69 Reasons Why You Shouldn’t Invest in
Stadium Naming Deals
Dave Raileanu
December 16, 2008


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As was noted in a recent Forbes article, the primary benefit of naming rights deals is brand awareness, through signage and media visibility.  But corporate executives also benefit, through the use of luxury boxes, stadium access privileges, and the ability to host events.  Although companies may claim to do cost-benefit analyses on naming rights deals, the evidence shows that the perquisites that accrue to corporate executives are coming at the expense of shareholders.

The shortest-lived naming deals—those that have been in place for less than 1,000 days—have an average yearly return of -19.5% as compared to the S&P 500. Those deals of intermediate length, between 1,000 and 4,000 days, trailed the index by 4.2%. The longest tenured deals, those lasting 4,000 days or more, have a positive average return, beating the index by 3.1% a year. So, naming rights advocates may cling to the argument that the value of their deals takes at least 4,000 days (11 years) before benefits begin to accumulate for shareholders.

Returns are highly variable across industries, ranging from the worst (media at -42.0%) to the best (retail at 11.3%).  Those industries with the largest sample size (banking, financials, and telecommunications) all failed to beat the S&P 500.

The transportation industry, comprised entirely of airline companies, underperformed the S&P 500, returning 7.6% less than the market.  In 2002, after the financial impact on air transportation of 9/11, Delta, United, and American Airlines (which currently has its name on two arenas), each lost at least 60% of their stock value. United held on to its arena in Chicago, which it had since 1994, but Delta eventually gave up its naming agreement in Salt Lake City, Utah in 2006 to EnergySolutions.

Airlines, along with banks, consumer durables, software companies, and financial service providers in general have taken a dive relative to the market after putting their name on a stadium. Food producers, retailers, and technology hardware manufacturers, on the other hand, have outperformed their market averages.

Overall, paying for naming rights is a signal of poor future stock performance. In Citigroup’s case, their stock has returned -61.1%, as compared to -17.3% for the S&P since their naming deal was announced. Citigroup currently ranks as the third biggest loser overall among companies with naming deals when it comes to stock price and fifth worst when compared to the S&P.

Even before the full extent of the mortgage crisis was known and Citigroup needed a government bailout, investors would have been well-served to recognize that deciding to play ball with a major league stadium was a sign of bad things to come. At this point, Mets fans have more to look forward to in 2009 than Citigroup’s shareholders.

Industry

Arenas

Avg duration
(years)

Avg return

Avg S&P

Difference

Banking

12

5.2

-18.3%

-8.3%

-10.0%

Business Services & Supplies

2

2.8

-39.4%

-11.4%

-28.0%

Consumer Durables

4

8.4

-9.4%

-3.3%

-6.1%

Financials

11

8.1

-5.9%

-5.0%

-0.9%

Food, Drink, &
Tobacco

6

11.9

10.6%

-0.6%

11.2%

Household Products

2

3.8

-26.0%

-18.4%

-7.6%

Media

1

4.2

-49.5%

-7.5%

-42.0%

Oil & Gas

6

9.6

-11.8%

-4.4%

-7.4%

Retail

3

11.0

16.6%

5.3%

11.3%

Technology/Hardware

3

5.4

-4.2%

-4.6%

0.4%

Technology/Software

3

6.9

-13.3%

9.0%

-22.3%

Telecommunications

13

5.9

-8.1%

-6.3%

-1.8%

Transportation

3

11.8

-4.5%

3.1%

-7.6%

Total

69

7.5

-9.1%

-4.5%

-4.7%

 

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