While healthy banks can benefit from naming rights, some money-losing firms with expensive deals—like Citigroup—could lose out
Over the last several years, many banks galvanized by the housing boom affixed their names to sports stadiums and arenas across the country, hoping to drive brand awareness at the ballpark. Now, as the subprime and credit crisis continues to strike many financial institutions, one expert criticizes certain money-losing companies for buying naming rights.
In 2006, Citigroup (C) signed what was then the most expensive naming rights contract—a 20-year, $400 million deal with the New York Mets for the naming rights to the team's new stadium, which is set to open in 2009. The bank, which has announced losses totaling more than $17 billion over the past three quarters, needs the capital more than it needs any marketing benefits it might get from the rights, says Peter Cohan, author and president of Peter H. Cohan & Associates, a management consulting and venture capital firm in Marlborough, Mass. "They need to stop the bleeding wherever they can," he says.
Financial companies have posted more than $400 billion in writedowns since 2006, and that number could reach $1 trillion, according to the International Monetary Fund.
Low-Cost Marketing for Banks
Despite the mounting losses, banks maintain that putting their marketing dollars into arenas and stadiums is a good investment. Bank of America (BAC), the country's second-largest bank by assets, whose profits fell 73% last year, bought the naming rights in 2004 for the Carolina Panthers' football stadium in Charlotte, N.C., for 20 years at $7 million per year. "It's done phenomenally well" as an investment, says Ray Bednar, the company's senior vice-president for global sponsorship and marketing.
Executives at M&T Bank (MTB), PNC Financial Services (PNC), and Comerica Bank (CMA), whose companies sponsor stadiums in Baltimore, Pittsburgh, and Detroit, respectively, say they are similarly happy with their investments. Matching Citigroup's large sponsorship, Barclays (BCS) agreed in January 2007 to a 20-year, $400 million deal for the naming rights to the new New Jersey Nets arena, which hasn't yet been constructed.
Sponsors like the advantages of attaching a name to a stadium because it conveys stability at a cost that is low relative to overall revenues. "The majority of fans will support the organizations that support their franchise in good times and in bad," says Rob Vogel, president of the sports marketing firm Bonham Group. In Citigroup's case, the $20 million-per-year rate that the company agreed to pay in 2006 was less than one-tenth of 1% of net income for the year. Other companies are paying considerably less to sponsor a stadium—M&T Bank pays $5 million per year and Comerica pays $2.2 million annually.
Stable Bank, Stable Name
And the benefits of naming rights might be worth the price. Banks that are still profitable, such as Bank of America, can use their sponsored stadiums to help woo new clients and take advantage of more vulnerable competitors, says Cohan. Bank of America reported a profit of $3.41 billion in the second quarter, down 41% from 2007. "In their case the benefit probably outweighs the costs," Cohan says. "You get to take your clients to a nice executive box to watch a big game, which helps you close deals."
Stadium owners have much vested in the financial success of their sponsors. If a faltering bank is acquired by a larger one, owners could have to change the name of the building. "Every time you change the name of a stadium, its value goes down," says the Bonham Group's Vogel. Removing old signage and reacquainting the fan base with a new name is also an ordeal. In 2004, after San Francisco's major league ballpark and football stadium had assumed three different names within a three-year period, voters passed a law reverting the stadium back to its original name, Candlestick Park. "For property owners, the worst-case scenario is having to change the name of your building," says Jim Biegalski, vice-president of sports consulting group The Marketing Arm.
In more extreme cases, a corporate sponsor that goes bankrupt might not be able to pay its annual licensing fees. And a sullied reputation could reflect poorly on the stadium or the team playing there. In 2002, the Houston Astros baseball club sued Enron, the $111 billion company that had purchased the 30-year naming rights to the major-league stadium for $100 million in 1999. The Astros argued that the energy company's bankruptcy case, which alleged executive deception and accounting fraud, had "burdened [the Astros] with Enron's considerable baggage."
Here's a look at the stadiums that are sponsored by financial firms, and whether those firms are surviving the subprime blowout.