[HN Gopher] The economics of stadium names
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The economics of stadium names
Author : the88doctor
Score : 83 points
Date : 2022-06-04 13:54 UTC (9 hours ago)
(HTM) web link (axiomalpha.com)
(TXT) w3m dump (axiomalpha.com)
| smohnot wrote:
| This article is interesting but I picked up on several errors.
|
| For example: In case you were wondering how Q2 Holdings ($3B
| market cap) could possibly pay $260M to name a Texas soccer
| stadium... they can't and didn't. That number is the amount it
| cost to build the entire stadium. Q2 said the deal cost less than
| 1% of its annual revenue... Their annual revenues are <$500M.
| https://twitter.com/SportsPro/status/1354033011302477826?s=2...
|
| An interesting naming right to consider is Overstock.com... in
| 2011, they bought the rights to the Oakland-Alameda County
| Coliseum, where both the Raiders and Athletics played... for a 6
| year total of $7.2M. It was always a head-scratcher for me how
| that went so cheaply.
| (https://en.wikipedia.org/wiki/Oakland_Coliseum)
| mrandish wrote:
| Not a bad rule of thumb, especially if the company is spending
| money on long-term brand marketing that's investor capital (or
| otherwise borrowed) and not from operating cash flows.
| ncphil wrote:
| When Gov. Whitman and her crew first implemented "leasing" of
| stadium names, I think it was actually Plan B. What they _really_
| wanted to do was privatize those publicly funded stadiums
| themselves. But that wasn't something that would fly at the time
| because ordinary voters still hadn't fully embraced full on
| privatization of everything.
| mathattack wrote:
| I remember when PacBell bought rights to the new Giants stadium
| for ~$2mm per year. Usually these are testaments to executive
| ego, similar to large HQ purchases. Sometimes it works out
| (Salesforce and Apple) but many times it doesn't (Bear Stearns
| and Enron)
| VoidWhisperer wrote:
| They mention the Crypto.com arena at the start, but it is
| interesting that they seem to have skipped over the history of
| the arena before that - The Staples Center and how that may have
| impacted their business
| the88doctor wrote:
| Staples is a great example to study. Also Sports Authority,
| PSINet, Enron -- there are many fascinating case studies. The
| article would be way too long if I included all of them though.
| However, the upcoming Market Intelligence newsletter issue I
| mention at the end of the article will go into more detail on
| certain examples via the lens of a checklist that anyone
| running, advising, or investing in a company can use to vet a
| particular naming rights deal.
| roseway4 wrote:
| The author mentions randomly sampling companies for the
| analysis.
| VoidWhisperer wrote:
| Edit: Reading again, they specify that the randomly sampled
| companies are NFL stadiums, but I still wonder why Staples
| Center was skipped in the section that talks about
| qualcomm/target
| mediascreen wrote:
| In Stockholm, Sweden, two of the largest arenas are named by
| companies who paid to have the arena named something not
| associated with their company.
|
| Friends Arena is named after the Swedish anti bullying foundation
| Friends as part of the Swedbank sponsorship of the foundation.
|
| Avicii Arena is named after the artist by the companies Trygg-
| Hansa and Bauhaus.
| zach_garwood wrote:
| That's pretty cool! I wish that would catch on in the US. I
| live next to Guaranteed Rate Field. :/
| 0110101001 wrote:
| Amazon bought the naming rights to Seattle's newly-renovated
| NHL arena and named it the "Climate Pledge Arena."
| listenallyall wrote:
| ... but you knew exactly which companies were the sponsors, and
| you have a positive association with them. That's not an
| accident.
| mediascreen wrote:
| Of course. Companies will not spend money without expecting
| something back. But the sponsorships are not very obvious and
| you have to ready pretty far down on the about pages to find
| out. I would be surprised if 10% of the visitors to the
| arenas knew about the sponsorship.
|
| In these cases I think it's mostly about employer branding
| and I think it's communicated much more within the sponsoring
| companies.
| candiddevmike wrote:
| Wonder if this applies to cities that subsidize stadiums too? Are
| they worse off financially?
| enkid wrote:
| It seems like public subsidies for stadiums doesn't add as much
| economic activity as similar investments.
|
| https://econreview.berkeley.edu/the-economics-of-sports-stad...
| mkl95 wrote:
| Cities claim to subsidize stadiums as an investment. However
| data doesn't usually back up those claims.
| https://en.wikipedia.org/wiki/Stadium_subsidy#Criticisms
| [deleted]
| the88doctor wrote:
| As a couple others have mentioned, this is a different
| analysis, but the answer is that generally localities that
| subsidize stadiums do not see a good ROI. Local residents
| typically end up paying the bill through e.g. a slightly higher
| sales tax. Corollary: If you want to pay less local taxes,
| don't live in a city that has a major league sports team.
| ceejayoz wrote:
| > Corollary: If you want to pay less local taxes, don't live
| in a city that has a major league sports team.
|
| Or a state. Here in NY we're chucking hundreds of millions at
| the Bills. https://www.politico.com/news/2022/03/28/buffalo-
| bills-stadi...
| AlbertCory wrote:
| Funny. As a (sometime) SF Giants fan, their park is now on its
| fourth name, and it's only ~20 years old [1].
|
| > The Giants' waterfront arena on 3rd and King Streets is on its
| fourth name change in 19 years. It was first named Pac Bell Park
| when it opened in 2000. In 2002, it was renamed to SBC Park
| before changing again to AT&T Park in 2006.
|
| Life goal when I'm a billionaire: erect a stadium for some sport,
| call it "<Your name here> Park." Enjoy listening to all the
| announcers say that.
|
| [1] https://www.cbsnews.com/sanfrancisco/news/oracle-park-is-
| the...
| bruceb wrote:
| Lumen field where the Seahawks play has had 4 names in 20
| years.
| craz8 wrote:
| And I still call it Seahawks Stadium, the name it had before
| the rights were sold
|
| I may be biased though, as I did get married there the year
| it opened
| kbob wrote:
| But those are just tracking the merger and acquisition status
| of one company.
|
| My father-in-law worked at Bell Labs. He received AT&T stock as
| part of his compensation, from before the 1984 breakup. When we
| settled his estate, that AT&T stock had turned into over 30
| different companies.
| AlbertCory wrote:
| You're right. We still had to keep changing what we called
| it, though.
| dylan604 wrote:
| You could just say let's go see the Giants play. It's not a
| question of which stadium they are going to be playing. For
| American sports, I rarely refer to a stadium by sponsor
| name. In fact, I prefer to know the irreverant names for
| them. In Dallas, the cowboys play at Jerry World. When
| Barry Switzer was coaching, the stadium was referred to as
| Switzer-land. I also refer to stadiums by their Stadium
| Formerly Known As like I always used Candlestick instead of
| whatever corp name stamped on it.
| AlbertCory wrote:
| re Candlestick: at 3Com, we used to refer to that as
| Building 11 (that was when 3Com had a corporate
| sponsorship).
|
| Even if you don't use the name, you still have to hear
| the announcers say "The Angels are playing the White Sox
| at Guaranteed Rate." Yuck.
| dylan604 wrote:
| Ah, I see your assumption. I don't listen to announcers
| ;P
|
| Also, I tend to watch very very little American sports.
| I'm pretty much a die hard English Football fan, and
| their stadiums have much more interesting names as well
| as some fun nicknames. The stadiums with corp names tend
| to be new money/onwers to the clubs. ManCity's Etihad
| (Emptyhad) comes to mind. Otherwise, "Stampford" Bridge,
| Old Trafford, Anfield, Goodison Park, St James' Park,
| Loftus Road, Stadium of Light, any and all much better
| than Corp$$OfTheSeason.
|
| I am very conveniently ignoring the corp$$ on the
| jerseys. It doesn't fit my narrative here =)
| AlbertCory wrote:
| The only UK stadium I could name is Old Trafford. And
| Wembley.
| gumby wrote:
| Yet a further example of the absurd economics of sport
| franchises. Quite nice work.
|
| A minor quibble: not every investment a company makes can have
| the same GAAP ROI. A small example that comes up frequently on HN
| is the free drinks for staff, which is a small expense that has a
| large benefit. At the opposite end can s like these, companies
| often have complex relationships with their local communities
| (expanding facilities, traffic, pollution, etc). Stepping in,
| like Qualcomm did, or just "local boosterism" like Target or AA
| can be valuable but only appear as a hard-to-quantify avoided
| expense. Whether a stadium is better than some "keep the highway
| clean" campaigns and some school programs is hard to determine,
| though the article manages to touch on it (the rigidity of being
| locked in).
|
| Of course when the campaign is unambiguously a national or
| international one (as with crypto.com's) an analysis like
| ntoskrnl's is right on.
| bruceb wrote:
| The Staples center has been mentioned a couple times in this
| thread. If one is going to pay to name a stadium, make sure its a
| new stadium. As buying the rights to a stadium that expired after
| many years means you are paying a lot of money to put your name
| on something that people just call by the old name anyway.
| MontyCarloHall wrote:
| How can companies quantify the ROI of extremely non-targeted
| advertising like stadium naming rights? For targeted campaigns,
| they can survey whether that specific campaign influenced
| customers' perception of the product. But for non-targeted
| campaigns, I don't see how a company can reliably survey whether
| the implicit brand awareness stemming from e.g. stadium naming
| rights has any influence on consumer behavior.
|
| I think buying naming rights is mostly done as a signaling factor
| to company stakeholders. If the company reports that brand
| awareness declines, it can cover its ass to board members and
| shareholders by claiming "well, we did all we could in the
| advertising department--we even bought naming rights to a
| stadium! Clearly the decline is due to market conditions and not
| our own advertising failures." If, on the other hand, the company
| reports that brand awareness increases (likely due to factors
| other than the naming rights), it can trumpet that buying the
| naming rights was a genius strategic move.
|
| As an aside, I think this is a large part of why companies hire
| management consulting firms, knowing full well they will yield
| zero effective results. It gives them another CYA excuse if
| things go south: "we tried all we could to restructure; we even
| hired McKinsey and Bain, the best of the best! Our declining
| revenue must be due to factors beyond our control."
| mkmk wrote:
| Once you're at a certain marketing spend, more targeted
| advertising has diminishing returns -- you've already targeted
| your existing audience and converted the ones that are ready to
| convert.
|
| In addition to helping your existing targets convert due to an
| increase in brand trust, broad based advertising also helps you
| break out of that local maxima by delivering new customers that
| are unlike your current target. You can then identify new
| segments of customers, interview them to understand their
| unique use cases, and build targeted campaigns for those new
| segments.
|
| Measuring this and executing on it is an order of magnitude
| harder than just running targeted ads, because the conversion
| effects are distributed across all of your campaigns and the
| timelines are much longer. However, most any sophisticated
| marketing team will develop these types of campaigns once they
| start seeing the effectiveness of targeted advertising start to
| decline.
| the88doctor wrote:
| That sounds plausible, but the data still suggests doing
| broad-based advertising through stadium names probably won't
| give you the ROI you're looking for.
| the88doctor wrote:
| My original article actually included an entire section on how
| to measure the effectiveness of stadium advertising, but I
| ended up cutting it due to length.
|
| Essentially, you can try to break down the benefits into more
| understandable pieces. E.g. seconds of stadium dome signage
| shown on TV, seconds of press conference backdrop with stadium
| name shown on TV, number of eyeballs passing a sign during a
| game (classic billboard problem), etc.
|
| If you run through these estimates (which clearly not all
| companies do before buying), it almost always looks like a bad
| deal. The stock ROI analysis confirms this, and is also a bit
| more compelling imo because it's harder to argue that something
| was left out. However, there are exceptions (such as Target)
| where the advertising components of a stadium deal can actually
| appear to be quite favorable, and interestingly the stock
| performance backs that exception up. My next Market
| Intelligence newsletter mentioned at the end of the article
| will go into more detail on how to do that analysis for an
| arbitrary deal.
| [deleted]
| lordnacho wrote:
| Same as skyscrapers, isn't it? While things look like they're
| exponential, you can pay for anything. A stadium tells everyone
| your business has arrived in the big leagues.
|
| One thing that I didn't see is whether you can sell on the naming
| rights to a bigger fool.
| the88doctor wrote:
| Typically stadium name deals prohibit any reselling or
| sublicensing of the naming rights because the Team want's to
| control what companies they are associated with.
| lordnacho wrote:
| Sure you can't just sell your stadium rights to anyone but
| can you recoup some money if the team is ok with whoever is
| found?
| dinkleberg wrote:
| I know little about finance, but this seems pretty clever.
| Actions like this can definitely give some insight into how their
| leadership operates (at least the leadership at the time of the
| action --- can't pin that on the team who comes in 15 years into
| a 20 year agreement)
| ntoskrnl wrote:
| I have always wondered about the economics of these massive
| marketing campaigns. Take crypto.com for example:
|
| > Crypto.com buying the naming rights to the L.A. Lakers' home
| arena for $700 million
|
| I guess they hope people see the stadium name and go use their
| site, right? crypto.com makes their money from trading fees.
| Let's take their most expensive fee of 0.4%[1]. $700M / 0.4% =
| $175B. They would need to do $175 billion in trading volume just
| to make their money back. That's not happening any time soon. Do
| these companies even care about ROI?
|
| [1]: https://crypto.com/exchange/document/fees-limits
| MR4D wrote:
| Interesting stuff. Here's a couple more pieces to add:
|
| The contract is for 20 years. Presumably the money will be
| spread out fairly evenly (as governments prefer predictable
| revenue). So for simplicity, let's say $35 million per year.
|
| Second, according to this article [0], it seems the arena hosts
| over 240 events per year, including the Grammy's. That works
| out to roughly 145,000 per event.
|
| So the question I would have is does Crypto.com expect to make
| $35M / 0.4% = $8.75B per year in trading volume.
|
| That is a much more reasonable proposition, even though the
| overall number sounds insane [1].
|
| [0] - https://theathletic.com/2995939/2021/12/06/why-crypto-
| com-ma...
|
| [1] - you also have to take into account inflation which
| reduces that effective cost a bit each year, so year 20 will be
| cheap compared to year 1 when measured in real dollars (dollars
| after adjusting for inflation)
| Jabbles wrote:
| > So the question I would have is does Crypto.com expect to
| make $35M / 0.4% = $8.75B per year in trading volume.
|
| That's $8B _extra_ due to the stadium naming, not in total.
| Aperocky wrote:
| Funny that whoever controlled Staples Center believed that
| crypto.com have a high probability to last 20 years..
|
| Even 2 years would have been an unknown.
| mattmaroon wrote:
| Can't be sure they did. Perhaps they got a good downpayment
| and good annual payments and even if it only lasts two
| years they'll be happy with what they got and just find
| another sponsor. The LA Lakers don't have a hard time
| selling naming rights.
| TedDoesntTalk wrote:
| These are vanity purchases that have nothing to do with ROI
| or stockholder interest. It's like buying a vanity license
| plate. There's no ROI. Probably some exec is a fan of that
| particular sports team and get it in their mind to buy the
| naming rights to claim himself "biggest fan ever"
| dehrmann wrote:
| This might be Crypto.com's best investment. At least it can be
| sold off to someone else.
| Ecco wrote:
| So best as in least terrible?
| gnopgnip wrote:
| But what if crypto.com would be the largest and only crypto
| exchange, 400m to grow faster and push out competitors is worth
| it
| mwill wrote:
| I would guess the ROI from their perspective is legitimization,
| both of their brand and of crypto in general.
|
| Presumably the have exposure to the crypto market as a whole,
| I've always guessed big crypto companies doing advertising
| blitzes are mostly concerned with the market going up and new
| money entering, if it enters via them that's just a bonus?
|
| This might be cynical, but I suspect its bigger scale version
| of the ads and spam for random coins, assuming the coin isn't
| an outright rigged scam, whoever is paying for the ads probably
| collects marginal fees, the real aim of the ad/spam is to
| hopefully increase the value of their own holdings.
| [deleted]
| renewiltord wrote:
| I run eng at a prop fund that did over a trillion dollars worth
| in trading volume last year on the crypto-exchange side and
| that's not big. Jump is probably like colossal in comparison,
| and Alameda. We don't pay those fee rates, of course, but
| there's someone on the other side as well, and if it's retail
| (which it often is) they're paying retail fees.
| gumby wrote:
| It's 175B over (presumably) 20 years, so only something
| slightly less absurd like $10B/year. Still a major drag on free
| cash flow.
| axg11 wrote:
| Crypto.com 24h trading volume is ~$400m, so they're doing $175B
| in trading volume every ~450 days. By those metrics, the
| sponsorship deal doesn't seem unreasonable? Clearly they're not
| getting $400m in incremental volume as a result of the
| sponsorship but over 20 years the ROI is in the right
| magnitude. It's also notable that retail traders (the target
| audience of a sports sponsorship) are the most lucrative and
| pay the highest fees.
| Ecco wrote:
| So they spent over a year of revenue on a local marketing
| stint. That's pretty far past the reasonable line to me.
|
| Now _maybe_ it was a good bullish move, but the article's
| point is that so far this has never been the case for every
| other company that pulled something similar off.
| paxys wrote:
| It is very far from local. NBA has an audience of tens of
| millions per game and the viewership is growing fast in
| international markets.
| interestica wrote:
| There's a lot of value in legitimizing cryptocurrency on the
| whole. I think it serves as a signal that the industry is
| mainstream and can help push those that are on the fence. Also,
| can induce a bit of fomo for some.
| johnsanders wrote:
| This is what I was thinking, but couldn't quite articulate in
| my head.
| TrainedMonkey wrote:
| Somewhat cynical point of view is that primary goal of most
| crypto tokens is to make founders wealthy. Price of CRO briefly
| went up almost 4x around the purchase. I think it is safe a
| fairly safe assumption most that founders and execs have a
| decent amount of CRO. I do not have hard data if any of them
| took profits around that spike, but they would be dumb not to.
| So when you look at it from this lens, this netted CRO whales a
| massive payday.
|
| One interesting thing to look at is adjusted CRO/BTC market cap
| (https://i.imgur.com/9dlvZ0Z.png). There are two interesting
| points there. First is - BTC spiked around the same time which
| would imply that all of the marketing did absolutely nothing or
| it was only enough to keep up. Second is that CRO/BTC market
| cap ratio dipped by roughly half since the acquisition. I am
| going to count this as a sign of a large sell-off which is
| consistent with some whales getting out.
|
| edit: ugh, I took a second look at that graph and the axis are
| not labeled. Green is CRO price and it is measured on the left
| y-axis, yellow is how much BTC you get per CRO and it is
| measured on the right y-axis.
| el-salvador wrote:
| I was wondering...
|
| Do this name changes change that people refer to landmarks in
| their day to day speech?
|
| At least nearby, there are some places and companies that people
| still use their original name, even years after renaming.
|
| For example as a foreigner I still occasionally refer to Mexico's
| capital as DF, instead of CDMX/Ciudad de Mexico. And I've heard
| Costa Ricans still refer to their local airline as Lacsa instead
| of Avianca.
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