In 2003, the U.S. Supreme Court overturned the Illinois Supreme Court ruling, paving the way for states to file a fraud complaint against similar companies if the focus of the suit is on alleged misrepresentations to the donor. In handing down its opinion, the court also acknowledged that fundraising was a form of free speech.
Ten years later, charities have continued to pay companies to raise money for them through telemarketing, mailing and promotional campaigns.
More donors, at what cost?
Charities that have hired companies to conduct face-to-face fundraising say it's one of the best ways to recruit new donors.
In 2003, Children International, which helps impoverished youths around the world, hired DialogueDirect for a fundraising campaign, and the company entered the Chicago market a year later, according to the charity.
From October 2011 to September 2012, the most recent year for which contract records were available, DialogueDirect charged Children International $270 for every sponsor it recruited who agreed to donate a minimum of $25 a month, records show. At that rate, a donor making the minimum payment would have to donate for nearly 11 months for Children International to see a return on its investment.
The charity received $17.5 million from DialogueDirect donors between October 2011 and September 2012 and paid $7.2 million to DialogueDirect over the same period. Revenue generated from DialogueDirect includes money given by donors recruited in previous years who are still giving during the time period of the financial report, while the money paid to the company is only for that time period, according to the charity. That fundraising investment represented about 4 percent of the charity's total expenses — about $158 million — during that time period, according to the charity's financial records.
Children International said it chose to hire DialogueDirect because it "pioneered" canvass fundraising in Europe. The nonprofit says the fundraisers are particularly successful at recruiting new millennial-generation donors and starting conversations about the causes Children International champions.
"One positive aspect of this type of fundraising is that hundreds of passionate young adults are educating others about people living in poverty," spokeswoman Christy Howard said in a statement. "More often than not, the experience is positive for both the fundraiser and the prospective sponsor."
Ciera Alexander, 22, started working for DialogueDirect in Chicago during the summer of 2011 at the recommendation of a friend. She earned $10 an hour plus performance bonuses, asking passers-by to sponsor needy children in other countries through Children International.
"I actually did believe what I was saying. I did care about the causes I was canvassing for," she said. "I think that kinda helps people jump on board with you."
But not all of the company's campaigns have been smooth. In 2009, the state of Washington filed a complaint in King County Superior Court against DialogueDirect, alleging that the company was misrepresenting itself to the public.
The incident occurred because one of the solicitors "did not follow protocol" while fundraising on the street and the company's permit with the state lapsed, according to Children International. DialogueDirect was required to cease operations for one day, the charity said.
The next year, DialogueDirect agreed to pay a $10,000 fine without admitting any wrongdoing and pledged to comply with Washington law governing charitable solicitations and commercial fundraising, court records show.
"We have been and will continue to abide by the laws of the state," the company said in an email.
Slow to pay off
Financial records of other charities show the investment does not always offer quick returns.
ChildFund International, a community-building organization, agreed to pay Public Outreach Fundraising an hourly fundraising fee, a $12,570 administrative fee and data-entry fees for a campaign lasting from July 1, 2011, until July 31, 2012, records show.
The charity's financial records show that from July 1, 2011, to June 30, 2012, it paid $3.26 million to Public Outreach Fundraising but received $687,250 in donations, representing a $2.5 million loss for that year. The money paid to Public Outreach represented less than 2 percent of the charity's total expenses that year.
ChildFund International spokeswoman Cynthia Price said the campaign is a long-term investment, and donors who are recruited through Public Outreach Fundraising will keep on giving for years to come. In the last three years, face-to-face fundraising beat television and online efforts to become the largest donor-acquisition channel for ChildFund, according to the nonprofit.