1. INTRODUCTIOn

Sports clubs selling their stadium’s naming rights to companies for hefty sponsorship money is a common practice in modern sports. While the fans may not always get on board with the idea of renaming their favourite grounds, with the amount of sponsorship money that is involved in the modern game, the clubs in most cases do not have any other option other than handing over the naming rights of the stadium to their sponsors. Several top clubs like Arsenal, Juventus, Atletico Madrid, Borussia Dortmund and Manchester City’s stadiums have been renamed in recent times due to sponsorship deals.

The Latest club in this category are La Liga giants FC Barcelona. The Catalan club have roped in the audio-streaming platform Spotify as their main sponsors. In return, Spotify will get to feature on Barcelona’s shirt, their training kits and will also receive the naming rights of the historic Camp Nou Stadium. The stadium will be renamed as Spotify Camp Nou.

Stadium naming rights are a rapidly growing type of sponsorship, to direct market a company’s name and generate company goodwill from the society. It is getting more and more popular in Sweden, and it has been proven very cost efficient and evolving for the company and it´s brand. Companies line up to sponsor different sports, events and arenas, to have their brand shown in media and in the stadiums. The use of word of mouth further markets the brand, both in direct communication and in social media.

While the trend toward the naming of sports stadiums is therefore not new, it gained a new significance in the 1990s. Today the vast majority of situations involving the naming of sports stadiums involves unrelated companies and large amounts of money.

2.    Why Do Clubs And Sponsors Want To Have Naming Rights Deals?

Without doubt the main driver for club’s accepting a naming rights agreement is financial. There are numerous financial demands within a football club from wages, stadia improvements, agents fees to transfer fees which need to be financed through traditional and non traditional revenue streams. The money collected through the turnstiles, television revenue, shirt sponsorship, tournament bonuses, transfer fees and merchandise provide the club with the vast majority of their income. The financial rationale is also true for sponsors as they seek to achieve a greater expected return on the investment. However, in addition to the short term financial driver sponsors are extremely conscious of the significant levels of competition particularly within established markets therefore a key driver for the sponsor is to improve or establish brand awareness. It is no co-incidence that naming right sponsors are often associated with established industries, which have traditionally been difficult to enter.

• What’s in a Name?

Naming rights agreements are usually the result of complex negotiation, and the number of issues discussed are plentiful. One of the most heavily discussed terms in a naming rights agreement is exclusivity. The partner (i.e., the party who is advertising) wants to expand its exclusivity rights as much as possible. Any dilution, confusion, or presence of competitors reduces the value of their investment. However, the rights holder (i.e., the recipient of the advertising) wants to narrow the partner’s exclusivity rights so as not to curtail other significant sponsorship opportunities and reduce their overall income. Additionally, both parties desire flexibility within the concept of exclusivity: the partner wants the ability to expand the scope of its exclusivity should its business change or expand, and the rights holder wants to include exceptions that will allow it to take advantage of unique opportunities such as the Olympics, All-Star Games, sponsored teams, etc.

Another key issue in naming rights deals is the length of the agreement, including rights for extensions or renewals, as well as so-called “back end rights.” Back-end rights include rights of first offer, rights of first refusal, matching rights, and numerous other processes which increase the likelihood that the partner’s rights will continue beyond the initial term. Both parties must cope with the tension between the desire for a long term agreement and the need for flexibility if there is a shift in the “fair market value” of the rights. The parties must also negotiate what the elements of the specific back-end/extension/renewal rights (including pricing) will be, and which aspects of promotional, marketing, advertising, and sponsorship rights will be included in that extension/renewal. The crux of the back-end/extension/renewal issue is whether there is an absolute right to some kind of extension/renewal or whether the partner merely has a right to discuss an extension/renewal. The breadth of possibilities is what often makes this provision so challenging.

If the rights holder is a sports team, there are additional considerations dictated by the involvement of professional leagues and collegiate associations. With a professional sports team, its governing league will typically have the right to exercise significant control over the use of the team name and logo. A league inherently needs flexibility in its use of the team’s name and logo, and does not want to be involved in the negotiation of each individual team’s approval rights and name uses. Put simply, there is a general rule that “the league always wins,” and this can be a difficult pill to swallow for a partner paying a significant fee for these rights. As a result, there are numerous discussions and negotiations revolving around the provision of “make-goods” and substitute entitlements to address any material loss suffered by the rights holders resulting from a league action. Similarly, collegiate associations have unique specifications, including the types of partners they will not allow and the need to appease their member colleges and universities.

 

4.   What Areas Should Be Covered In Stadium naming rights’ Agreement?

1. Range of rights

The Sponsor will seek to receive the maximum exposure opportunities for their brand in return for their financial payments. The sponsor will expect their name/logo to be displayed on both inside and outside of the ground (this may extend to include the roof particularly where the ground is on a major flight part). Both the brand logo and name should be included, in a prominent position, on all tickets and match day programmes. In addition the sponsor will seek to have access to advertise on the perimeter boards to display their logo prior to and during the matches. Ideally these boards should be located across from the stand in which the television cameras are situated and by each goal as these boards receive the most coverage.

One of the most important aspect of the arrangement often gets over looked and this is brand protection both from the grant of rights to use the brand but in addition the avoidance of the denigration of the brand. Due to the importance of brand awareness it is prudent for a sponsor to agree specifically which logos/words, and the colours used on the logos/words, that will be used in and on the ground, on tickets and the match day programme for example. The use of the sponsor’s colours and font is often a key aspect of increasing brand recognition that gets overlooked but which is important to ensure that the sponsor derives the maximum possible benefit from the agreement. These should be agreed by appending a colour schedule of the logos, the size and locations where they are to be used in a schedule to the agreement.
As part of the agreement the sponsor will wish to use the ground to build upon their own marketing through adverts that may incorporate images (or logos) of the club and players. Therefore the sponsor should obtain a licence for the relevant IP rights in order to use the club’s logo, names and footage (still and moving) in their own advertisements. 

b.   Brand protection

As the purpose of the naming rights agreements is to link the sponsor’s brand with the club, where the club suffers from significant negative publicity this, in turn, may have knock-on effects on the brand itself. It is therefore imperative for the brand to have protection in the form of an option to terminate the agreement, or alternatively to receive damages, in circumstances where such a denigration of the brand occurs.
A significant rationale for the value of the agreements is the exclusive partnership between the club and the sponsor. Therefore the sponsor will want to ensure that the club does not enter into an alternative sponsorship package e.g. shirt sponsor or advertising boards with a competitor of the sponsor. The sponsor may wish to go further and to include a right of first refusal over any future sponsorship opportunities that arise during the term of the naming rights agreement in order to maximise any potential opportunity that arises to further the brand.

c.    Payment mechanisms 

Payments under naming rights agreements can be structured in a number of ways such as:

1. Lump sum payment upfront;
2. Lump sum payment with ongoing yearly payments;
3. Yearly payments;
4. Yearly payments with a bonus (for success);
5. Payment with additional payment in kind.

It is of course dependent upon the situation of the club as to which would be the most beneficial option. For example, Arsenal FC took a lump sum payment upfront with lower yearly payments as this money was used towards funding the building cost itself. Other clubs may prefer a higher overall fee but spread across the life of the agreement. Due to the nature of the agreement the greater exposure (in a positive fashion at least) the brand receives the increased value obtained by the sponsor, therefore it may be prudent to build in flexibility for additional payments on the occurrence of specific events e.g. winning the league, European qualification or a number of home televised games within a season.

 

d.   Brand awareness

In order to build brand awareness, the sponsor makes seek to utilise opportunities to mass market through contacting the fans and other sponsors of the club. In order to do this the sponsor may wish to gain access to the databases held by the club. A potential problem with this is in complying with the Data Protection Act, therefore it would be more advisable, where viable, for the club to include a link or advert from the sponsor in their official communications to fans and other sponsors. The attraction for a sponsor of naming rights is that it creates an opportunity to establish a dominant platform from which they can achieve significant leverage over their competition. It is the access to the customer base that such an opportunity enables which is the appeal to many sponsors, however, the key is not to rely on this visibility but to build upon the opportunities it offers, which is why sponsors will wish to have access to these database rights. Renewal rights

5.     What Happens if Things go Wrong?

The deal value to a club and the title sponsor is clear if the partnership lasts the distance. However, these types of long-term and high-profile arrangements create a raft of potential legal and commercial issues, and given the underlying concept of a sponsorship deal is to enhance market reputation, a key issue relates to circumstances when actions (or omissions) of one of the parties threaten to tarnish, by association, the goodwill and reputation of the other. In such circumstances, the million-dollar question is: how easily can either the club or the sponsor, disassociate itself from the other?

There have been a number of cases where clubs or venues have sought to disassociate themselves from naming rights’ partners that were subject to bankruptcy proceedings. The reputation of a stadium or club, and by association its title sponsors, may be affected by various potential issues. Additionally, there is potential for unforeseen events, often beyond the control of the parties, to become associated with a venue, the club and/or a sponsor, and, whilst not all events will cause medium or long-term damage, public sentiment is arguably at the very heart of brand value.

6.     Termination Rights

Naming rights’ agreements will provide early termination rights for both the club or the sponsor upon certain events occurring. Upon the occurrence of a specified event(s), the party wishing to terminate the agreement will, typically, need to serve a notice to terminate, and grant the other party a period in which to remedy the position, if possible. The termination provisions should deal with who pays the cost for rebranding the stadium, which should be set out in the terms of the contract.

Typical termination events include a failure of the sponsor to pay its sponsorship fees, the bankruptcy of a party or a failure to comply with a material provision of the agreement. In the Kiel Center St. Louis Blues’ naming rights agreement, the sponsor, Savvis, had a right to terminate the agreement if the club did not play their home games at the stadium.

The concept of termination for events that may be reputationally damaging is particularly sensitive. Whilst strict ‘morality clauses’ may be difficult to negotiate since they are not necessarily seen as market practice for these types of agreements, as mentioned above, the agreements should provide for an early termination event of a material or persistent breach of any of the main contractual provisions. Therefore, a breach of an undertaking or warranty not to damage the reputation of the other may fall within this category. However, relying on such a provision to terminate an agreement comes with certain risks since it can be difficult to ascertain causation for reputational damage, causing even greater scope for dispute.

• Conclusion

Match-day at sports’ clubs stadiums is, of course, big business with the potential to generate large amounts of revenue from various streams including tickets, merchandise, concessions and sponsors. In addition, the proliferation of global connectivity and the distribution over several different types of media (broadcast, digital, streaming) means that high-profile sports clubs have the ability to attract tens of thousands of spectators from domestic and international markets.

A stadium also provides an opportunity for a club to monetise its stadium’s name by entering into a naming rights sponsorship deal, with big international companies and brands – already alive to the demographic appeal of the sports sector – keen to affiliate themselves with a high-profile sports team.

Stadium naming rights’ partners are extremely attractive for a club (and venue) to supplement revenues needed to cover increasing expenses such as players’ high salaries, transfer fees and to service commercial loans and other construction costs and expenses.

For the title sponsor, close affiliation with a globally supported high-profile club (or venue) creates valuable brand awareness, and the arrangements are typically long-term (and high-value) in order for the sponsor’s relationship and association with the stadium and club to become sufficiently entrenched to gain maximum value and exposure in the global market.  The deal value to a club and the title sponsor is clear if the partnership lasts the distance. However, these types of long-term and high-profile arrangements create a raft of potential legal and commercial issues, and given the underlying concept of a sponsorship deal is to enhance market reputation, a key issue relates to circumstances when actions (or omissions) of one of the parties threaten to tarnish, by association, the goodwill and reputation of the other.

 Whilst the financial benefit for a club, and the marketing benefit for the sponsor is clear, both the sponsor and the club must be particularly careful when considering a long-term stadium naming rights’ arrangement.