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Naming rights
All is fair in love and business. Barclays may not have enough cash to sponsor the London 2012 Olympics – but it has managed to scrape together a few hundred million dollars for naming rights to the New Jersey Nets’ venue.
For those of us more used to the sound of leather on willow, the Nets are a leading team (aka franchise) in US pro basketball league, the NBA. Under the terms of the deal, Barclays gets to call the Nets’ venue The Barclays Center for the next 20 years. It will probably pay in the region of US$400m for the right to do so.
US$400m is an awful lot of money by anyone’s standards. But it shows just how expensive it is to try and break into a market like the US. It is also indicative of the way US naming rights have been going in recent times. Last year, US banking giant CitiGroup paid US$400m to rename the New York Mets basketball stadium for 20 years. Prior to that the likes of American Airlines, Bank of America, Philips, FedEx and Reliant Energy paid between US$7-10m a year for their own US deals.
All of this, of course, has led observers to ask if there is a comparable naming rights business outside the US. Like the US, most major European territories have a number of high-profile clubs playing in big stadia. So is there an opportunity for sponsors and rights holders to open up a rich new seam of activity over here?
There are plenty of well-placed observers who believe there is. One of them is US-based sports consultancy The Bonham Group – which has brokered 10 high-profile naming rights deals in the US on behalf of brands such as Toyota, Honda, Ford and Oracle. So convinced is Bonham of Europe’s potential that it recently signed up 02’s former head of sponsorship Paul Samuels to launch a spin-off business in Europe.
In a review of developments in 2006, Bonham estimated that current naming rights contracts in the US major leagues were worth around US$4.7 billion. With most deals running for between 10 and 30 years, Bonham reckons that there are currently 81 active agreements involving 28 different business categories. Explaining why there is such interest, Samuels says naming rights’ ability “to cut through the clutter distinguishes them from traditional advertising and makes them TiVo proof during broadcasts”. [Note: TiVo is a digital video recording technology which makes it possible to skip ads].
Bonham’s decision to come to Europe follows its involvement in the deal which saw O2 secure the naming rights to the Millennium Dome. But the reality is that it is soccer which is regarded as the big opportunity in the first phase of European expansion. Samuels, who first came into contact with Bonham during the Dome deal, believes naming rights in Europe is set to explode. “Germany is well-developed but the rest of Europe isn’t,” he says. “At a time when rights and venue owners are looking for new revenues, naming rights is an untapped area of potential. It’s a win-win for them and sponsors.”
Samuels’ bullish assessment of the market is shared by research companies like Sports Marketing Surveys (SMS) which talks up the sector in TWSM 2006 – its annual round up of the sponsorship business: “TWSM believes that the market for naming rights will grow further. There is evidence for this in the fact that in 2006, TWSM reported US$1.4 billion of venue naming rights acquisitions against $804m in 2005. Mammoth deals such as that between Citigroup and the Mets will build even greater confidence in the market.”
Of course, Europe is not the same as the US – so we have to be careful about extrapolating from one market to the other. Before assessing whether Bonham and SMS are right, it’s worth looking at some of the fundamentals differences between the markets – and the trends which are fuelling the current boom in US naming rights.
The first crucial distinction is that major US sports don’t deal in shirt sponsorships – unlike soccer clubs in the UK. So, when a company like Barclays or CitiGroup pays US$20m a year for a deal, they know that they will be the primary beneficiary of the team association. In the UK, any naming rights deal for (let’s say) Manchester United or Chelsea would have to take account of the fact that AIG and Samsung are paying £16m and £10m respectively for their associations with the clubs.
This clearly affects the mechanics of such deals. For a start, shirt sponsorships are sexier than stadia sponsorships – since they are linked directly to talent and performance. So any brand which takes up a naming rights option in the UK risks looking like a steady eddy compared to the shirt sponsor. This might suit a bank or utility which wants to appear ‘safe as houses’ – but it probably reduces the basket of business sectors likely to sign such deals (compared with the 28 identified by Bonham Group in the US market).
There’s also the issue of who gets what spin-off rights. Both partners will want a major return in terms of media exposure. And there will also be high expectations regarding stadia usage rights, corporate hospitality, promotions and the like.
Since part of the appeal of naming rights in the US is lack of clutter, this suggests there will need to be some sensitivity to the potential for conflict when a European rights holder signs up both a naming rights and a shirt sponsor. There is even more truth in this now that many clubs are also giving prominence to their mobile partners as well. Add the growth of virtual advertising into the mix and the purity of the naming rights sponsor’s communication is not quite so certain.
These are not insurmountable problems. But they are relevant when calculating price and entitlements. One obvious solution is to sign up the same brand as both stadium and shirt sponsor. This is what English Premier League club Arsenal have done with Emirate Airlines – which paid around £100m for a 15-year naming rights deal (2006/07-2021/22) and an eight-year shirt sponsorship (2006/07-2014/15).
Anyone who has watched Arsenal on a consistent basis this season will know that Emirates is getting fantastic value from the deal in terms of mentions in the media. Not only that, the superb quality of Arsenal’s football means that ‘The Emirates’ has almost become a by-word for what’s good about English football.
But the deal does raise a couple of broader issues. The first concerns the differing lengths of contracts signed by Emirates. The US model suggests naming rights deals need to be signed for at least ten years to have the optimal effect. But shirt sponsorships are usually 3-4 years.
The question is how this will affect valuations when renegotiations come up. On the one hand, Arsenal might force Emirates to pay a higher price for its shirt sponsorship – reasoning that the brand needs the shirt sponsorship to retain ‘ownership’ of the club’s brand. On the other, Emirates may try to force Arsenal down in price – reasoning that new shirt sponsors will feel overshadowed by the naming rights relationship. Only time will tell how this situation plays out and if a deal can be done without acrimony.
The second more serious issue concerns the fact that Emirates signed up to a new-build stadium (Arsenal having left their historic Highbury venue at the end of the 2005/06 season). To date, all the evidence suggests that the best naming rights deals are those which link brands to new sporting venues – not existing sites. Once again there are a couple of reasons for this.
Firstly, there is often a belief among the fanbase that sponsors of new-builds are in some way facilitators of the construction (sometimes true, sometimes not). Secondly, sponsors which try to link to existing stadia often find that fans resent their intrusion and the association doesn’t stick.
In other words, a genuine boom in naming rights requires a boom in stadia construction. This is what has happened in the US and is still happening, according to the SMS Monitor: “In the US, there are currently construction plans or major renovations for seven NFL stadia, five NBA arenas, three NHL buildings and seven Major League Baseball parks,” says the report.
So what about the rest of the world? Well Bonham’s move into Europe is partly based on the belief that there is a similar building boom occurring elsewhere in the world. The Arsenal new-build was a recent example of this – as was the construction of the City of Manchester Stadium (where Manchester City now plays). Other English Premier League clubs with a declared intention to build new stadia include the Merseyside rivals Liverpool and Everton. And the influx of foreign tycoons into the game (combined with a growth in the value of TV rights) suggests Bonham Group might be right.
This emphasis on new build deals creates an interesting conundrum for a market-leading club like Manchester United – which has no compelling reason for moving from its 70,000 seater stadium Old Trafford. Without a naming rights deal, it effectively allows rivals like Arsenal to generate an extra revenue stream every year. But try to impose a brand image on the venue’s name and they risk a fan backlash.
The club’s American owner Malcolm Glazer will undoubtedly want to sign a naming rights deal – but will presumably have to use a formula along the lines of ‘Old Trafford, sponsored by XXX’ - rather than a complete rebranding.
Although this will dilute the impact for the sponsor, there might still be good value if they do not place such a premium on media exposure. Say, for example, a sponsor is more interested in tickets, boxes, access to players for promotional purposes and use of the venue for corporate hospitality, then a diluted naming rights deals can still be of immense value. As SMS points out in TWSM, Toyota’s naming rights deal with US Major League Soccer team Chicago Fire ‘has been integrated into the design of the building. The stadium has two heavy-lift platforms which allow Toyota to insert vehicles into the stadium and change the model displays up to four times per year.’ In other words, Toyota gets exclusive access to an extremely upmarket car showroom.
So in summary, naming rights is coming to Europe. But it needs to be approached with caution – since this market is not the same as the US. As a rule of thumb, deals need to be a minimum of ten years and the price must take account of rival brands and allocated benefits. New-builds will generate bigger sums than existing stadia (with the possible exception of Manchester United which repeatedly defies commercial logic). A local connection may help a stadium sponsor but is not crucial in this era of globalised TV sport. As far as categories go, banks, airlines and utilities make more like naming rights partners than sectors such as FMCG, online gambling and mobile technology.
Considerations before signing a deal include the geographic/commercial context of the venue – so an Economic Impact Study makes good sense. What, for example, is the fan experience like? Is it easy hard to get out of the stadium. How does fan traffic flow around the complex? Is it possible to be involved in the venue design? Who else is involved in financing the stadium? Is it part-funded by a supermarket, casino development, council – what does this mean in terms of ownership, site usage and brand image? It’s also important to be clear about what is included in the deal. A sponsor might, for example, finance a stadium in the belief that it will have naming rights when the 2018 FIFA World Cup comes to England (here’s hoping). But FIFA showed at Germany 2006 that its preferred approach is to black out stadium sponsor names for the duration of the event in order to prevent a clash with its own sponsors.
Of course, it’s worth saying as a post-script that German research group Sport+Markt estimates Europe has already seen over 100 naming rights deals in and outside of sport. Few are as big as the Emirates deal or the Allianz Arena in Germany (often cited as a classic case study). But their existence does give us some precedents which show that a) – naming rights have become more accepted by the public; b) they are seen as less irritating than many other forms of sponsorship and c) they can work in the arts and entertainment sectors as well as sport.
Articles written by Hollis correspondent Andy Fry.
If you would like to send in news or comment, please email rosie@hollis-publishing.com.
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