The idea that buying naming rights to a sports venue is a massive waste of money is nothing new — Chris Isidore of CNNMoney noted way back in 2003 that businesses with naming-rights deals had an alarming tendency to go bankrupt — but now there’s evidence to back it up. New York magazine spoke with marketing professor J. Scott Armstrong, who noted that sponsorship deals of all kinds have been found to have no significant correlation with more people actually buying your product, even just out of name recognition. And in particular, naming-rights deals “do not have a lasting impact on the profitability of the firms that buy them.”
So, why on earth buy them? Aren’t corporate tycoons supposed to be profit-maximizing machines, stopping at nothing to evaluate every action coldly in terms of return on investment? Spake Armstrong:
“People who are running the company feel good about it — and this is just speculation, of course — they feel important, I imagine,” he said.
In other words, if you work for a company looking to buy naming rights, it’s simply cool to have an association with the NBA or the NFL or a snazzy new stadium, and in some cases it can lead to tangible benefits like hanging out with celebrities or attending playoff games. “I think they just assume it’s going to [work], and it’s a fun project to get involved with,” Armstrong explained. This can help explain the response he’s gotten when he’s queried employees of companies directly as to whether they try to calculate the return on investment on their sponsorship deals: “Nah, we don’t do that.”
On the one hand, it’s lucky that corporate marketing execs are so daft, because naming-rights deals have helped make new stadiums a hell of a lot more affordable in recent years without dipping quite as far into the public purse. (This is assuming that you think making it more affordable to tear down 20-year-old stadiums and build new ones is a good thing, big-picture speaking.) On the other, if you’re an employee of, say, the University of Phoenix who’s being told there’s no money to give you a raise because the university is in a death spiral of red ink, you might consider giving up on making a case that you deserve it, and instead argue that you’re “a fun project to get involved with.”
“…naming-rights deals have helped make new stadiums a hell of a lot more affordable in recent years without dipping quite as far into the public purse.”
I’ve always believed that naming-rights deals don’t decrease the public cost; it just allows the club to add more bells and whistles.
Well, there is also that. But the upside of naming rights deals, such that there is one, is that it’s not the public’s money being thrown away on them.
Naming rights deals make perfect sense to the CEOs who invariably lead the charge on them.
First, you have an advertising budget anyway. So why not spend it something totally cool that lets you hang out with Lebron instead of giving it to a dorky ad agency that will spend your money telling you how much it helped rather than getting you into a room with some famous athletes and their apparently endless supply of awesome girlfriends and hangers on. And Hip/Hop bands! (Do they still have hip hop bands? Memo to Mrs. Klingenfelder, check to see if famous people still think hip hop bands are cool. And if they are still called bands these days).
Second, since this is advertising money, technically every minute you spend with Lebron, or looking for Lebron so you can totally hang out with him because he is sure to think you are really cool because you’re a CEO and everything and you spent $20m to put a name on the side of a building and some part of that $20m finds it’s way into his pocket and maybe you’ll get a ride in that totally tricked out Escalade that might be his that you saw in the VIP parking lot when you came in through the private entrance, is actually work time. You are representing the company, so everything you spend is a legitimate work expense incurred representing the company.
No-one will ask if the $7800 in snacks billed to the corporate account was actually necessary, nor if you were really representing the interests of the company (or how) at the ‘after party’, which seems to have taken place in the kind of club the typical staid, old, establishment CEO would never get invited to otherwise.
Naming rights deals are no worse, IMO, than the typical racing car or tennis tournament sponsorship. I am aware of a couple of CEOs of mid sized companies who lead their companies to sponsor ladies tennis tournaments because they just couldn’t get enough of a certain tennis player. Ditto auto racing. A significant percentage of those kinds of deals were done (and probably still are) because the CEO wants to hang out with the it crowd and, most of all, the kind of girls who hang out with the it crowd.
It’s just an extension of the classic grifter play that everyone from Hemingway on (at least) has written about.
Want to join the cool club? Just agree to pick up the tab.
This is frankly true of large swaths of the marketing world and the top marketing minds talk about it pretty regularly with some concern. A large amount of the money spent on market is totally wasted. That said great marketing is hard to put a price on.
I find it hard to believe that advertising of ANY kind actually works:
http://www.straightdope.com/columns/read/3175/does-advertising-work
Thank god for Cecil for puncturing the myth, and also for doing so in a way that people don’t stop advertising on his site (and mine).
As I just wrote over on Facebook, I don’t know whether I find it reassuring or terrifying that the people running the world’s economy have no more clue what they’re doing than the rest of us.
Juvenal wrote: “This is frankly true of large swaths of the marketing world and the top marketing minds talk about it pretty regularly with some concern. A large amount of the money spent on market is totally wasted.”
Certainly true for the largest companies. They’re more likely to be in a position to do a naming rights deal or other major advertising – and less likely to benefit from it. I’m pretty sure Coke could forgo TV advertising for a year and not take much of a hit to sales. Maybe we can look at it as a form of charitable contribution to sports fans and TV viewers, building some amount of goodwill, albeit unmeasurable. It’s a different story for a new company or product.
I blame Don Draper.
I think the main reason a CEO approves naming rights deals is you can help out a friend by spending a lot of other people’s money.
Naming rights seem like a very pricey variant on all the money corporations spend on the luxury suites etc., so they can entertain clients and friends.
Sports venues are the new country clubs–and you don’t even need to learn how to play golf, or pretend to care about it. Who doesn’t love a luxury seat and the chance to brush with glory, if only by being in the same (massive) room as our new gods!
I think naming rights does dip into the public purse through our tax code. As someone pointed out, such shennanigans are deductible business expenses. Essentially, that means all other taxpayers have to pull up the slack. Ditto for luxury suites, etc. I think the tax code is the root of a lot of these problems and wasteful spending on subsidizing the sports industry – whether directly or indirectly.
Well, everything’s a deductible business expense. If owners were putting their own money into a stadium instead of using naming-rights money, they’d be able to write that off themselves as well. I don’t think the deductability of naming rights expenses per se costs taxpayers anything extra.
The business entertainment tax deduction is more of a problem, though it’s been reduced a lot for luxury suites over the past decade or so.
One corporation that hit the jackpot with naming rights is the Bon Secours Health System. They paid $3 million for naming rights to the Washington NFL club’s summer training camp in Richmond, Virginia. In return, the city gave Bon Secours a 60 year lease on seven acres of prime real estate in a tony part of town for pennies on the dollar. Bon Secours also promised to build a hospital in a poor area, but it hasn’t happened yet because they are unable to acquire the land. These things happen you know.
Also, when construction costs ran 10% over budget on the training camp, it was naming rights to the rescue. The city hopes to sell naming rights to grassy areas within the training camp. You can also buy a brick with your name on it for $100, a sort of no-fan-left-behind approach to naming rights (not many takers so far, unfortunately).
This year the bombastically named Bon Secours Washington Redskins Training Center enters its third year in Richmond. The city is unable to make its payments, and the taxpayers are getting hammered. But, as one city official said, the value of having the team here cannot be measured in money alone.
Well, I’ve avoided buying any Levi’s products for myself or my son since the Santa Clara stadium was renamed. So I guess that worked in a negative way.
Keith — I’m reminded of an Onion headline from a few years ago: “Pepsi Ad Increases Worldwide Awareness of Pepsi by .0000000001%”