Names in Lights: corporate purchase of sport facility naming rights

Dr. Larry M. McCarthy (Department of Recreation & Sport Management, Georgia Southern University)

Dr. Richard Irwin (Bureau of Sport and Leisure Commerce, Department of Human Movement Sciences and Education, University of Memphis)

Abstract

The economics of sport is such that sport managers must constantly identify new revenue sources. Maximizing revenue from arenas and stadia has been identified as a particularly suitable means of keeping pace with escalating player salaries and team operating costs. While fans or those in attendance have been the focus revenue production arenas or stadia have evolved as a potential source of long-term income for a franchise through the sale of naming rights, Permanent Seat Licenses (PSL’s), and luxury suites. Historically, publicly owned arenas and stadia have been named after a geographic location (Texas Stadium), a significant individual (RFK Stadium), or the base tenant (Giants Stadium). Selling the name of an arena, particularly, a newly constructed, publicly owned arena, was considered a major political issue. As costs escalate however, political entities and business have realized that selling the naming rights of an arena to a corporation has become an unique source of income which could offset costs borne by taxpayers. Not only has it become an invaluable source, it has become a highly desirous source of income for lenders, as contractually obligated income (COI). Financial institutions prefer investment opportunities with a high level of COI as it provides revenue stability and predictability in debt service. Furthermore, facility name entitlement has significant appeal to corporations endeavoring to capitalize on revenue production potential, via exclusive in-venue product distribution rights (e.g. pouring rights), as well as demonstrating local community citizenship. This paper examines the evolution of the selling of stadium and arena naming rights, the legal and contractual issues involved, the marketing impact of owning the naming rights of an arena, and the means by which a corporation can maximize such an investment.

 Introduction

The economics of sport is such that sport managers must constantly identify new revenue sources. Maximizing revenue from arenas and stadia has been identified as a particularly suitable means of keeping pace with escalating player salaries and team operating costs. Permanent seat licenses (PSL’s), luxury suites, club seating and expanded concessions are among revenue sources which have proven to be extremely lucrative for franchises and arenas. Sport fans, or those who attend at a venue, have been the focus and source of these means of increasing revenue. Recently arenas and stadia, rather than attendees, have been identified as a potential source of long-term income for a franchise through the sale of their naming rights. In fact, McGraw (1998) estimates that for large market arenas naming rights agreements may net $8 million annually.

Historically, publicly owned arenas and stadia in North America have been named after a geographic location (Texas Stadium), a significant individual (RFK Stadium), or the tenant (Giants Stadium). Similar examples of a stadia named after geographic locations and significant individuals abound in other areas of the world, The Melbourne Cricket grounds, Estado Guillermo Canedo in Mexico City, Murrayfield in Edinburgh, Highbury in London, Croke Park and Parnell Park in Dublin.

However, the purchase of naming rights represents a unique marketing opportunity for corporations as sport facilities are relatively few in number making imitation or duplication by competitors virtually impossible. There are currently only 115 major league teams in the United States and Canada with twenty-one of these teams sharing arenas thus reducing the number of properties available to 94. Similarly the premier division of English soccer has 22 teams, while the Australian Football League (Australian Rules) has 16 teams. McGraw (1998) has indicated that the scarcity of such properties has proven to be quite valuable, and an ideal means for establishing a presence in regions where corporation have not previously conducted business or are seeking to expand operations. Such was the strategy of Key Bank when they purchased the rights to the home of the Seattle Supersonics, and renamed it Key Arena, establishing an immediate name recognition in a critical expansion market where the rights holder had recently acquired a number of bank branches.

Evolution of Facility Naming Rights

Despite it’s seemingly recent emergence as a phenomenon associated with the continued underpinning of sport by commercial entities, the naming of arenas and stadia after commercial organizations, is not a new occurrence. Wrigley Field, home of the Chicago Cubs, was built in 1914, and was originally called Weeghman Field. In 1926 it was renamed in honor of William Wrigley, Jr. the owner of the hapless Cubs. That he was also the owner of the Wrigley Gum Company, would not have been lost on the Chicago entrepreneur, who additionally had one of the city’s more famous down town landmarks named after him and his company. In 1953, when Anheuser-Busch Breweries purchased the St. Louis Cardinal’s, Sportsman’s Park was renamed Busch Stadium after August Busch, Jr., president of the company. Hernon and Gainey (1991) have indicated that Busch informed his board of directors that the development of the Cardinals would have untold value for the company, and that it was one of the finest moves in the history of Anheuser-Busch, a move which included changing the stadium name to that of the company.

The first corporate naming rights agreement of the modern era was completed in 1973 (Friedman, 1997). This was a sponsorship agreement between the County of Erie, NY and Rich Products Corporation, for the then new home of the Buffalo Bills. The Rich Corporation agreed to pay $1.5 million over 25 years to have the stadium named Rich Stadium.

The first naming rights agreement where the name of the arena was altered to benefit a corporate sponsor occurred in 1987. The Los Angeles Forum, home of the Los Angeles Lakers, and the Los Angeles Kings, became the Great Western Forum when the Great Western Bank bought the naming rights. Since 1990 a significant number of arenas and stadia have, either altered their names to reflect a relationship between a corporate entity and the arena, or in the case of newly constructed arenas been given corporate monikers. Prior to 1990 a total of only four major league arenas in North America had corporate names. Since 1990 the number of major league teams playing in corporately named facilities has grown to 51 as shown in table 1. Naming rights have been sold to a variety of corporations, but they have typically been sold to corporations in airline, telecommunications, automobile, consumer products, computer, financial services, and beverage industries (Friedman, 1997).

Table 1

Number of corporate named facilities

Motives for Facility Sponsorship

While Friedman (1997) has elaborated on a variety of objectives that have been pursued by corporations engaging in sport facility naming rights arrangements, Schlossberg (1996) contends that its basis is direct marketing and community goodwill. This has been supported by research which has found that the primary motives for facility title sponsorship are to provide a public service as well as enhance the sponsoring company’s market position (Irwin & Sutton, 1995). This may be best illustrated by the proposed sponsorship of the new arena in Denver, Colorado by Pepsico. Pepsi’s funding of the arena aided the community’s effort to secure a National Hockey League (NHL) franchise, the 1996 Stanley Cup Champion Colorado Avalanche, while also retaining the Denver Nuggets, a franchise in the National Basketball Association. It has been argued that professional sport adds to the community cultural spirit (Sandomir, 1997), and by endowing the locality with a state of the art venue, which has emerged as the sport franchise security trump card of the nineties, Pepsico will very likely be viewed as a valued corporate citizen which has significantly contributed to the community’s quality of life. Perhaps more important, as a part of the naming rights arrangement Pepsico will assuredly secure exclusive soft drink pouring rights within the arena at all events. Additionally, it would appear likely that Pepsico’s subsidiary food products division, which includes fast food giants Taco Bell, Pizza Hut, and Kentucky Fried Chicken, as well as snack food supplier Frito Lay, will be provided first option for in-arena vending rights and concession trade.

How do companies that lack the direct link such as product usage within the arena benefit from a facility sponsorship that includes naming rights? Schaaf (1995) reports that facility entitlement has become a popular means of leveraging event access and maximizing the marketing opportunities. Welch & Calabro (1997) contend that Pro Player, an apparel company, successfully used its’ naming rights arrangement with Miami’s Joe Robbie Stadium to catapult from virtual obscurity to name brand recognition within the marketplace. This is, in all likelihood, due to facility name inclusion in all media coverage of the venue’s attractive calender of events, which includes the Florida Marlins of Major League Baseball, the Miami Dolphins of the NFL and the 1998 collegiate football national championship game. Representatives of Corel Corporation estimate that securing the facility title sponsorship on the Corel Center, home of the Ottawa Senators of the NHL, has generated in excess of 400 million annual media impressions of the company name (Kaydo & Trusdell, 1997). Sponsors will typically endeavor to sponsor, or partner with, a facility that regularly hosts nationally televised events which will generate significant media attention of venue and sponsor (Friedman, 1997).

In addition to recognition within the local as well as national media, companies claiming facility title rights will contract for inclusion of venue executive suites for client entertainment, event tickets for employees and promotional giveaways, and special access for event-related promotional tie-ins (Kaydo & Trusdell, 1997). Furthermore, Canadian Airlines, as a result of its’ deal with the Calgary Saddledome netted the exclusive team travel contract for the primary tenant, the NHL’s Calgary Flames, as well as its’ minor league affiliate (Friedman, 1997). These examples highlight the means with which a naming rights deal provides the sponsor optimum opportunity for sponsorship integration as well as incremental business development.

Naming Rights Entitlements & Pricing

Facility sponsorship pricing is directly affected by the naming rights agreement contents or entitlements. While the inclusion of luxury suites, tickets to events, and preferred parking at the arena are standard insertion in virtually all agreements, as is the use of the arena for business use by the sponsor, the majority of arrangements include not only the name of the arena, but also an understanding that the name will be used in association with the facility at all times by arena management and tenants. These parties typically agree not only to make reasonable efforts to use the name in facility identification but also facilitate media usage in all communications. The quantity and location of facility signage generally emerges as a significant component of naming rights negotiations. Ideally, sponsors desire to see their name and logos located in what Crowley (1991) has described as "heart of the action" locations. Those are locations which are on the playing surface, players, or equipment related to the event. A third negotiable element commonly found within a sponsorship agreement is "extended" use of the rights holder’s name, aside from signage, throughout the facility. In a number of arenas, including the United Center in Chicago and Delta Center in Salt Lake City, the sponsor’s name adorns employee uniforms, napkins, plates, trash cans, letterhead, and drinking cups. In fact, the United Center offers its title sponsor further name recognition, by having their corporate logo painted on the roof of the building, as does the Canadian Airlines Saddledome in Calgary, Alberta. Both buildings have the benefit of being in the flight path of busy international airports.

Additionally, the quantity and quality of events to be held at the arena will impact the cost of the sponsorship. The presence of a base tenant in the form of a professional or collegiate team guarantees a minimum number of dates that the facility will be in operation thus generating sustained exposure and entertainment opportunities for the naming rights holder. Base tenant existence can also lead to hosting other sport related events such as play-off games, all-star events, or championship finals. Combining sport and non-sport events, such as conferences, conventions, concerts allows facility management to generate the number of events necessary to make naming rights an attractive proposition for a corporation. Meanwhile, the presence of a major league professional franchise as a base tenant guarantees national exposure which will satisfy naming rights purchasers. Such presence significantly enhances the value of the property and justifies the higher price which nationally known arenas command, particularly in arenas which house more than one professional franchise. In the case of the RCA Dome in Indianapolis it is a condition of the agreement between the city owned facility and the corporate sponsor Thomson Electronics. If the arena hosts only events of regional interest the rights fee decreases significantly (Greenberg & Gray, 1996).

However, in all likelihood, the cost of a naming rights sponsorship largely depends on what the local market will bear. The Rich Stadium agreement of 1973, in which Rich industries paid a mere $1.5 million for a 25-year sponsorship, pales in comparison with the $66 million paid by Banc One to obtain the name entitlement for Arizona Diamondback Stadium (Banc One Ballpark) in Phoenix when play begins in 1998. Unquestionably, the economic conditions within these markets influenced the respective price tag for each facility’s title rights as did the competitive nature of the market (McGraw, 1998). In 1973, the Rich Product Corporation experienced little competition in seeking stadium name entitlement compared to corporations seeking similar arrangements today.

For stadium operators setting the price of a naming right sponsorship is typically not as difficult as it is for the rights holder to evaluate the benefits associated with the arrangement. Arena financial needs and the total value of the individual components of the package may be used to determine the price (Friedman, 1997). A sponsor may evaluate the cost of the sponsorship on the basis of cost of brand exposure such as when television, radio and print media all use the corporate name when reporting on events held at the facility and people see the corporate name or logo when traveling past the facility. Marine Midland Bank calculated exposure per thousand costs for their sponsorship of the Marine Midland Arena to be less than $1, where as their cost per thousand for newspaper advertising was found to be approximately $42 (Friedman, 1997).

Managerial Implications

The cost effectiveness of such advertising is illustrated by Greenberg and Gray (1996). America West Airlines purchased the naming rights for the Phoenix Suns arena for $550,000 for the first year, with a three percent annual increase to the initial fee. When the Suns hosted the Chicago Bulls in the 1993 NBA finals a thirty second commercial spot on NBC cost $300,000. The America West name and logo were seen and heard countless times on TV through out the series at a cost of only $583, 495 or less than the cost of a one minute television commercial

It would appear that in most cases sport facility name entitlement makes good business sense as witnessed by 3COM, a technology company that realized a 50% increase in annual revenues ($2.3 billion) for the year following the consummation of an agreement to secure the naming rights for the former Candlestick Park in San Francisco. 3COM spokespeople have also indicated that their name appeared in over 180 articles that they received forty percent more resumes, and saw volume trading of the stock increase dramatically (Greenberg & Gray, 1996).

Friedman (1997) found that consumer purchasing behavior and corporate attitude were favorably impacted by sport facility naming rights arrangements. While Schaaf (1995) indicates that measuring the return on investment is a rather difficult task there is significant value in entitlement opportunities. Schlossberg (1996) has reported estimates placing this value at approximately $5 million a year in media exposure alone. Corporate sponsors would appear to be relatively satisfied as few naming rights agreements have changed hands.

Performance Research (1997) reported that on average 60% of the population in a given market will recall that the facility is named after a corporate sponsor. They polled a total of 724 randomly selected respondents in 14 cities which were divided among those who had corporately named facilities and those who did not. Unaided recall of NBA arenas bearing corporate identification was highest with 81% of respondents able to identify the rights holders name while it was lowest among NHL franchises with only 51% correctly citing the facility’s corporate moniker. In contrast 67% of respondents suggested that the "corporate sponsorship of the facility adds to the community". When queried about the effect of the sponsorship on their purchase intent 26% suggested that increased purchase consideration while 68% reported no change.

As naming rights relationships are considered long-term marketing opportunities, sponsorship arrangements which extend for at least a decade or more are common. Longer term arrangements provide stability for the sponsor and the arena owner, and it allows both to create enduring identities. They also allow the sponsorship agreement to be included as a revenue stream for the construction of new arenas, which in the case of publicly funded arenas, can lighten the load of taxpayers. In this regard naming rights arrangements become critical elements of the funding process, because they are a highly desirous source of income for lenders, as they are contractually obligated income (COI). Financial institutions prefer investment opportunities with a high level of COI because of the revenue stability and predictability in debt service it provides. Howard (1997) has indicated that a ratio of 10:1 is an industry standard where one unit of contractually obligated income allows an arena owner to borrow 10 units. A fifteen year, 30 million dollar naming rights agreement, similar to that negotiated by the Fleet Financial Corporation for naming rights for the Fleet Center, home of the Boston Bruins and Boston Celtics, appears to allow arena management to borrow significantly against COI generated from the naming rights.

Welch & Calabro (1997) caution that negatives may exist for companies seeking to attach their name to a sporting facility. In fact, Performance Research found that only one-quarter of those polled favored existing or new arenas bearing the name of a corporation. Loyal fans of teams playing in stadiums and arenas rich in tradition and history may be less inclined to embrace the new facility name. It would be difficult to imagine calling Green Bay’s Lambeau Field, home of the Packers, or Wembley Stadium in London, or Soldier Field in Chicago by any other designation. "While inevitably there is initial resentment from sentimental fans who will never again see a game at "The Boston Garden" or "Candlestick Park" the idea of naming rights is now so firmly entrenched that most people understand the economic reality and consider the deals to be a common business practice" (KPMG, 1997, p.11). Furthermore, while name changing has not occurred yet with any degree frequency, sport managers should be aware that if renegotiations fail, other sponsors may be leery of attaching their name to a building closely identified with a previous rights holder. However, the construction of a state-of-the-art facility, complete with interactive virtual reality activities, in-seat on-demand statistical displays, and climate control, bearing the name of a community-minded title sponsor would appear to have a high potential of overcoming negative feelings held by residents.

Corporate acquisition and mergers may create another danger for facilities and franchises particularly where a particular brand or company may be subsumed in a merger. When the old Boston Garden was replaced, it was originally going to be known as the Shawmutt Center. When Shawmutt was acquired by the Fleet Financial Corp., during the arena’s construction, the arena was renamed the Fleet Center. Such may be the case for the MCI Center in Washington DC, home of the NHL Capitals and NBA Wizards. Should the proposed merger between MCI and WorldCom come to fruition under the name of MCI WorldCom Inc. an interesting situation arises concerning the name of the facility.

There is little question that the concept of corporations attaching company names to sport facilities will continue to grow expanding beyond large market, major league facilities into middle-tier markets, minor league arenas, and school-based settings. Carrier's sponsorship of Syracuse University's domed facility (KPMG, 1996), Pepsi's sponsorship of the Knickerboker Arena in Albany, NY, Oldsmobile's sponsorship of Oldsmobile Park in Lansing MI (KPMG, 1997), and Auto Zone's name entitlement for the Memphis Redbirds baseball stadium serve as evidence of such expansion. However, sport facility managers must be diligent in rushing to cash in on this revenue producing opportunity. Hastily pursuing or accepting naming rights fees without comprehensively assessing the situation is a public relations nightmare waiting to happen. Therefore, it is suggested that prior to attaching corporate identity to any sport facility the following questions be raised:

1. What will be the public’s reaction to a corporately named publicly financed facility?

2. Are there alternatives to renaming the entire facility (e.g. naming the field, a stand or terrace)?

3. Is it possible for corporate and public/political names to coexist without jeopardizing any

party (e.g. Guinness/Croke Park) ?

4. How will a corporate identity impact the facility image?

5. What are the renewal opportunities at contract expiration?

6. What are the implications of a future change in name rights holder?

7. How is the prospective name rights holder viewed within the community?

8. What are the motives/objectives of the prospective rights holder?

9. How does the procurement of a name rights holder impact funding of a new arena?

10. How does the procurement of a name rights holder effect facility capabilities?

While the concept of naming rights will undoubtedly continue to flourish within the

sport industry it is speculated that growth will also emerge beyond the sport industry, where numerous opportunities exist for corporations to attach their identity to an array of regionally recognized facilities. The naming rights contract of the Midwest Express Center, in Milwaukee, is for example, the first title sponsor sale for a non-sports affiliated convention center in the U.S. (KPMG, 1997). Similarly amphitheaters have begun to sell their naming rights and examples include the PNC Arts Center in Holmdel, NJ and the Nissan Pavilion in Stone Ridge, Virginia. Therefore, as the naming rights of public and private facilities nationwide are secured by corporations for the purposes of enhancing company and/or brand marketing, astute facility managers must begin to wonder what will be next?

Authors Note

Portion of this paper was presented and appeared in the conference proceedings of the European Sport Management Conference held in Glasgow, Scotland, September 1997 and.

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