What’s in a name? Understanding Stadium Naming Rights
By Nandan Kamath
The days of naming a stadium after a public figure or based on its location are long past. As companies and firms realise the value of being associated with sporting events, the sponsorship of sport has grown into a multi-billion dollar business across the world. Corporate naming of sports stadia now forms a significant stream of value creation in the sports sponsorship marketplace.
The first instance of naming a stadium after a corporation can be traced back to 1912 when the Boston Red Sox renamed their stadium Fenway Park. This was done to promote the owner’s real estate company – Fenway Realty. The Chicago Cubs followed suit and renamed their stadium, Weeghman Field, Wrigley Field in 1926 – in order to promote the owner’s chewing gum company – Wrigley. The first naming rights agreement, as we know it today, was negotiated in 1973. It was between Rich Products Corporation and the County of Erie, New York under which the Buffalo Bills of the NFL named their new facility the ‘Rich Stadium’ at a consideration of US $1.5 million over 25 years.
A naming rights agreement is an agreement under which a company or individual purchases the right to name a stadium for a fixed period of time, potentially along with other benefits, in exchange for monetary consideration.
In economic terms, naming rights deals amount to monetization of large capital assets for facility owners. Sports teams that own stadia as well as facility developers are looking to increase to the greatest extent possible every potential revenue stream and the opportunity of replacing the facility names with those of corporations are looked upon as win-win situations. While naming rights deals generate income for the stadiums and arenas ‘named’, sponsoring companies obtain valuable advertising, promotional and public relations benefits.
For the facility owner, there are three main benefits that accrue from such a deal, namely:
- Financial backing to build/renovate the stadium;
- Increase in revenue for the team to match the growing wages of players, stadium developments, transfer fees and other expenses; and
- In certain cases, relocation of a team to a new stadium with improved facilities. For instance, Arsenal’s move to the Emirates Stadium was funded by the U.A.E based airline operator, Emirates.
For a corporation, the naming of a facility after its brand name promotes exposure in several ways:
- It is a highly cost effective way for a company to gain visibility through advertising though possibly difficult to quantify; For instance, America West Airlines in 1991 bought naming rights to the Phoenix Suns’ new arena at a cost of US $500,000 for the first year, with an annual increment of 3%. When the Suns hosted the Chicago Bulls in the NBA 1993 finals, America West’s name and logo were displayed repeatedly during the telecast at a cost of US $583,495, less than that of a 30 second advertisement slot which was sold at US $300,000.
- It confers goodwill on the corporation by projecting a ‘socially responsible’ image;
- Naming rights are usually bundled together with other rights such as pouring rights or the right to promote goods and services of the corporation at the stadium;
- Corporations are also often granted hospitality boxes as part of the package deal which they can use to entertain current and prospective clients and as part of employee engagement programmes; and
- Most importantly, some countries like the United States and Britain allow the corporations to use the costs of purchasing the naming rights of stadiums as tax deductible advertising expenses.
‘Naming Rights’: Different Approaches
Although almost all professional and college team stadiums in the United States are named after corporations, only 11 out of the 44 English Premier League and Football League Championship teams currently have corporate-sponsored stadia. Use of naming rights in Britain is associated usually with newly built stadia – such as the Emirates Stadium (which houses Arsenal), Reebok Stadium (which houses Bolton), Ricoh Arena (home to Coventry City) and the Liberty Stadium (home to Swansea City). Further, renaming of iconic sports facilities such as Old Trafford or the Yankee Stadium does not assure fan support for such measures.” There seems to be a general reluctance to rename facilities that are already built in contrast to those that are in the process of being built.
The benefits that any ‘naming rights’ sponsor would confer on the team or its fans would be minimal. There would therefore be no reason for the fans to warm up to the sponsor. ‘Candlestick Park’ in San Francisco was renamed ‘3Com Park’ followed by ‘Monster Park’, but ultimately returned to its original name – Candlestick Park. The reason for this was largely the attachment of the people of San Francisco to that name to the extent of passing a referendum against the sale of its naming rights post the expiry of the contract with Monster Cables (for ‘Monster Park’). Ironically, economic necessity caused a consequent referendum to approve the sale of the facility’s naming rights! Similarly, the renaming of St. James’ Park as sportsdirect@St.JamesPark Stadium was met with strong criticism as it brought an end to the stadium’s 119 year name. The renaming of the stadium usually brings no benefit to the club or its supporters and unless it does, it is seemingly impossible for fans to abandon tradition and take to new names.
In 2009, when the Telstra Dome in Melbourne was renamed the Etihad Stadium, a huge controversy arose with the Australian Football League (AFL), which had its headquarters at the Stadium. The AFL, sponsored by Qantas, a rival airline had considerable pull with the public and hence, they refused to acknowledge the change in name. An agreement was reached between the two parties regarding sponsorship and club stadium deals and now the AFL recognises the name ‘Etihad Stadium’, though it is mostly still referred to by its former name, there is nothing that Etihad can do about it as it is merely a matter of convenience for those who refer to it by that name. Although all official communications refer to the stadium as the Etihad Stadium, only time will tell if the new name will become part of the vernacular of Melbourne.
Naming Rights: Is it a form of Ambush Marketing?
Ambush marketing is the unauthorized association of businesses with the marketing of an event, i.e., without paying for the marketing rights. In the eyes of FIFA and the IOC, naming rights of stadiums and other facilities that are exploited by stadium sponsors during an event are a form of ambush marketing. A glance at Clause 4.2.3 of FIFA’s Host City Agreement between FIFA, the Local Organising Committee and the Host City (in this case, the model agreement pertaining to the 2017 Confederations Cup and the 2018 World Cup) reveals the following:
- Sub-Clause (i) states that FIFA has the right to use a different name to refer to a stadium during and in relation to an event.
- Sub-clause (iii) states that the name assigned to the facility by FIFA should be compulsorily utilised in press conferences, press releases, printed material and any other marketing and promotional material during and in relation to the event.
For instance, the Allianz arena in Germany was referred to as FIFA World Cup Stadium Munich during the 2006 FIFA World Cup. Another example of the same is that despite Coca-Cola being one of FIFA’s six official partners, the Coca-Cola Park at Johannesburg was referred to as Ellis Park, during the FIFA World Cup 2010. Thus, stadiums are prevented from promoting their own tie-ups during the World Cup and other FIFA- organised events. A similar rule is also prescribed by the IOC. During the Winter Olympics in Canada in 2010, the Rogers Arena (which was then called the General Motors Place) was referred to as the ‘Canada Hockey Place’.
The Anatomy of a Naming Rights Agreement
While drafting a naming rights agreement, certain legal issues need to be taken into account such as the extent of rights granted, the term for which they are granted and the financial terms. These, along with a few other terms, form the salient clauses of a (sponsor-centric) naming rights agreement:
1. Grant of Rights – This is the most important clause in the agreement and pertains to the composition of the package sold to the sponsor. Generally, naming rights are sold as a part of a larger, more extensive package. Examples of such packages are:
- Grant of Exclusive ‘Pouring’ Rights – Pepsi, in addition to purchasing the naming rights to the Pepsi Arena in Denver also obtained exclusive pouring rights (for beverages) within the Arena. Hence, no rival beverage company was permitted to make sales within the arena.
- Shirt sponsorships and tournament title sponsorships are often sold along with the naming rights like in the case of Etihad Airlines sponsoring the kits of Manchester City FC and Emirates Airlines sponsoring the curtain raising Emirates Cup of Arsenal FC.
- At times, permission to name additional structures such as parking lots and stands is also bundled along with naming rights.
2. Term of Agreement – Generally, the duration of naming rights agreements are between 3 and 20 years. There have also been instances of naming rights being granted in perpetuity. However, an analysis of recently concluded naming rights deals shows that facility owners are moving towards short-term deals rather than long-term ones. The rapid rise in the value of sporting teams and volatility of the economy is perhaps the cause for this. For example, in 2006 Arsenal sold their shirt sponsorship rights to Emirates for 48 million pounds for a period of 8 years. This roughly works out to 6 million pounds a year. This roughly works out to 6 million pounds a year which can be contrasted against shirt sponsorships agreements made by Liverpool, Manchester United and Manchester City – which earn 20 million pounds a year from Standard Chartered, Aon and Etihad respectively.”
3.Consideration – The amount that is paid for the naming rights (if included as part of a package, the total amount paid for the package) ought to be incorporated into the agreement.
- Category Exclusivity – After the grant of rights clause, this is probably the most important clause in the naming rights agreement. It is a type of warranty that would state that there ought to be no direct competitors to the naming rights sponsor within the facility. This clause enables the naming rights sponsor to protect its own rights and ensures a virtual monopoly within the arena.
5. Warranties – Naming Rights agreements are accompanied by certain warranties given by the facility owner to the corporate sponsor. This is to ensure that the agreements are worth the consideration paid for. Three essential warranties are:
- The team (whose home stadium is being sponsored) must play all its home games at the named venue.
- The team ought to be prevented from relocating during the term.
- The type of events and the number of events to be held at the stadium are to be clearly drafted into the contract
6. Termination Clause – Both parties should have the right to terminate the contract upon the occurring of certain contingencies, namely:
- The Sponsor should have the option to terminate on relegation of the team from the relevant league, or for instance specifically, failure to qualify for, say, European football or failure to make it to the NBA play- offs.
- The facility owner should have the right to terminate the contract if the sponsor fails to pay the consideration as stipulated in the contract and in exceptional situations, to have the right to cancel the contract if a better offer to ‘name’ the facility is made.
- Finally, both parties should have the right to terminate the contract if either party brings disrepute to the other. For example, Enron sponsored the Houston Astros and on the company’s bankruptcy, the Houston Astros wished to cancel the contract and dissociate themselves from the Company. This led to an out of Court settlement wherein Enron’s creditors were paid $2.1 million to terminate the contract and buy back the naming rights.
7. Proviso for future name change – In the event of a merger, acquisition or a change in the corporate marketing strategy of the sponsor, the sponsor ought to be permitted to change the name of the facility
The concept of naming rights has not entered India in a big way. It was not until February 2011 that the first naming rights agreement was concluded in India. The Sahara India group purchased the naming rights to Pune’s newly built cricket stadium for a whopping Rs. 207 crore. As naming a stadium after a corporate brand or a company is barred under certain rules (and could cause ambush marketing concerns in certain circumstances), the stadium was named the ‘Subrata Roy Sahara Stadium’ after the group’s Chairman. Uncharacteristic of naming rights agreements, the naming rights of the stadium were sold to Sahara in perpetuity.The IPL team, Pune Warriors, are all set to make this stadium their home ground. As an additional right, Sahara was allowed to build a modern club at the site of the stadium with modern amenities and facilities. Sahara was to incur the costs for the same and as a result got the rights to sell memberships for the same. Considering the need for world class facilities and the need to raise revenue for the same, the use of naming rights is an avenue to raise the bar in the country and establish world-class facilities.
© The Sports Law & Policy Centre