Exploding the Myths of Stadium Naming Think there's plenty of hard science saying sponsorship is a great deal? Then we've got a bridge you can buy--and name.
(Business 2.0) – When the San Diego Padres dash into their new ballpark on April 8, they'll be welcomed by Red Ruff and Blue Mews, the canine and feline mascots of pet-gear retailer Petco. They get to share the spotlight because the company paid $60 million over 22 years to name the field Petco Park. What else does it get for that? "We keep trying to figure out how we can get more dogs at the park to buy pet food," jokes Petco controller John Morberg, adding, "We think the national exposure will make people more aware of Petcos in their hometowns."
But is that really worth $60 million? It depends on who you ask. Since 1999, companies have signed away more than $2 billion for naming rights to major North American sports facilities. So where's the return on investment that shows this gambit to be anything more than an ego trip for a CEO with an edifice complex? "That's the million-dollar question," admits Abraham Madkour, executive editor of SportsBusiness Journal. "If someone could figure out a formula, he'd be living a life of luxury on an island somewhere."
Even those who swear that naming rights are a great deal admit that figuring out how good a deal they are is more like astrology than astronomy. "You're like, 'Hey, trust us, your brand name is going to be all over the place,'" says Dave Buck, vice president for marketing with the Philadelphia Phillies, an organization that recently sold a $95 million naming deal to Citizens Bank of Providence, R.I. "I think everyone intuitively knows that. But it's hard to put a dollar value on it."
Setting aside the obvious but unanswerable question--if stadium naming is so effective, why do so many of the namers go under?--let's examine the assumptions.
Myth: It's Cheap Advertising
Morberg says that for only about 5 percent of Petco's national ad budget, the company received 1,211 mentions in the press during 2003--the year before the park opened.
What's that worth? Ad agencies count the number of people who see and visit a stadium and the number of times the stadium name is mentioned in the media. But is the name's appearance in the fourth paragraph of a sports story on page C3 of the paper really hitting consumers with the same impact as a full-page magazine ad or a billboard? Of course not.
So the mentions are "discounted." Yet even that calculus is pretty arbitrary. Dean Bonham, a consultant who's negotiated $600 million in naming deals, estimates that 30 seconds of TV logo exposure are worth 6 to 10 percent of a 30-second advertising spot, which on Monday Night Football would cost about $275,000. But others say the value is closer to 25 percent. No one knows.
Besides, many advertising experts argue, it's impotent without further advertising to "activate" this consumer awareness. Wilkinson Group CEO David Wilkinson, whose firm negotiated the $50 million deal between Pacific Bell (now SBC) and the San Francisco Giants, talks of people inside the Giants organization who bragged that tens of thousands of people would see the stadium each day as they drove to and from work over the Oakland-San Francisco Bay Bridge. "Does that sign up one person for Internet service?" Wilkinson asks. "No, it doesn't. I've seen the equations that say 100,000 people equal this much advertising. That's not science."
Myth: It's All About Getting Buzz
The truth is, the best deals are really about auxiliary sales. The naming company gets to sell subsponsorships to partners or hawk bank accounts to game spectators. "That is exponentially larger in value than the exposure," Wilkinson says. In Denver's Pepsi Center, only Pepsi products are sold. Reliant, which paid $300 million for a 30-year naming deal--the largest yet signed--has a contract for power generation at Houston's football stadium, site of the 2004 Super Bowl. Philips Electronics got to outfit the CNN Center adjacent to Philips Arena in Atlanta. Wilkinson says the PacBell deal had 33 pages of such entitlements, including telecom and Internet service contracts, with the name on the stadium being the final and arguably least important one.
Myth: The Longer the Contract, the Better
Lock up the rights for a quarter-century or more and amortize the cost over that period. The longer the deal, the more sense it makes, right? Well, consider this: In June 1996, Ericsson signed a nine-year, $20 million deal to sponsor the Carolina Panthers' stadium, figuring it would help build consumer awareness of its cell phones. But in September 2002, the company pulled out of the deal when it shifted its strategy to business-to-business. "You wouldn't commit to a 30-year advertising campaign, or PR campaign, or any other marketing campaign," says Laren Ukman, partner of IEG, which analyzes sponsorship deals. "You're tying up a 30-year investment that could quickly become irrelevant to your business model."
Myth: Only the Biggest Companies Can Play
It's actually easier to find evidence that deals for little-known companies make the most sense, since they can increase brand awareness. One month after M&T Bank of Buffalo, N.Y., bought and renamed Baltimore's Allfirst Financial in April 2003, it inked a 15-year, $75 million deal with the Baltimore Ravens to dub their football field--formerly named for failed Internet service provider PSINet--M&T Bank Stadium. The company estimated that it would get 350 million media impressions a year and that 80 million motorists would see the name on the stadium as they drove by. Five months later M&T's name recognition had jumped from last to third among 18 local banks. "Our alternative would have been spending a lot on advertising to introduce ourselves," says Robert Moody, the company's VP for advertising. "This has helped the bank gain instant awareness and credibility." So far, deposits into checking accounts--attractive targets for competitors to poach after a merger and renaming--are up 7.6 percent, and customers have ordered more than 10,000 Ravens-branded ATM cards.
Myth: Our Name in Lights Will Wow Wall Street
In a study of 49 naming deals, Stephen Pruitt, chairman of the business economics and finance department at the University of Missouri at Kansas City, found that investors see the multimillion-dollar contracts as signs of corporate confidence--and juice stock prices accordingly. "Imagine I saw you on a street corner smoking a Cuban cigar that you lit with a $1,000 bill," says Pruitt. "I can assume that either you're insane or you have a lot of cash to burn. That's what these stadium things are."
Investors who liked the sight of those stogies sent stock prices of the naming companies up, on average, 1.65 percent. But the gains were largest for high-tech firms (about 4.5 percent), for those signing with winning teams, and for those inking long-term deals in their local markets. That describes CMGI, a Massachusetts-based Internet conglomerate that, back in August 2000--still flush with cash and its stock at $40 a share--signed a 15-year, $114 million naming deal with the New England Patriots. On the day of the announcement, CMGI's stock price rose 16.4 percent. It now trades at about $2, while the Pats play in renamed Gillette Stadium. Other buyers had worse luck: Since 2001, 14 percent of the companies sponsoring pro stadiums have filed for bankruptcy protection.
Myth: It Will Really Boost the CEO's Ego
OK, you got us. This one's not a myth.