Are We Facing a Sector-Wide Lottery Curse?

To many nonprofit organizations that have received an unexpected gift from MacKenzie Scott it has been like going from living paycheck-to-paycheck to winning the lottery.

Most nonprofits live on the edge, with no more than a few months’ worth of reserves to cover payroll. Leaders and staff dedicate massive amounts of time to raising funds week after week, year after year. Those funds often come with conditions: spend on this, not that; demonstrate impact, don’t just document activities. So, when a relatively large amount of funding (for some nonprofits, an amount larger than their previous year’s operating budget!) is offered without the usual relationship-building and proposal-writing — and that one-time funding can be used for any organizational priority — it feels like winning the lottery.

Which might make us worry about the curse of the lottery. We’re all familiar with stories of jackpot winners who enter into periods of wild spending — the mansion! the luxury cars! — or are taken advantage of by avaricious friends and relatives. About 70 percent of lottery winners spend or lose it all within five years of the win. In a wink, the windfall is gone, and the winners are doomed to eke out a meager existence for the rest of their regret-filled life.

Will that be the fate of Scott grantees? Will nonprofits cast caution to the winds and make big, unwise spending decisions that leave them beyond their means in the medium-term? Will the grant permit them to drift from their mission, or somehow become less accountable? These concerns have been voiced by some, and perhaps wondered about by many others. The people who are most skeptical of this mode of giving may indeed be those who follow a different, more conventional model of offering small, restricted grants with renewals contingent on performance against agreed goals. But these are questions that also are being asked by grantees themselves. As the CEO of an organization that received a Scott grant in June 2021, I know I feel the pressure to maximize the benefits and minimize the risks of a large one-time grant.

The Center for Effective Philanthropy’s (CEP) report “Giving Big: The Impact of Large, Unrestricted Gifts on Nonprofits” provides an answer to the question of whether the Scott grantees are risking the lottery curse. And the answer, as of now, is a resounding, convincing “no.”

Are organizations that received a Scott grant focused on consumption versus saving for a rainy day? No. More than 90 percent of Scott grantees responding to the CEP survey are using the money to improve their organization’s financial stability. About three-quarters are increasing reserves, contributing to an endowment, or even starting an endowment.

Are organizations that received a Scott grant spending the money foolishly? No. The study finds a relatively slow pace of spending, with the funding going to a combination of programmatic priorities and organizational strengthening. On the list: improved monitoring and evaluation, upgrading technology, strategic planning, and professional development for staff, among other uses. These are not luxuries, but rather the core organizational needs that are squeezed out of the ever-tighter “overhead” line in grant budgets.

Are Scott grantees drifting from their mission? No. Virtually all grantees are dedicating a share of the new funds to new or existing programmatic work, with many expanding to serve new communities or undertaking improvements in quality that were not previously possible. Some report a newfound ability to take risks and start up new activities, but no one reported wholesale shift in focus or approach. The vast majority are doing more of the same, bigger and better.

 Are organizations that received a Scott grant in a worse position to obtain funding from other sources? No. More than half of the Scott grantees participating in the study are using a portion of the grant to build up their fundraising capacity. Most report that they have not had a more difficult time raising funds; more than half state that it has been easier to raise funds, perhaps because of the reputational bounce that comes with being on the Scott list.

These early findings are reassuring. MacKenzie Scott’s form of funding does not appear to be creating a lottery curse for those who receive it. It is, in fact, doing what I imagine she intends: building a dramatically more capable and resilient set of nonprofits. In the years to come, the subsequent CEP studies (this is just the first report of a three-year research project) will help us see whether grantees have laid a strong foundation for the future — or whether a one-time infusion cannot overcome the fundamental precarity of the “soft money” nonprofit model.

The findings from this study are completely consistent with my own experience at IDinsight. As I wrote elsewhere, the grant we received from Scott has permitted us to breathe, to build, and to bloom in a way that I would never have imagined possible. It has not eliminated challenges or led to complacency; quite the contrary. It has created the (welcome) challenge of living up to higher expectations and helped lift us to a new level of ambition and effectiveness. This is not a curse. It is a blessing.

Ruth Levine, PhD, is CEO of IDinsight. Follow her on Twitter at @RuthLevine5 and find more of her writing on Substack.