A Few Words of Warning About Funding Intermediaries and Philanthropy’s Leaky Bucket

Given limited resources, shouldn't more money go to news orgs directly, even if that means making hard choices?

Welcome to Second Rough Draft, a newsletter about journalism in our time, how it (often its business) is evolving, and the challenges it faces.

There is lots of excellent work being done these days to support nonprofit journalism, from building networks and collaborations to offering shared resources to assembling benchmark data and market research to individualized coaching. Yet this week I come not to praise these efforts but to worry about whether they may be getting a bit out of scale to what I see as the even more pressing need for funding nonprofit news organizations directly.

To put a finer point on it, I am increasingly worried when I observe what I see as the increasing fragility of many nonprofit newsrooms juxtaposed with the robust growth of the intermediaries whose mission is to support them.

In 1955, an observer of finance wrote a book whose subtitle called it “A Good Hard Look at Wall Street.” The title derived from the reply of a visitor to New York who was told to look out to the harbor at all the fancy boats owned by bankers and brokers. It was called “Where Are the Customers’ Yachts?”   It is a question we should metaphorically be asking ourselves in the emerging digital news ecosystem.

Here are a few facts that make me worry:

• A recent study by the Institute for Nonprofit News (INN) reported that of its 400+ member organizations, two thirds saw revenue growth from 2018 through 2021 (which is also to say that one third flatlined or actually shrank), and that the median growth was 25% over the four year period. Over the same period, INN’s own operating revenues grew 107%; from 2017 through this year, its operating revenue is estimated to have grown 221%. From 2018-2021 the number of INN’s full-time equivalent employees grew from 9 to 15; it employs 20 FTEs currently. The median INN member has 6 employees and $373,000 in revenue; INN’s own operating revenues are 14 times larger.

• LION Publishers, a group of both nonprofit and for-profit newsrooms, most of them smaller, reports that half of its members saw revenue growth from the crisis year of 2020 to 2021 (which again means that half did not), with an increase to a median figure of $125,000. LION’s own revenues are expected to have more than quintupled from less than $700,000 in 2019 to about $3.8 million in 2022. That is to say, LION itself is now, by revenue, the size of about 30 of its average members combined. The median LION member has a staff of two; LION itself has 11 staff members, up from three in 2019. Disclosure: I am doing some coaching for LION.

• The Knight Foundation, the leading institutional funder of journalism, just made a grant of $4.75 million to INN, the second largest Knight journalism grant in the last three years (the largest was to a university), and a $2.85 million grant to LION.

Let me be clear: a great deal of good work has been and will be done with such money by these and other fast-growing intermediaries, including the News Revenue Hub, Media Impact Funders, the Solutions Journalism Network and many others. But I am convinced that more good might have been done by directing much of institutional foundations’ money instead to the most deserving news nonprofits—both those with proven track records of excellence and convincing plans for the future AND those with exciting ideas, innovative models and promising leadership.[1]

The temptation of intermediaries

For institutional foundations (those with paid staffs whose job is to give away the money of absent, usually deceased, donors) intermediaries can be especially tempting grantees. Dispensing the money to trade associations, for instance, can be portrayed as gifts to all the members, avoiding the necessity of choosing a few and possibly alienating most. Moreover, it is almost unquestionably true that there are more news organizations deserving of institutional funding than there are currently institutional funds to give them, especially if one seeks to avoid that other temptation of large numbers of grants too small to make a meaningful difference.

I would argue, however, that making these choices, no matter how difficult, is precisely what institutional foundation staff is paid to do. The Knight Foundation, for instance, spent more than $10 million on staff and trustees in 2020 in order to make $71 million in grants. The much larger and more diversified Ford Foundation spent on staff and trustees in the same year about as much as Knight spent on grantees ($71 million again) to make about $805 million in grants. I don’t necessarily have a problem with this. Having assembled an expert staff of capable people, however, hard choices should not only be possible, they should be required. Experts should not outsource the heart of their own work.

In fact, I would have no problem with foundations increasing program staff a bit if they think that’s required to make the necessary choices at the appropriate scale. It would surely be more efficient than subsidizing an ever-expanding web of intermediaries, remembering that every time water is poured out of the philanthropic bucket, some of it necessarily leaks.

where the AFL-CIO fiddled while industrial jobs burned

The metaphor that worries me most on this topic is not actually Wall Street capital and missing yachts, it’s organized labor and lost jobs. In the last third of the last century, the proportion of the workforce that was unionized fell by more than half, as good jobs disappeared by the millions, spurring a significant part of the alienation that is tearing this country apart even now. At same time, top union leadership at places like the AFL-CIO held comfortable sinecures, hobnobbed in Washington and convened comfortably in Florida. A visitor looking to Bar Harbour might have asked, “Where are the rank and file’s jobs?”  Too few asked that question until it was too late. I hope we can avoid that mistake in the news business.

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[1] The American Journalism Project, for which I also do work, seems something of an in-between case, as it re-grants much of its money to newsrooms. Similarly, Report for America sends the bulk of its money out to newsrooms directly, in the form of corps member salaries. And NewsMatch promotes small contributions to newsrooms directly, although the nationwide institutional matching grants (as opposed to the locally or otherwise targeted matches) are subject to the separate critique that they are each too small to be impactful.