It is opening day for the Los Angeles Football Club (LAFC)—LA’s newest professional sports franchise. Their black and gold art deco “LA” crest commands attention as it fills every corner within the city’s latest architectural darling, the first open-air stadium built in Los Angeles since 1962. LAFC’s visual presence, oddly, is not paramount. The stadium’s naming rights sponsor, Banc of California, equals it in glamour, meticulousness, and sheer size.
Stadium naming rights deals often surpass 100 pages, yet the following three issues are often hotly negotiated between the stadium owner (Owner) and the naming rights sponsor (Sponsor).
This issue concerns which companies within the Sponsor’s industry can sell or advertise goods and services at the stadium.
Sponsor. Category exclusivity allows the Sponsor to reduce consumer confusion and brand dilution resulting from a competitor’s presence at the venue. Exclusivity also caps a competitor’s ability to reach the consumer segment represented by stadium attendees. Thus, the Sponsor wants to define its industry category as broadly as possible. For example, Banc of California wants to be the sole brand in an expansive “financial services and products” category, including checking and savings accounts, loans, investment and retirement accounts, and payment processing services within its stadium. The Sponsor may also want to be the sole industry player allowed to run commercials during games.
Owner. To maintain greater flexibility in selling multiple sponsorship opportunities to other partners, the Owner wants to segment industry categories as much as possible. For example, if AT&T is the Sponsor, the Owner would want to limit AT&T’s exclusivity to the internet and television categories, and carve out other partnerships with mobile phones, home security, and network security partners.
Practical Point. Sports leagues and touring acts often have partnerships that take precedence over any deals the Owner may have with its Sponsor. For example, although the 2018 Super Bowl was held in the Minnesota Vikings’ US Bank Stadium, potential industry competitors Quicken Loans, TurboTax, and E-Trade purchased commercial spots from the NFL to air during the game. However, Sponsors will still reap the benefits of ancillary coverage of the event held in their namesake. They can also purchase local or regional advertising to air before or after the event and install signage in the area surrounding the stadium. Sponsors should therefore preemptively negotiate concessions from the Owner (e.g., cash payments) for instances where the Sponsor’s signage must be removed to accommodate a temporary resident or when revised league rules limit the type of industries that may advertise.
This issue concerns stadium operations from the ticket takers, to security guards, to the facilities’ maintenance.
Sponsor. Stadium visitors will associate their event-day experience with the Sponsor, not necessarily the Owner. To ensure a high-quality association with its brand, the Sponsor will want greater control over the hiring decision for which third-party operates on game day or during events, and how much the Owner budgets annually towards these operations.
Owner. Owning a stadium is a business decision. Owners want to reduce overhead in operations to divert that money elsewhere. This is especially true when the Owner is the team itself, which must manage other costs (e.g., advertising, marketing, salary caps, and staff contracts). Owners may focus on reducing costs by getting the cheapest operations partner or by hiring part-time employees. If the latter, the Sponsor may still insist that each employee’s gear carry the Sponsor’s brand as well.
Practical Point. As with investing in high-quality operations, the Sponsor may be more concerned than the Owner in maintaining the property’s appearance and hardware functionality. The Sponsor wants to ensure that the venue is maintained as often as it deems necessary, while the Owner would probably try to push this back as far as possible. Until there is a dip in attendance and ticket sales as a direct result of decrepit facilities, the Owner may not want to budge.
This issue concerns the duration and renewal options of the naming rights deal.
Sponsor. On one hand, the Sponsor wants to reap all the benefits of its brand being stretched across what is likely the largest footprint in a metropolitan area. These benefits build only over time. Thus, a deal lasting many years is useful. On the other hand, an underperforming team or plummeting ratings for the entire league (as a result of changing national opinion) could make the Sponsor’s multi-million dollar commitment a waste and may even harm its brand.
Owner. The longer the commitment, the higher the likelihood that the Owner’s deal may become tremendously undervalued. Naming rights deals have only increased in value since the mid-2000s recession, resulting in a cash-boon for those looking to deal. A shorter deal means the Owner can resell the rights for another hefty paycheck after a few years. Owners must consider if the cash influx is worth the increase in fan apathy that may occur when a stadium has multiple sponsors in a short period. Inconsistency in sponsorship may reduce the next naming rights deal’s value, as fans may simply call the stadium by its previous or its team’s name.
Practical Point. The terms of an option to renew or extend a naming rights deal is a major sticking