A Poor Score for Stadium Sponsors' Stocks
These days, the mantra of sports marketers seems to be "name it, and they will come." Come to buy your products, that is. The act of paying big bucks to get a corporate name emblazoned on a stadium, coliseum, or arena is now so widespread that it is taken for granted by fans, owners, and city governments. But a BW Online analysis of what has been happening to the stock prices of the sponsoring companies suggests investors might be getting the raw end of the deal.
On its face, the sponsorship game looks like a win/win situation. The city that helps finance the stadium can pay off its bonds early. The team gets extra revenue. The fans often get a nicer stadium. But the consequences for investors in these companies are far from attractive. BW Online looked at 60 such deals in the four major U.S. pro-team sports -- football, basketball, baseball, and hockey. Through the end of 2000, the stock prices of companies that shelled out big bucks for sponsorships on average had declined 22% for the year, or twice as much as those in the Standard & Poor's 500 broad-market index, which fell 10%. The four companies that had deals over a five-year period averaged cumulative appreciation of 75% for five years, compared to a 115% price rise in the S&P 500 over the same time period.
GOING FOR BUST.
Now a statistician might take issue with the premise that there's a direct correlation between buying a stadium name and poor performance in stock prices. And, yes, the sharpest declines come from stocks traded on the Nasdaq, due to the dot-com meltdown. But there does seem to be some relationship between a company that spends extravagantly on untrackable marketing schemes and a declining share price.
Could it come down to management that doesn't make the right marketing decisions? Three of the 60 companies -- or 5% -- that have sponsored stadiums are either bankrupt or on the verge of bankruptcy: TWA, Fruit of the Loom (whose Pro Players stadium in Miami is now being renamed), and Edison International (the holding company for troubled California Edison, and namesake for Edison International Stadium, home of the Anaheim Angels Major League Baseball team).
TWA spent $36.7 million in 1995 for a 20-year naming contract for the domed football stadium in St. Louis. Today, the air carrier is bankrupt and has sold its assets in a fire sale to American Airlines (AMR ). "We don't know as yet exactly which assets American will take," says TWA spokesperson Julia Bishop Cross. "I can say that sponsoring the dome has been an important and worthwhile investment for TWA. Like many other contracts, it will be reviewed in the coming weeks."
But American may not have automatic rights to the sponsorship. Most stadium-naming contracts have a clause allowing the naming rights to be resold if the sponsor enters bankruptcy, says sports-marketing consultant Dean Bonham, chairman of the Bonham Group. While Bonham doesn't know if such a clause exists in the Trans World Dome contract (most of its features aren't public), he thinks the stadium could profit handsomely if the contract is canceled. "They can reenter the market and get two to three times what they got in 1995," says Bonham.
Indeed, stadium sponsorships are popular -- and pricey -- these days. Prior to 1988, less than $25 million was spent on corporate sponsorships of sports locations. Today, there are more than 60 worth over $3 billion. That doesn't mean every stadium is interested in sponsorship. The Super Bowl-bound New York Giants, who play in the famed Giants Stadium in the Meadowlands sports center in New Jersey, wouldn't sell the name of their home for the world. They live in a region where their team's heritage matters deeply. Fans would revolt if they woke up one Sunday morning to find out that the game was to be held at a stadium named after a corporation.
But the most expensive sponsorship contracts are for NFL stadiums, because football generates more revenue, television viewers, and media coverage than anything else does. A nationwide movement to build stadiums has produced several new sponsorships, notably the most expensive one yet: FedEx' 27-year sponsorship of the Washington Redskins' home for $205 million. And some sponsors have profited handsomely from their deals.
By far the most successful has been Qualcomm, which paid $18 million back in 1997 to get its name on San Diego's stadium, home of the Chargers NFL team. The stock, which admittedly had a down year in 2000, has enjoyed a 1,200% appreciation in the three years since the deal was announced. The company embarked on the sponsorship as a way of building a consumer brand name for its cellular phones. Since then, it has sold the phone business to Kyocera and now sells licenses for its various intellectual property assets. But Qualcomm spokesperson Christine Trimble says the company is happy with the deal. "The effort was redirected to building the Qualcomm name, and we've had tremendous exposure, especially in 1998 when the stadium hosted both the World Series and the Super Bowl."
In fact, one thing Qualcomm has over most other sponsors is that its stadium is also used as the home of the San Diego Padres, thereby giving it double the media exposure. In fact, companies that host baseball stadiums came out much better in the stock market then their football brethren. The average stock price of the 12 public companies with baseball-stadium deals increased 12% in 2000. The seven companies that have had baseball deals dating back to at least 1998 have seen their stock prices rise 142% the past three years, well above the S&P 500's performance.
Companies that sponsored basketball arenas didn't fare so well. While those stocks were able to match baseball sponsors' 2000 appreciation of 12%, they managed only 37% over the past three years.
But the real losers in sponsorships, at least from an investor's viewpoint, are companies that put their names on hockey arenas. The 16 public companies sponsoring hockey venues saw their stock prices drop 17% in 2000, and the seven with contracts that lasted at least three years saw a rise of only 36%. Ironically, hockey sponsorships on average are the most expensive. The average cost of hockey and basketball contracts is $2.7 million per year, while the more prominent sports of football and baseball cost $2.3 million and $1.9 million on average, respectively.
To be sure, it's too simplistic to say that stadium sponsorships are just plain bad business, based solely on the stock performance of these companies in a given year or even over several years. After all, a corporation can spend more on a Super Bowl ad then on a year's worth of stadium sponsorship, and the quality of the marketing rewards is arguably better for the latter. "In the big picture, stadium naming rights are the most cost-effective method of sports marketing in terms of getting integrated media exposure and brand awareness," says Bonham.
Perhaps. But look at what happened in Baltimore, which was football-starved for decades and had to spend hundreds of millions of dollars to lure a team back to its city. No one complained when PSINet, an Internet startup, paid $105 million for the naming rights to the stadium. And the company surely is thrilled that the Ravens are playing in the Super Bowl.
FANS, NOT CUSTOMERS.
Still, PSINet, which built a nationwide telecommunications network, has suffered some huge loses in the market. The company's stock, which was worth $60 in its early 2000 glory days, is now down to $2.12 a share. "They tried the Field of Dreams business strategy: If you build it, they will come," says Kevin Landis, manager of the Firsthand Funds, which own PSINet shares. Plenty of fans came to PSINet Stadium, but few of them apparently signed up for PSINet's Internet access or hosting services.
Does the company regret the sponsorship decision? No way. "If we had to make the decision today, we'd do it again," says Flo Bryan, manager of sports marketing for PSINet. "We've done a terrific job of integrating the brand name with the stadium. It's also a door opener and a great way to entertain customers and prospects. And the fact that the Ravens have made it to the Super Bowl just enhances that."
But clearly, sponsorship deals are no shortcut to financial success. Wilkinson Group, a sports consultancy that specializes in sponsorship deals, declined to comment, but at its Web site, you can find this piece of advice for successful sponsorship deals: "Yes, sponsors should expect to experience actual returns from their sponsorship investments. Create a strategy that expects returns, apply the remaining relevant practices, and expect to be a hero."
Sounds alluring. But if shareholders expect returns to match or beat the broader market, maybe they should take a harder look at companies that splurge on stadium-sponsorship deals.
|Exhibit A: NFL Stadium Sponsorships|
|Thirteen of the 31 NFL stadiums have been named after corporate sponsors. Here's the list -- and how the sponsors' stocks did in 2000:|
|Team||Stadium Name/(Co. Ticker)||Sponsor's 2000 Stock Performance|
|Baltimore Ravens||PSINet Stadium (PSIX )||-97.57|
|Carolina Panthers||Ericsson Stadium (ERICY )||-31.95|
|Cincinnati Bengals||Cinergy Field (CIN )||46.74|
|Indianapolis Colts||RCA Dome (GE )||-6.11|
|Jacksonville Jaguars||ALLTEL Stadium (AT )||-24.56|
|Tennessee Titans||Adelphia Coliseum (ADLAC )||-21.33|
|Oakland Raiders||Network Associates Coliseum (NETA )||-51.29|
|San Diego Chargers||Qualcomm Stadium (QCOM )||-53.34|
|San Francisco 49ers||3Com Park (COMS )||-13.88|
|St. Louis Rams||Trans World Dome (TWA )||-100.00|
|Tampa Bay Buccaneers||Raymond James Stadium (RJF )||87.22|
|Washington Redskins||FedEx Field (FDX )||-2.39|
By Sam Jaffe in New York
Edited by Beth Belton