The Delicate Legal Art of Financing, Building, and Naming a Stadium in America: Part 3 - Naming
As noted in Part I, naming rights can be a crucial piece of securing funding for a stadium to be built - providing for tens of millions of dollars. To recap - naming rights deals are financial agreements under which a corporation or an individual purchases the right to name a stadium or arena, potentially along with other benefits, for a set period of time in exchange for a financial payment. The parties involved generally include the stadium owner, the professional team, and the potential purchaser. Naming rights are sometimes negotiated years after funding and construction is completed. One of the first stadium naming rights deals was agreed upon in 1987, when the “Los Angeles Forum” was renamed the “Great Western Forum”. Since then, naming rights have become one of the most lucrative revenue generating aspects of developed stadiums. In fact, mere months ago, the sports world saw what is believed to be the most lucrative naming rights deal in history completed.
The Staples Center - home to the NBA’s Los Angeles Lakers, the NHL’s Los Angeles Kings, and the WNBA’s Los Angeles Sparks - was renamed to the Crypto.com Arena in November of 2021. The deal was worth an estimated $700 million. Today, only a handful of stadiums and arenas in the nation’s top professional sports leagues are without a naming deal - some by choice (e.g. Madison Square Garden or Lambeau Field), while some may have had a deal that just recently wasn’t renewed and are shopping for suitors (a recent example being when the Miami Heat’s naming rights sponsor, American Airlines, refused to renew their deal in 2019). At times, corporation and team are a natural fit; such as Coors Brewing (a Colorado corporation) owning the naming rights to the Colorado Rockies’ stadium, or Heinz owning the naming rights to the Pittsburgh Steelers’ stadium. Other times, mega-corporations rule the day, with large banks, airlines, and insurance companies often making the deals.
Briefly mentioned in Part I, these naming rights and sponsorship agreements can contain any number of provisions, restrictions, and licenses. As noted in Part I of this series, this includes things such as exclusivity provisions, explicit licensing terms that dictate the extent of the relationship, publicity arrangements, intellectual property considerations, and more. To that end, today, many naming right agreements often go beyond the name of the stadium itself. Certain packages may include the naming rights to the entryways, the field itself, or a concourse. As an example, the Conduct Detrimental Stadium may have the Cheez-It Concourse, or the CitiBank West Gate, or any number of pieces of the stadium sold off to be named by a corporate sponsor. Other types of packages may include partial team ownership, or as a part of a larger sponsorship agreement.
The owner of the professional sports venue, naturally, receives substantial revenues to pay for construction costs or high player salaries by selling a package deal. The benefits for the corporate sponsor generally include the amenity clause. This contractual clause sets forth the sponsor's amenities such as principal identification of the building; advertising signs on the building, at the entrances, and even on the playing surfaces; it may include advertising in the official program; merchandising in the luxury suites; promotional ticket discounts tied to the corporation; media-based benefits such as radio and television spots; and even logos on everything from trash cans to tickets to uniforms. Further, These may include clauses of an aesthetic nature (stadium designs, colours and logos), relating to the use of the parties’ trademarks in advertising, tax issues, the jurisdictions involved, the players’ image rights (each managed on a personal basis), practices such as ambush marketing and the use of the facility name upon termination of the naming rights agreement.. The variance in amenities included in a contract are one of the reasons that naming rights deals can vary so wildly in price. Finally, of course, before signing, both parties naturally must take into account the local legislation that may affect, or restrict, the deal in any way - such as permits, advertising laws, economic regulations, and more.
The cost of these naming rights deals naturally depends on a number of factors. One such factor is the presence of an established and successful sports franchise with a loyal fanbase, without which most investors would lose interest in the stadium. Corporate sponsors also generally consider the total number of major events the stadium will host in a given year, including sporting events, concerts, expos, and any other special events that the stadium may attract. Another factor that contributes to the price of a naming deal involves Ultimately, individual naming rights deals are largely a product of the economic situation of the time the agreement was negotiated in, the amenities included, and the solvency of an individual business to pay. Crypto.com may have paid $700 million for the naming rights to the Staples Center, but it is just as important to remember that Tropicana pays about only $1.6 million per year on average for the naming rights for the Tampa Bay Rays’ stadium.
Given the recent and ongoing COVID-19 pandemic, and how it notably emptied stadiums for months, one potential progression that naming rights law and contractual negotiation will likely see is a more prominent usage, and thoroughly fleshed out drafting of, a force majeure clause. Such a clause allocates the risk of loss if performance is hindered, delayed, or prevented because of an event that the parties could not have anticipated or controlled - and if recent times have showed us anything, it is that you never know what is coming, so it’s best to plan for unforeseen events as best as possible with such a clause. A clause in this context may, for example, allow a corporation that is paying $10 million dollars per year for naming rights of a stadium to, for example, repudiate if a qualifying intervening event occurs.
Another potential area for progression is in the virtual space through video games or virtual reality - offering an entire new frontier of potentially endless possibilities for naming rights. Imagine - a company looking to boost their sales could reach an agreement with EA Sports to have a virtual stadium named after them to use in the video game itself; or on a grander scale, the naming rights opportunities for battle-royale style video games such as Call of Duty Warzone are unlimited. The intersection between sports, video games, and technology is an ever-growing area of convergence, and opportunities will surely become more and more prevalent in the coming years.
Ultimately, whether in the real world or virtual, naming rights deals are a complex, but extremely beneficial and synergistic tool for all parties involved, in a variety of contexts, and tailored to fit all parties specific needs. When negotiating and drafting such a deal, it is important to remember that it is not a zero sum game and both parties will benefit: by entering into a naming rights deal with a famous sport team, a company will be increasing their brand awareness, reputation and, accordingly, its sales, by associating their name and brand with such a famous institution. On the other hand, the famous club will be able to obtain funds from a non-traditional revenue stream, increasing its investment capacity for other areas of interest (i.e. transfer of new players, advertising investment, among others), and more.
Jason Re, George Washington University Law School 3L