Cyril Northcote Parkinson observed in his book, The Parkinson Principle, that “The time spent on any item of the agenda will be in inverse proportion to the sum involved.”
Last week the Santa Clara City Council offered new proof of the venerable scholar of organizational behavior’s correctness; spending less time assigning the sale of hundreds of millions in naming rights for the proposed 49ers stadium than it spent two weeks ago discussing $75,000 in July 4th fireworks.
The special council meeting was called for the express purpose of giving Stadco – a business entity of the San Francisco 49ers football team – exclusive right to sell stadium naming rights for the $900 million venue on behalf of the Santa Clara Stadium Authority. The City Council, which is also the Stadium Authority, unanimously approved the agreement.
Stadco will likely hire a broker to market the naming rights, according to 49ers Chief Sales Officer John Vidalin, who says that the team has already “been in discussions with a number of firms” and that about a half dozen companies are under consideration. A broker will be selected “with the consultation of city staff, Vidalin continued. However, it’s not quite clear how much consultation the City will get to do, as Stadco expects to have hired a broker by the time city staff review any agreement.
The Uncertain Art of Valuing Stadium Naming Rights
Stadium naming rights are about as old as professional sports, starting with chewing gum tycoon and Chicago Cubs owner William Wrigley in 1926. Today, about two-thirds of North American professional sports teams play in stadiums named for corporate sponsors.
The biggest licensing agreement ever is Farmers Insurance’s $700 million, 30-year deal for a yet-to-be-built football stadium on a yet-to-be-approved downtown Los Angeles site for a yet-to-be-acquired team. In 2006, Citigroup inked a $400 million naming rights deal with the New York Mets baseball team. Barclays Bank paid about the same amount in 2007 for naming rights to the Nets basketball team’s future home in Brooklyn, NY.
But does a Santa Clara address carry the cachet of Los Angeles or New York? It remains to be seen whether bids for Santa Clara stadium naming rights will reach such stratospheric heights. Historically, naming rights typically average $1-2 million a year, according to University of Omaha research*. Brokers’ commissions are typically 5 to 10 percent.
The value of naming rights is typically market-driven – based on a variety of factors that include attendance, media mentions, TV exposure, alliances and partnerships, and assets included in the deal (for example, tickets). For example, the Omaha paper quotes CMGI, which bought the New England Patriots’ naming rights about 10 years ago for $120 million, saying that “no existing research that would help quantify the value of a comprehensive, long-term deal of this nature.”
After 20 pages of detailed market and statistical analysis, the Omaha paper arrives at a similar conclusion, saying, that the commonly-used market value approach “…does little to determine if a naming rights deal is actually worth the expense” for the sponsor.
Given that naming rights cover decades, there are risks inherent in any deal for sellers as well as buyers. First, the arrival of revenue doesn’t coincide with up-front construction costs. Second, there’s always the possibility that what looks so good now may turn so sour later. In 2008 New York tabloids nicknamed Citi Field Bailout Ballpark. And then there’s always 3Com, um, Monster, um, Candlestick Park.
*Source: “Valuing Naming Rights,” 2001, Greg C. Ashley and Michael J. O’Hara, cba.unomaha.edu.