.  It all depends on whether you see money as absolute or relative.

Naples raises $5 million sounds really good.

Naples auction down by two-thirds sounds really bad.

I suspect that we will hear all sort of explanations of the downturn in the next few weeks, but regardless, everyone in the fundraising business knows how hard you have to work to raise any sum of money, and $5 million  is worth celebrating!

The question always comes up as we start working with a new client;

“In the catalogue should we list value or opening bid?”

In fact the choice is broader than that.  I have used the following options over the years, each has it’s own advantages and disadvantages.

1. Value.  The advantage is that it is straight forward.  We are not trying to trick the bidders into over bidding through ignorance.  The main disadvantage is that it acts as a barrier telling the bidder to bid this high and no higher.  There is a minor secondary problem.  Sometimes the donor includes a totally unrealistic valuation.  In that case what value do you list?
2. Opening Bid.  The advantage is that there is one less decision for auctioneer, making his or her life easier. The disadvantage is that it removes one of the best tools in the auctioneers toolbox.
3. Estimate .  I use a simple formula to determine an estimate based on the value.  I list a estimate of 10% down and 50% up.  For example, if a lot is valued at $1000, I would put the estimate at $900 - $1,500.  The advantage of this method is that does set the relative value of all the lots and it also starts the bidders thinking about the higher price.  The disadvantage is that the upper price level sets an impenetrable barrier.
4. Priceless or equivalent. I understand having to list the occasional  lot as priceless.  Literally no one knows the price.  The advantage is that while the term priceless just means no known price, big or small, the tendency is to assume a high price If you list  more than a few lots this way it becomes precious.
5. Leave it blank.  The advantage is that it is really easy.  In many ways the whole purpose of auctions is to determine a price and whatever a lot sells for is the true value of the item on that day.  The disadvantage is that it can be confusing for the bidders.  The Central Coast Wine Auction has never list any prices or values and it has worked well for years. The reason is that Archie McLaren, the founder and executive director, writes the most complete, detailed and best promoting catalogue in the business.

Unfortunately there is no one correct answer to this except to stay with whatever system you are currently using, as any change may confuse your audience.  If you are hosting a first year event I would recommend choosing from options one, two or three.  If you are as lucky as a couple of our events you would label the value as “Opening Bid” and just go from there.

Colleen and I have spent the last few days in the wine country.  We have had meetings in Napa, Mendocino and Sonoma.  It has given us a chance to talk to several vintners.  They are all complaining about wine sales generally but the bright spot is that direct sales and their wine club sales are as strong as ever. In fact several wineries reported that wine club members actually increased the size of their orders.

My interpretation of this is that in hard times, people value the relationships they have more than ever and are prepared to spend money to protect those they care about. If they are prepared to do that for wineries, how much greater is their commitment to a charity?

This should give non-profits a psychic boost.  All the time and effort you have invested into building relationships with your supporters will be returned, and then some.  Do not underestimate your supporters.

Disappointing News.

I just saw a depressing report from the Spectrem Group of Chicago. They spend their time tracking trends among the wealthy. This is the first feed-back that I have seen on the effects of the economy specifically on the wealthy. The first question answered is whether the rich have, through access to some secret club, remained unscathed by the current downturn. The Spectrem Group reports that households with assets over $1 million have lost an average of 30% of their assets and nearly 20% have lost over 40%.

Most of the wealthy (90%), expect a prolonged economic downturn. There is no reason to expect the wealthy to be any better interpreting the tea leaves than anyone else (if they were, they would not have lost 30% of their investments), but it will affect their behavior.

The statistic that I find most threatening for fundraising is that a majority of the wealthy (55%), are worried that they may not have sufficient assets to maintain their lifestyles. It is tough enough to raise money from individuals who have lost a significant part of their wealth, it’s really tough if that donation requires the donor to give up something significant.

(Reflections on the eve of the Inauguration)

We are hired by Democrats to raise money from Republicans.  Ok, I admit that’s a gross generalization, but we do have our feet firmly in both camps.  Colleen is at times surprised by the comfort with which I move between the two.  I find it relatively easy.  Except for the kooks on both sides of the spectrum, I believe that the vast majority in this country agree on our goals, we just disagree on the policies that are going to get us there.  I can get excited discussing policy differences, I just don’t get mad.   No one is evil because they believe in Monetary .v. Fiscal Policy.

Which brings me to Jack.  We have been friends since 1978.  He was the first, closest and best friend I made on emigrating to the US.  We were even in business together for a time.  That didn’t work well because we spent so much time laughing that any project we worked on took twice as long as necessary. During this 30 year period we have never agreed politically, and for most of it, it couldn’t have mattered less.  We knew that we were never going to change each others opinion but enjoyed defending our views.  Even though I believed that he was consistently wrong on his political choices I also knew that he was incapable of encountering anyone in pain or suffering or need without offering to help.

This situation continued through Carter, Reagan, Bush One, Clinton and the beginning of Bush Two.  The change occurred sometime after 9/11.  It was not 9/11 itself because there was never a time when the country, if not the entire world, was more cohesive in their beliefs.

It was the sometime during the war in Iraq.  Not right at the start, but sometime near the beginning of the campaign, two trends began.  Firstly it became obvious that there were no WMD’s and the campaign was not being run competently. Concurrently the administration began assuming that any criticism revealed a lack of patriotism.  If you supported the administration you were no longer able to tolerate opposing viewpoints.  Your opponents were not just wrong, but were unpatriotic and endangering the country by enabling foreign terrorists.  Political discourse came to a grinding halt.   For even truly great friends like Jack and I.

One of my greatest hopes for this new administration is this acrimony will evaporate.  We have far more in common than than that which separates us. Everyone wants children to be safe, nourished and educated.  We all want the sick to receive care and to discover cures for the diseases that decimate us.  We want the Arts to flourish, the air to be clean, the elderly to be cared for, our friends and families to be safe, and the list goes on.

Our differences are in our priorities and choice of policy. We should be able to discuss these with passion but not anger.  The country is faced with serious problems.  We stand no chance of solving them if we unable to discuss them without getting mad.  The first step is to recognize the good intentions of your opponents.  It’s hard to get mad at someone who is trying to do good.

Who would have ever thought that I would start to think of 2007 as the good old days.

In the last year the combined loss in property values and the stock market amounts to over $9 trillion, or approximately $90,000 for every household in America.

I suspect that it is the secret hope of every director of development that their wealthy benefactors have somehow come through this unscathed and will continue to support their charity with the same vigor as they have in the past.

Unfortunately for donations, the rich have taken a double whammy. Not only have their investments taken a hit, but the percentage return they can expect over the next few years will also decrease. They may still have more money than they can spend in a lifetime, but the wealthy will feel poorer. If you once had $300 million and you now only have $200 million, I suspect that it is human nature to focus more on the missing hundred million than to celebrate the amazing quantity of money you still have left.

The pool of donations to be divided amongst all charities will shrink for the foreseeable future. This will be going on at exactly the same time as most charities face increased pressure to provide more services.

Sadly, for your charity to survive, others will be forced under. The next couple of years will be tough, and, as shocking as it may seem, we may all start looking upon 2007 as the good old days.

This is from today’s Wall St. Journal:

“According to a new survey from American Express Publishing and the Harrison Group, nearly half of respondents with incomes of $250,000 or more agreed with the statement that “I worry that at some point I could run out of money.” That’s up from about a third in April.

Fully 69% agreed with the statement that “The recent real estate and banking crisis has affected my sense of financial security.”

Of course, $250,000 is only “Obama wealthy.” And running out of money “at some point” is a long time horizon. Yet the survey suggests that even high-income earners are cutting back their spending for fear of what the financial future might bring. Fully two-thirds say that they are “looking closely at every spending category to see where I can save.””

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This is the group that I mentioned that used to be a reliable participant at auctions but is now far more cautious. We need to re-engage. It all goes back to “Laser-beaming the message”.

The economy has everyone spooked. House prices are down, foreclosures are up. 401(k)s are down, unemployment is up. The dollar is down, gas prices are up.

How bad is it? There is an old adage; if I read about people losing their jobs and houses, it is an economic downturn. If my friends are losing their jobs and houses, it is a recession. If I lose my job or house it is a depression.

The first task that any not-for-profit wondering about the effect of the economy on their fundraising auction is to analyze where, in the continuum listed above, their audience lies.

We had one event that was canceled this year. It was an auction that is normally held during the mortgage banker convention in San Francisco. Obviously this year would have been a real challenge not worth the risk of underwriting the event.

To date most auctions seem to have held up extremely well. They have changed, but the returns have remained reasonably constant. One warning; in trying to pinpoint trends between 2007 and 2008 we are more dependent on anecdotal evidence than statistical certainty. In determining why an auction is either up or down over the previous year, it is hard to say whether it is the effect of the economy or else the vagaries of different lots or the presence or absence of a particular bidder.

With the above caveat, these are the changes in auctions that we have noted during the last year.

1. On average the amount raised at auctions has remained the same. The variance, both up and down, is within 15%. In most cases the difference between the amount raised in 2007 and 2008, whether higher or lower, can be pinpointed to either specific lots or individuals.
2. There has been a decrease in the number of “super bidders”.
3. Thankfully this decline in the super bidder has seen a corresponding increase in the number of “high bidders”. In most cases the increase in the number of high bidders has more than compensated for the decrease in super bidders.
4. Ticket sales have been down this year.
5. Bidding has been slower. Even though an item may sell for as much as it has in previous years, it has taken longer to get there. In particular there have been fewer bidders at the early stages of each lot. The fewer the bidders the more control devolves to the audience.
6. Audiences are louder.
7. There have been fewer moments of “irrational philanthropy”. As fundraising auctioneers we live for those moments. When the bidding for an item goes so far over the top that the entire room gets excited and realizes that the bidders are simply involved in a philanthropic gesture, this excitement carries over and takes the next few lots to a higher level.

Several factors combine to explain these trends. While the wealthy is still wealthy, they are more concerned about appearing inappropriate or irresponsible in their bidding.

As noted in an article in the Wall Street Journal an attendee at the Naples wine auction commented to a friend that it seemed almost callous to spend thousands of dollars on a bottle of wine even while assuring their friend that he could still afford to do so.

A crowd that was able to spend money at fundraising auctions were high earners who, while a very well-to-do, have most of their assets in their homes, 401(k)s and retirement portfolios. Their income has remained the same, but their net worth has taken a significant hit. I suspect that this group will hold back on their donations until their portfolios have returned to previous levels.

It is the reduced participation of this latter group that, I believe, explains the reduced ticket sales, slowing down of the auction process and the rise of the ambient noise level in the room. If you were a previous bidder at an event but have decided to be cautious this year, one choice is simply not to attend. Hence slower ticket sales. If you do attend but do not intend to bid, the alternative form of entertainment is to turn the auction into a party, raising the noise level. Finally, fewer bidders in the room slows down the bidding process.

How should not for-profits react to this new situation? My first recommendation is not to overreact. Nobody knows what the situation will be in six months or a year. Let us hope that the economy will have turned around and stabilized by then. Our observations lead to a few specific suggestions.

• If ticket sales are a challenge then this is not the year to raise prices. When negotiating with a venue anticipate the possibility of a smaller crowd. The return on silent auctions is a function of the number of attendees and a smaller crowd requires fewer lots.
• If each lot in the live auction is going to take longer than in previous years, you may need to reduce the number of lots.
• The data also suggests putting less emphasis on super high-end lots and cutting back on the lower end, concentrating your main efforts on mid range items.
• I suspect bidders will be more value conscious. Make sure you do your research. Wherever possible you need to find out the real cost/value of all lots. It doesn’t matter what a lot of sold for in previous years. If it sells for above its true retail value you are doing very well. When times are good the audience will let you get away with padding the values. I believe that it’s less true today.
• Anticipate the greater noise level. This is not the year to save on the sound system. You are going to need to focus on your message to overcome bidder reticence. If the audience cannot hear clearly it provides some with the excuse to tune out.

I have been working in fundraising, specifically fundraising auctions, for the last quarter century. In that time we have come through three or four recessions, the savings and loan scandal, wars both major and minor and, of course, 9/11. We will get through this crisis, though it will be a challenge for all of us in the fundraising business.

One advantage we have over times past is the opportunity to bounce ideas off each other, which is why we have started this blog in the hope that many of you will participate.