1. 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 National School Boards Association

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. 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) Exclusive Vending Contracts 4

5. 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 Exclusive Vending Contracts 5

6. 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 Exclusive Vending Contracts 6

7. 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 Exclusive Vending Contracts 7

8. 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? Exclusive Vending Contracts 8

9. 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. Exclusive Vending Contracts 9

10. 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 Exclusive Vending Contracts 10

11. 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 Community/Parent Protests 11

12. 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 Other Revenue Sources 12

13. 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? Other Revenue Sources 13

14. 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 Guidance 14

15. 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 Guidance 15

16. 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 National School Boards Association