Barclays Center, Levi’s Stadium, Golden 1 Center, Mercedes-Benz Stadium, Hard Rock Stadium—any sports fan or concert-goer can rattle off these names as venues of spectacular games and top-notch musical performances. But do they know what is behind those names? The answer is naming rights transactions, which are increasingly popular thanks to their unique intersection of advertising, promotional opportunities, and headline-grabbing financial terms.
To the average observer, a naming rights transaction begins and ends with putting a company’s name on the side of a building or stadium—nothing more. In reality, that is only a small portion of every naming rights deal. In fact, each agreement can be thought of as a sponsorship transaction with the added element of naming. Depending on the magnitude of the transaction, a naming rights agreement will include a wide variety of marketing elements, including sponsorships, ads, television spots, integrated technology, and other promotions. All of these elements have brought naming rights transactions back into vogue for sports leagues and franchises after the market cooled down following the economic recession in 2008.
What’s in a Name?
Naming rights agreements are usually the result of complex negotiation, and the number of issues discussed are plentiful. One of the most heavily discussed terms in a naming rights agreement is exclusivity. The partner (i.e., the party who is advertising) wants to expand its exclusivity rights as much as possible. Any dilution, confusion, or presence of competitors reduces the value of their investment. However, the rights holder (i.e., the recipient of the advertising) wants to narrow the partner’s exclusivity rights so as not to curtail other significant sponsorship opportunities and reduce their overall income. Additionally, both parties desire flexibility within the concept of exclusivity: the partner wants the ability to expand the scope of its exclusivity should its business change or expand, and the rights holder wants to include exceptions that will allow it to take advantage of unique opportunities such as the Olympics, All-Star Games, sponsored teams, etc.
Another key issue in naming rights deals is the length of the agreement, including rights for extensions or renewals, as well as so-called “back end rights.” Back-end rights include rights of first offer, rights of first refusal, matching rights, and numerous other processes which increase the likelihood that the partner’s rights will continue beyond the initial term. Both parties must cope with the tension between the desire for a long term agreement and the need for flexibility if there is a shift in the “fair market value” of the rights. The parties must also negotiate what the elements of the specific back-end/extension/renewal rights (including pricing) will be, and which aspects of promotional, marketing, advertising, and sponsorship rights will be included in that extension/renewal. The crux of the back-end/extension/renewal issue is whether there is an absolute right to some kind of extension/renewal or whether the partner merely has a right to discuss an extension/renewal. The breadth of possibilities is what often makes this provision so challenging.
If the rights holder is a sports team, there are additional considerations dictated by the involvement of professional leagues and collegiate associations. With a professional sports team, its governing league will typically have the right to exercise significant control over the use of the team name and logo. A league inherently needs flexibility in its use of the team’s name and logo, and does not want to be involved in the negotiation of each individual team’s approval rights and name uses. Put simply, there is a general rule that “the league always wins,” and this can be a difficult pill to swallow for a partner paying a significant fee for these rights. As a result, there are numerous discussions and negotiations revolving around the provision of “make-goods” and substitute entitlements to address any material loss suffered by the rights holders resulting from a league action. Similarly, collegiate associations have unique specifications, including the types of partners they will not allow and the need to appease their member colleges and universities.
The Name Game Keeps Growing
While these negotiations are quite complex, the marketplace has seen a proliferation of naming rights transactions in recent years. Prior to 2008, blockbuster naming rights deals often involved financial institutions as the partner (Citi Field, Barclays Center, etc.). The recession of 2008 then changed the landscape of naming rights deals, and financial institutions became somewhat hesitant to enter into highly publicized partnerships with large-sounding bottom lines. However, there has been a resurgence of transactions in the last several years. The marketplace for naming rights deals is booming and has expanded beyond sports arenas and stadiums, and even beyond sports themselves. The types of properties and ventures entering into naming rights deals now include healthcare facilities (UCLA Health Training Center, Inova Sports Performance Center, HSS Training Center, etc.) and also non-sports related properties like large municipal projects and venues for the arts.
As the market is expanding and naming rights deals are becoming more common, partners are targeting different benefits and are seeking to capitalize on unique advertising opportunities. There has been a shift towards partners utilizing their naming rights investment as a chance to give greater value to their clients and customers. Take the Golden 1 Center, for example. As part of its naming rights transaction for the arena in Sacramento, California, Golden 1 Credit Union included automatic ticket discounts for all of its bank patrons, discounts on merchandise, access to venue tours, and a fast-pass lane for its patrons in all concessions stands at the Golden 1 Center. This new focus of naming rights deals opens up the possibility for even broader partnership opportunities and benefits that will enhance the consumer experience.
The uptick in naming rights transactions looks likely to continue, as naming rights allow both partners and rights holders to reap numerous benefits, provide the opportunity to realize both “quick money” and “long term money,” and are recognized for their ability to marry sponsorship rights with enhanced customer experiences. If the next time you go to a place like the DMV you find it sponsored by your favorite fast food restaurant, don’t say we didn’t warn you.
Rich Brand is head of Arent Fox’s sports practice group.
Christina L. Campbell is an associate in the firm’s real estate practice.