Bear Left!

Names that Swoon
Tim Francis-Wright

Professional sports teams used to play in stadiums and arenas named for seemingly logical reasons. Some were named after their cities, or perhaps after their owners. But the current rage has been to name them for advertisers. Ten years ago, corporations had named only three professional sports venues—ARCO Arena in Sacramento, the Target Center in Minneapolis, and the Delta Center in Salt Lake City. Today, over 50 different arenas and stadiums have names courtesy of corporations eager for their names to be mentioned in the broadcast and written accounts of the games.

In the last four years, over 30 corporations have bought the rights to name sports venues, paying up to $205 million for the privilege. Some companies have gone so far as to repeat the process in two or even three cities. Naming rights go beyond just an advertising opportunity. They include the intangible prestige of naming a stadium and more tangible perquisites, like skyboxes for executives. The popularity of these purchases would generate the expectation that they help the stock price of the purchaser.

But fate and Wall Street have not smiled upon the companies that have bought naming rights. Today I issue the first, and perhaps only, financial recommendation from Bear-Left.com: a sell rating for any and all companies that have bought naming rights for a professional stadium. I also extend this rating to companies already committed to naming rights for new venues, including Ford Field in Detroit, CMGI Field outside Boston, and whichever unfortunate corporation renames 3Com Park in San Francisco.

The table below shows the overall financial performance of the publicly-traded companies that have bought the naming rights to sports venues. For comparison, the table includes the results of a security that mirrors the Standand and Poors 500 index. (These results do not include dividends, but do include the results of stock splits.)

(1) Original Stock price as of the start of the first season played during the naming rights contract. Current stock price as of the end of trading on 21 December 2001. This analysis assumes that baseball season starts on 1 April, football season starts on 1 September, hockey season on 15 September, and backetball season on 1 November. Stock prices are as of the close of the first trading day on or after these dates, except as otherwise indicated. Ending stock prices are adjusted for any stock splits and do not take into account changes in exchange rates for Canadian or Swiss stock.

(2) These returns exclude dividends, if any. The S&P 500 return is for the Standand and Poors Depository Receipts (ticker symbol SPY) that trade on the American Stock Exchange. For the three dates before 1993, SPY did not yet trade. This analysis interpolates a price for the SPY shares based on the ratio of the S&P 500 index as of the dates in question to its level on 15 September 1993, then multiplying by the price of the SPY shares on that date.

(3) This America West stock became worthless when the company emerged from bankruptcy in 1994.

(4) Data for the renewal of the Atlantic Richfield naming rights.

(5) First Union assumed the naming rights of Core States when it bought Core States.

(6) HSBC recently took over the naming rights from its wholly-owned affiliate, Marine Midland Bank.

(7) Represents 1.2439 WorldCom shares for each share of MCI.

(8) Price unavailable. This analysis assumes $10 for the original value of these shares.

(9) American Airlines inherited the naming rights when it bought the assets of TWA out of bankruptcy. The dome is now the Dome at America's Center.

(10) Pepsi bought Tropicana from Seagram on 25 August 1998, so this analysis uses that date as the starting date.

(*) These have exceptional starting dates. The Air Canada Center opened on 20 February 1999. American Airlines Arena opened on 31 December 1999. Corel started its naming rights deal in March 1996. This analysis uses 1 March 1996 as the starting date. The Molson Centre opened on 16 March 1996. Network Associates started its naming rights deal on 11 October 1998. Safeco Field opened on 15 July 1999. Pepsi bought Tropicana on 25 August 1998.

(**) Not used in the analysis because pre-merger stock prices were unavailable.

Sources: Commercial Alert, and Ballparks.com.

Imagine a mutual fund that spent an equal amount of cash on the stock of each of the companies in the table when the first sports season started under their naming rights agreements. Over time, this Naming Rights Fund would have returned 6.71% on an annual basis, compared to 8.36% for the S&P 500 index shares. (In the real world, the fund would have expenses that ate into the return, but it would also have dividend income that this analysis ignores.) That difference is significant, but fully half of the total gain from the mutal fund comes from Target Stores. If an investor (or a fund manager) forgot to buy Target, much of the profit would be gone.

Of the 53 stocks in the mythical fund, only 19 have performed better over the relevant time periods than the S&P index. In fact, fully 6 of the 53 companies in the fund have stock that is either worthless or nearly so because of bankruptcy. Enron is the most recent bankruptcy, but America West, TWA, Fruit of the Loom, PSINet, and ANC Rental have all filed for Chapter 11 protection. Such filings usually render all common stock worthless.

The companies that signed up for naming rights starting in the 1998 season or later have done particularly poorly. These stocks have lost 10.89% per year, versus a loss of 3.55% per year for the S&P 500 and a gain of 2.00% per year for a hypothetical savings account. Three of 31 companies have gone bankrupt just in that four-year period. Another has lost over 90% of its value in just over a year.

The companies in the mythical fund include a failing electric utility (Edison International), a failed energy trader (Enron), two bankrupt airlines (America West and TWA), three struggling airlines (American, Delta, and United), a struggling financial firm (Conseco) and three struggling technology companies (Compaq, Corel, and 3Com). These firms are notable for the poor financial decisions elsewhere in their businesses. For example, Conseco paid billions of dollars for a maker of trailer-home mortgages. Enron generated phony profits by hiding debts from its balance sheet. Edison lobbied for deregulation of electricity in California, sold its power plants, then got squeezed halfway to oblivion by the new owners of those plants.

Yet the companies in the mythical fund whose stock has soared during the naming rights regime have not bought the rights to new arenas. Two of the worst performers, American Airlines and Compaq, have three sports venues bearing their names. The stock market has not been impressed, at least not favorably. All of the millions of dollars spent on rights fees is money that could have done something constructive for the firms and perhaps even for their workers and customers. Instead, the naming rights deals are often just bad business decisions by companies renowned for muddled thinking.

Some idealistic fans possess some nostalgia for the days when corporate advertisers were a smaller part of sports than they are today. I understand how the imposition of advertising even into the editorial content of the sports section is somehow distasteful. It is gratifying that there is accounting, after long last, for at least the absense of taste.