Sold, to the Man at the Mouse

Despite glitches, on-line auctions are reaping rewards for charities

When the Family Assistance Program, a charity that serves needy people in the Los Angeles metropolitan area, held an auction of items donated by cast members of the television show Seinfeld, the charity netted $60,000 and won bids from people in England, France, Germany, Japan, and Mexico.

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It wasn’t just the fact that the charity was offering items from one of the most popular television shows in history that accounts for its success. The auction was held on the Internet, making it easy for the small charity to have a global reach — and to attract people who had never previously supported it.

In recent years, many non-profit groups have started holding auctions on the Internet and discovering the potential for bringing in money from around the world. But they have also found that Internet auctions are fraught with problems. The companies that produce them are often start-up businesses without much experience. Items that are popular at live auctions are not necessarily attractive to an on-line audience. And shipping the auctioned items to shoppers around the world can be expensive and time-consuming.

Still, charity officials who have tried Internet auctions say that time and experience will increase their success. And although a charity’s first foray into on-line auctions can be draining, the electronic events eventually become easier than live auctions and can save the expense of renting a room and arranging a catered dinner and entertainment, say experts.

Internet auctions vary with the organization, but typically a person who wants to participate must first provide credit-card information. That way only people who are serious about buying items can join in.

The bidder then chooses an identification name and a password so that no one else can make an offer under his or her name.

For each item available, the site lists the minimum bid, current bid, and at what increments the bidding may proceed.

Once a bid is typed in and submitted, the amount is confirmed by an electronic-mail message. Follow-up messages notify participants if their offer has been topped by someone else, or if they got the winning bid in the end.

When the auction is over, the charity calls each winner and arranges for payment and shipping.

Because non-profit Internet auctions are so new, charity officials are learning as they go. Following are some suggestions from those who have taken their auctions on line:

Conduct research. Most charities that hold Internet auctions use the services of a technology company that specializes in producing auctions to create a Web page, promote the event via the Internet, and sometimes take on other duties, such as shipping the items when the event is over. The charity normally assumes responsibility for finding the items and promoting the event to donors and others who might not hear about it through the Internet publicity.

Companies that produce Internet auctions are a new phenomenon, and can come and go in a matter of months. Many of them fold because they don’t bring in enough money, and those that stay around may try to make a profit in ways that might not appeal to the charity or its constituents.

The San Jose Repertory Theatre has worked with three companies to produce two on-line wine auctions that brought in $35,000 and $45,000 — but not without trouble.

For its first one, it signed on with a nearby Internet company, but midway through the project, the business was bought out by another company.

“It threw a wrench into it,” says Alyssa Byrkit, associate director of development at the theater company. The charity was already committed to the project, having invested many hours in planning and soliciting items, and dealing with a new company meant backtracking and going over the plans again from the start.

The next year, the theater hired a third company to put on its Web auction, but it soon realized that the company had planned to charge for its services by adding a 10-per-cent fee on each item auctioned — so a participant who bid $500 on a bottle of wine would actually be charged $550. When theater officials discovered the plan, they put a stop to it, fearing that buyers would be angry.

The theater ended up renegotiating the agreement, and paying the company a flat fee instead.

Internet-auction companies often put a surcharge on items sold in for-profit auctions, says Judith Blase, development director at the theater. “Sometimes they have a little trouble making the switch from for-profit to non-profit,” she says.

Ms. Blase estimates that the Web events garnered about 40-per-cent less than live events — but that they also cost about 40-per-cent less to produce.

Don’t expect to find long-term donors. Most people who participate in Internet auctions are shoppers, not philanthropists, say experts. Charity officials say that when bidders contact charities that sponsor auctions, the questions are nearly always about the on-line event, not about the charity itself.

San Francisco’s Sterne School, which serves children with learning disabilities, found that most items sold for less than market value at its Web auction in March. The charity raised $6,000 from the event.

When the bidding approached market value, people lost interest — an indication that they were just after a bargain, says the school’s development director, Cyndi Weingard. If the auction had been held just for the school’s supporters, she says, the on-line bidding would have gone higher because people would have wanted to help the institution.

Use items with a broad appeal. Because Web auctions reach people who don’t necessarily live in a charity’s hometown, it is important to find items that are attractive not only to people who reside nearby.

John Marchiony, a project director at the Computer Museum, in Boston, says that in previous auctions, “We had a number of Boston-only items. But the Internet is not Boston-only.” Tickets to Boston cultural events and dinners in local restaurants limited the auction’s appeal for bidders from outside the city, he says.

Having a few local items may still work under the right circumstances, especially in major cities where people may travel on business or vacation. Sterne School’s auction included a number of items that could be used only by someone in San Francisco, some of which were bought by people planning to travel there. A man from Georgia, for example, paid $288 for a helicopter ride with the traffic reporter from a San Francisco radio station.

Choose items appropriate for the Internet. Things that sell on the Internet are not always the same as those that do well at live auctions. Some charity officials say that artwork doesn’t do as well on the Internet because it is hard to judge the quality of the work on a computer screen.

And because of the trouble and expense of shipping, items worth less than $50 are probably not worth auctioning on line, say some officials.

For some items, though, the Internet may be a better venue than a live auction. When Universal Studios produced an auction to benefit the Samuel Goldwyn Foundation Children’s Center, in Woodland Hills, Cal., officials found that Hollywood memorabilia did better with bidders who did not live near Los Angeles.

“I’ve done auctions here in the Los Angeles area, and people are a little bit blase because they’re exposed to these things all the time,” says Gaye Hovet, development associate for special projects at the Motion Picture & Television Fund, which runs the children’s center. “But on-line reaches people worldwide and they’re not blase. A simple autographed picture from a soap opera could really be a treasured item for someone.”

To determine what items might be popular at Web auctions, Internet-auction companies can sometimes provide demographic information about who has bid at their previous auctions. Meg Madden, executive director of Music in Schools Today, in San Francisco, says that one Internet company reported that bidders were mostly men between the ages of 35 and 55 whose income was $50,000 or more. Because of those statistics, the charity is trying to get more items from places such as the high-end electronics store Sharper Image for its next auction.

Plan ahead for shipping. Unlike live auctions, everything at an Internet auction must be shipped — sometimes overseas.

For small charities, shipping items can be a time-consuming burden — not to mention prohibitively expensive for large items that need to be sent far away.

When Sterne School held its auction, the small staff sent out all of the items itself. “It was really labor-intensive,” says Ms. Weingard. “We had to get all the labels and send everything certified mail and schlep it all to the post office. That was hard for a small shop to do.”

Some companies that produce Internet auctions for charities take on the burden of shipping the items, for a fee.

But no matter who does the shipping, experts say it is best to make it clear up-front that winning bidders will have to shoulder those costs themselves.

When the Family Assistance Program conducted its Internet auction of items donated by the cast of Seinfeld, Rita Tateel, the board chairman, says the charity planned to absorb the shipping costs. But as the bidding got under way and a number of people were participating from across the country and around the world, she realized that the cost of shipping could be steep.

So midway through the bidding, the rules were changed and a notice was put up on the Web site announcing that winning bidders would have to pay for shipping. No one complained, she says, and she was glad the policy was changed. A man in Australia got Jerry Seinfeld’s mountain bike for $2,000, and someone on the East Coast got a chair for $1,350 that was designed to look like the comedian sitting down.

Shipping perishables can be a headache, too, adds Ms. Byrkit, of the San Jose Repertory Theatre. A couple of bottles of rare wine were damaged during shipment after the group’s wine auction because they got overheated and the corks popped out, she says. “We had to replace the wine, which was a rarity, so it was hard to find. Meanwhile, the bidder was waiting.”

For items that are not rare or one-of-a-kind, a practical solution is to auction the item — such as a compact-disk player or a pair of designer shoes — but to send a gift certificate and let the winning bidders pick up the items themselves, says Mr. Marchiony, of Boston’s Computer Museum.

Check credit records. Many Internet auctions run a credit-card check on anyone interested in participating before they are allowed to bid — a good way to prevent people from putting in false bids or from denying that they ever participated once the bidding is over.

The Family Assistance Program did not require credit-card registration for the Seinfeld auction, and some items were bid up artificially high as a joke, says Ms. Tateel.

“We had to go back and figure out which were the ‘real’ bids,” she says.

Other charities that have done Internet auctions without requiring credit-card checks found that when the bidding was over, people denied having bid at all, and the charity was stuck with the items.

Advertise widely. The success of an Internet auction depends largely on how many people know about it. Finding the right sponsors — and a theme that grabs people’s attention — can make the difference between an auction that flies and one that fizzles. Getting endorsements from popular Internet sites can help lead people to a charity auction site.

Ms. Tateel believes that marketing was the difference between the Family Assistance Project’s Seinfeld auction, which brought in $60,000, and the charity’s later auction of Hollywood and sports celebrity items, which brought in only $3,500. The Seinfield event came just as the popular television series was about to air its last show, and getting publicity through newspaper articles was easy. But the event also had an important sponsor: Yahoo, an on-line “search engine” that many people use to find information on the Internet. Ms. Tateel says the company’s sponsorship was critical to the event’s success.

The charity did not have an Internet sponsor for the later auction, and when its officials tried to get newspaper publicity, they couldn’t drum up much interest because on-line auctions were no longer unusual. To capture the press’s attention, they need to have a striking theme or unusual items. “The response we got is that on-line auctions are so common now that they’re not big news.”

Don’t forget local donors. While charity officials like the idea of appealing to people around the world, some are taking steps not to alienate their own donors who may not have access to the Internet. Officials at the San Jose theater were delighted to get bids from far away but did not want to exclude past donors without computer access, says Ms. Byrkit. “We made an accommodation for people in our constituency who weren’t on line,” she says. “We gave them a hard copy of the items that were available and bid on their behalf.”

Besides drawing people from around the world, Internet auctions allow the organization’s constituents to get in on the fun even if they are out of town during the event.

One bidder at a Web auction for Operation U.S.A., an international relief group based in Los Angeles, was a donor who had attended the charity’s live auctions for several years in a row but was traveling during the Web event, says Kathy Schutzer, special-projects coordinator at the charity. If the auction had been live, he could not have participated, but he was able to connect to the Internet from his travels and ended up as top bidder for four Hilton Hotel certificates.

The auction netted $50,000.

Consider legal issues. Experts suggest checking with a lawyer to determine whether there are restrictions on selling or shipping certain items, such as wine, and to help with tax issues.

For example, charities are sometimes unaware that they must charge sales tax for items purchased through an auction. “Most charities know that they’re exempt from paying sales tax,” says Bruce R. Hopkins, a Kansas City, Mo., lawyer who specializes in tax-exempt issues. “But sometimes people forget to differentiate between paying the tax and collecting it.”

“The onus is on the charity,” he adds, “because the charity has to collect it and remit it to the states. If they don’t do it, they are independently liable for those taxes.”

Charities also must understand tax law well enough to avoid misleading people who donate items. Some charities mistakenly tell donors that they can always deduct the full fair market value of the item they donate for bidding. That is not always true, he says. For example, people cannot deduct the amount they would receive in rent if they donated a stay at their vacation home, nor can they deduct the value of services, such as doing someone’s taxes. Artwork may not be fully deductible if the donor has owned it for a short time, he says.

Plan for a one- or two-week event. The prevailing theory is that it is best to keep an auction going for one or two weeks, to give enough people a chance find the site and make their bids but not enough time to lose interest.

“If it drags on, people tend to forget about it,” says Ms. Weingard, of Sterne School. “If it’s longer than a week, they lose interest. They forget to sign on and check their bids.”

Bidding at Web auctions usually starts out strong, then declines for a few days, then builds to fever pitch toward the end, say experts.

Typically, they say, 80 per cent of the bidding takes place on the last day, 40 per cent in the final hour.

Some charities take advantage of that last-minute surge to extend the bidding and drive up prices. At the Computer Museum, if a winning bid for an item comes in the last five minutes, the bidding is extended for an additional five minutes.

During one of the museum’s auctions, the bidding on a Lexmark color printer went on for an hour and 45 minutes beyond the closing bell, driving the price up from $1,500 to $2,600.

“There are definitely people who watch and wait and make their bid as close to the closing bell as they can because they want to get it as inexpensively as possible,” says Mr. Marchiony. “You don’t want to be the first bidder. You want to be the last.”