Fundraising in Hard Times.

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.