Recent Developments Affecting Non-Traditional Revenue Sources for Schools presented by Michael L. Dodd, Esq.

1. National School Boards Association Recent Developments Affecting Non-Traditional Revenue Sources for Schools presented by Michael L. Dodd, Esq. Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C. East Syracuse, New York October 5, 2002

2. Overview • How Exclusive Vending Contracts are Faring • Community/Parent Protests • Developments Related to Other Revenue Sources (Naming Rights, etc.) • Guidance 2

3. Exclusive Vending Contracts • Legal Challenges in New York (Commissioner of Education) • Numerous challenges across the state • Parents and would-be contractors • 11 recently consolidated in 2 cases before Commissioner • Built upon earlier Citizens decision (Nov. 2000) • All contracts were upheld (with warnings) 3

4. Exclusive Vending Contracts • Legal Claims Asserted • Board lacks enumerated authority to enter into an exclusive vending contract • Ed. Law grants specific authority • regulates when soft drinks can be sold • grants specific authority to provide cafeteria and restaurant services • Illegal gift of taxpayer property • Proper school purpose (Ed. Law authority) • Fair and adequate consideration (bidding procedures) 4

5. Exclusive Vending Contracts • Legal Claims Asserted • Selling to non-student groups after school hours violates State Constitution (use of public property for private gain) • No standing but schools warned not to engage in this activity or distribution of free products • School personnel cannot participate in solicitation of orders, distribution of advertising materials or collection of charges for sale of products during school hours 5

6. Exclusive Vending Contracts • Legal Claims Asserted • Cash advances constitute loans in violation of State Finance Law • No absolute requirement of repayment at time of signing • Board cannot bind future Boards • Annual review and 120-day notice sufficient flexibility • Large cash advances have a coercive effect on future Boards (to have to repay) • Spread out over 10 years = OK but exercise care 6

7. Exclusive Vending Contracts • Legal Claims Asserted • Violated bidding requirements in New York General Municipal Law • No purchase of anything (much less $10,000) • But must negotiate “fair and reasonable” deal 7

8. Exclusive Vending Contracts • Legal Claims Asserted BUT Undecided • Constitutional right to engage in free competition • Does an exclusive contract, procured through public competitive bidding process, create a limited public forum from the sale of products in school? • May competitors assert constitutional right to equal access to the rewards obtained by highest bidder? 8

9. Exclusive Vending Contracts • Recent Trends in Vending Contracts Nationally • Revenue guarantees are lower • approx. $3-6/per student vs. approx. $10-12/per student • Commission rates are slightly higher • approx. 35-40% vs. approx. 25-30% • Willingness to share proceeds vs. fees for exclusivity • downturn in economy, protests, restrictions, etc. 9

10. Exclusive Vending Contracts • Other developments • Districts looking into “District Vending Operations” as part of food service operations (distributor) • Expenses of district-sponsored operations are relatively low and profit margins are still high • Districts adopting “equal nutrition” policies • Coca-Cola appears to be discouraging use of consultants 10

11. Community/Parent Protests • Center for Analysis of Commercialism in Education (University of Wisconsin-Milwaukee) • Citizens’ Campaign for Commercial-Free Schools (Seattle) • Reclaim Democracy (Boulder) • Los Angeles protests resulted in vote to ban soft drinks in schools 11

12. Other Revenue Sources • Sale of “Naming Rights” for School Properties • Rapid Increase • Vernon Hills High School (Ill. - Rust-Oleum) • $100,000 on $1.8M stadium • $80,000 scoreboard by computer company • Naperville - Under Armour = “Official Sponsor” of high school team (announced each game) in exchange for $7,580 worth of game towels, wrist bands, t-shirts and shorts • Colorado - $2M for stadium by telephone co. • New Jersey - $100,000 for elementary school gym 12

13. Other Revenue Sources • Sale of “Naming Rights” for School Properties • Considerations • Policy - encourage donation, discourage abuse and embarrassment • Law - does your state allow it? • Protections • Adequate Consideration • Duration - right to cancel (bankruptcy, scandal) • Scope - signage, outside promotions • Assignability? 13

14. Guidance • Endorsements by Schools - Guidance from Attorneys General Report (1999) • Consumer (Parents/Students) Perceptions • High level of trust in schools = preferred product • Belief that products marketed in association with schools are endorsed by schools • Belief that products endorsed by trusted entity are superior • Unaware of exclusive relationship 14

15. Guidance • Endorsements by Schools - Guidance from Attorneys General Report (1999) • Common Sense Legal Guidance Principles • Reserve right to review use of name and logo • Make clear in promotional materials that: • there is no endorsement by school • corporate sponsor paid for use of name and logo • relationship with corporate sponsor is exclusive 15

16. National School Boards Association Recent Developments Affecting Non-Traditional Revenue Sources for Schools presented by Michael L. Dodd, Esq. Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C. East Syracuse, New York October 5, 2002