Everything a Marketer Needs to Know About PSA Valuation

Imagine a donor walks into your office, sits down, and says, “I represent a group of donors who want to give you over $5 million in valuable services to help your organization achieve its mission. There’s just one requirement — you need to figure out what these services are worth.”

“No problem,” you might say. “We get in-kind donations all the time and we know how to value them.” “That’s great,” he says, “because we won’t be helping you do it.”

Now imagine the donation is made up of thousands of free television Public Service Announcements aired by stations across the country. This is something that happens every day for many nonprofit organizations and is why Connect360 ran a special non-technical webinar designed to help Communications and Marketing Directors get up-to-date on the basics of valuing broadcast PSAs. Here are some of the questions asked, along with our answers.

Do television stations run many PSAs these days?

The simple answer is that television stations are airing more PSAs than at any time in history. Their total annual value is estimated to be in excess $7 billion a year. Just the ones distributed by Connect360 totaled over $700 million last year and represented 20% of all TV PSA airings tracked by Nielsen (not counting those distributed by the Ad Council). Clearly, TV stations are very interested in donating free advertising time to 501 (c)(3) and 501 (c)(6) organizations.

How much donated media value does a typical TV PSA generate?

The typical TV PSA Connect360 distributed over the past few years received more than $5 million in donated earned media in a 12-month period. Some receive $20-30 million a year, and a few outperform even that.

Why do PSAs have to be valued?

All in-kind donations (donations of free goods and services) must be treated in the same way as cash donations. This provides donors, potential donors, rating agencies, boards of directors, and anyone else who relies on the information in audited financial statements to see the full picture of an organization’s financial operations and effectiveness.

With so many organizations dependent on in-kind donations to run their operations, readers of financial statements need to understand what the impact of these donations are and what would happen without this source of revenue. This is especially true for nonprofits that rely on donations of:

• pharmaceuticals
• free office space
• legal and professional services
• revenue derived from the donation of used cars that are converted to cash
• revenues that come in the form of cryptocurrencies
• television or radio air time

Are there any other benefits in reporting PSA valuations?

Beyond compliance, there are some surprising benefits to reporting PSA valuations. Since PSAs are generally a 100% cause-related/program expense, they increase the organization’s total percentage of revenue used for cause-related purposes. Many rating agencies use this percentage to rate the financial effectiveness of nonprofit organizations.

For example, Charity Navigator and the Business Bureau like to see the percentage spent on cause-related activities surpass 80%. PSAs can often tip the scales in favor of a nonprofit. We have seen cases where a well-run PSA campaign can raise an organization’s percentage from a low 65% to over 80%. This is a perfectly acceptable thing to do. In fact, it is a required thing organizations must do when they receive donated PSA air time.

What are the rules for valuing PSAs?

Compliance and enforcement of the valuation rules for in-kind donations was lax until 2020, particularly when it came to PSAs. In 2020, the Financial Accounting Standards Board (FASB) — the CPA body that sets the rules for audited financial statements — decided it was important increase compliance, standardize processes, and improve the level of transparency that existed for in-kind donations.

Their primary focus was on assets (like pharmaceuticals and cars) donated to not-for-profit organizations. However, donated services were also included. This meant PSAs were also affected. Under the new rules, in-kind donations had to be disclosed separately and prominently on financial statements from other kinds of revenue such as cash donations. In addition, a special footnote had to be included to the financial statement that explains:

• the nature of the donations
• who they came from
• how they were used
• how they were valued

This was all done in the name of fostering more transparent reporting of this important source of revenue. These footnotes are so important that they sometimes get more attention than the financial statements themselves.

Are PSA valuations reported on tax returns?

The IRS specifically requires that PSA values not be reported on the 990 tax return. Although we have asked, we have never been able to get a clear reason for this from the IRS. As a result, there is a difference between an organization’s financial statement reporting (determined by the FASB) and its form 990 tax return (determined by the IRS).

How are PSA airings valued?

PSA valuation is simple in concept and hard in practice. Stations and networks are happy to donate the free airings, but they don’t help you value their donations. To do that you need to know five things:

1. What time of day the PSA aired
2. The length of the PSAs that aired (PSAs may run 15, 30, or 60 seconds)
3. The station it aired on
4. How many people saw it
5. How much buyers of paid ads with similar answers to items 1-4 paid to buy their ad time

With this information in hand, it is possible to determine the value of every airing donated by stations that participated in the PSA campaign.

Where do you get all this data when there can be thousands of airings that make up a typical campaign?

Data is where a PSA valuation specialist comes in. Companies like Connect360 have access to tracking services that can identify when and where each PSA airing occurred. Then we match this information with confidential licensed pricing databases that gather contemporaneous information about what the nation’s largest media buyers are paying for advertising across the country. This enables us to meet the accounting standards update (ASU 2020-07) requirement for the use of contemporaneous, actual, fair market pricing.

The TV tracking and impression information comes from Nielsen. Nielsen has a technology called SIGMA that can identify every airing by any TV station in the country. The valuation comes from Guideline/SQAD and other marketing research services. Connect360 processes the data in our Pinpoint valuation system under the guidance of a CPA to provide valuations that are in full compliance with Generally Accepted Accounting Principles (GAAP). CPAs work with us and test our valuations regularly to ensure that they stay in compliance.

What happens when you have a combined paid and donated media campaign?

Some nonprofits run campaigns that include both paid media placements and donated television and radio broadcast placements. This is most common when an organization runs both a paid digital campaign and a donated broadcast campaign. In that case, information on each source of airings must be kept separate and never co-mingled for financial statement reporting.

Do organizations ever fail to follow these rules?

Before ASU 2020-07, some CFOs and CPAs were not as familiar with the rules. My favorite example of this was the nonprofit CFO who came to me about seven years ago with a 10,000-row Excel spreadsheet that her PSA distributor gave her. It was supposed to represent the valuation of her latest TV PSA campaign. In it, each of the ten thousand airings was valued at $230. We both knew something was wrong here. I ran her campaign through our Pinpoint valuation system and came up with a very different (and much more accurate!) result. That CFO has been my client ever since.

Is it expensive to value a PSA?

PSA valuation is a standard part of all Connect360’s TV PSA distribution projects. Although I have heard that some companies charge extra for this essential service, that doesn’t make sense to us because financial valuation is an FASB requirement. That’s why we have made it a standard part of every project we do, along with our monthly media analysis reports designed for the communications and marketing groups we work with. To make things even easier for our clients, we run a special year-end reporting package that summarizes their results and valuations based on their own fiscal year.

How can I get started with PSA valuation?

Connect360 can help you get started with PSA valuation that meets FASB requirements. Our proprietary system and deep industry connections ensure accuracy and precision so you can stay in compliance and reap the benefits of PSA valuation. If your PSA campaigns are not adding up, we can help. Contact our PSA distribution and valuation experts today.

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