Two months ago, amid the virtually uninterrupted stream of lugubrious news about Covid-19 deaths, unemployment and civil unrest, a brighter bit of news popped up in Seattle. The old Seattle Center Coliseum—a 13,000 seat arena built in 1962 for the Seattle World’s Fair and currently undergoing a $900 million renovation—would be getting a new name.
When it reopens next summer, the home of Seattle’s NHL expansion team, the Kraken, will be called the Climate Pledge Arena, the first net-zero carbon venue on Earth. And while the brand name Amazon won’t be over the front doors, the name’s origin—the $2 billion Climate Pledge initiative that Jeff Bezos established in 2019—is well known, especially in Seattle, where some 54,000 residents work for the online colossus.
“Instead of calling it Amazon Arena,” Bezos explained on Instagram, “we’re naming it Climate Pledge Arena as a regular reminder of the urgent need for climate action.”
The terms of the naming rights weren’t disclosed, but with the Amazon founder’s personal worth hovering around $189 billion, Bezos could easily have dug into his sofa cushions for the money to pay for it.
The Climate Pledge naming deal wasn’t an aberration, either. Three weeks ago, Swiss investment banking giant UBS committed a reported $350 million over 20 years to put its name on the New York Islanders’ new hockey arena currently under construction in Nassau County. The UBS name and logo will appear on center ice, on the facade and even on the roof. In a statement, UBS Americas president Tom Naratil said the stadium would be part of the brand’s “commitment to growing our presence in the U.S.” and “having a positive and lasting impact on the surrounding community.”
In normal times, deals like this would barely warrant more than a passing notice. Companies have been sticking their names on ballparks since chewing gum mogul William Wrigley hung his brand’s name on Chicago’s Wrigley Field in 1925.
But these are not normal times. Not only will Covid-19 cost the economy an estimated $7.9 trillion over the coming decade, but large public venues of every stripe are shuttered. Some health professionals say it won’t be safe to attend arena events until there’s a vaccine for the virus. But most experimental vaccines have not even reached the human trial phase of testing yet, and experts venture that mid-2021 is the earliest we’ll get one.
This timeline raises a weighty question for sports teams and the companies that sponsor them. If stadiums don’t have a single fan in the seats these days, what are all of those multimillion-dollar naming rights deals worth? Is this the end of an era for the high-profile name slapping that brought us Minneapolis’ U.S. Bank Stadium, Hartford, Conn.’s Dunkin’ Donuts Park and Peoples Natural Gas Field in Altoona, Pa.?
“As an investment spent toward getting eyeballs—it’s a valid concern,” said veteran marketing adviser Mario Natarelli, managing partner of MBLM. “They’re losing impressions and top-of-mind awareness and recall for sure.”
Empty seats, tough times
It’s not difficult to see why. The 10 largest stadiums in the United States have a combined capacity of well over 1 million people. And with every canceled game or rock concert, that’s a million fewer people who’ll be seeing a sponsoring brand’s name on their ticket, above the front doors and on the signage inside. The brands that signed naming rights deals paid for the eyeballs of those fans—fans who are now at home mowing the lawn.
It’s probably no coincidence, then, that a couple of brands that put their names on arenas have made for the exits recently. In July, for example, New Era pulled out of a naming rights deal it had inked in 2016 for the stadium the Buffalo Bills play in. (The team is reportedly now in talks with new suitors, including bidet manufacturer Tushy—a $12.5 million deal that, if it goes through, would give the Queen City a place called Tushy Stadium.) In May, the Banc of California announced it would pull its name off the stadium where the MLS’ Los Angeles Football Club plays. The 2016 deal, worth $100 million, was supposed to have lasted 15 years.
It’s unclear if these withdrawals were a direct consequence of the empty arenas or the overall financial hardships for the brand caused by the pandemic, but either way, it’s a reasonable assumption that Covid-19 played a role.
Yet, as UBS and Amazon proved in the past few weeks, naming rights deals are far from dead. In fact, an overwhelming majority of sponsors have chosen to keep their chips on the table. At the same time, it’s hardly business as usual in the world of naming rights, and these days the real action isn’t on the field, it’s in the negotiating room.
Sponsorship deals typically contain a clause dealing with force majeure, legal argot for a set of unforeseen circumstances. These events usually mean fires and floods or other major disruptions to business such as blackouts or prolonged labor strikes. And while Covid-19 most certainly falls under force majeure provisions, the unprecedented nature of the pandemic has kept lawyers busy trying to determine how that changes the terms.
“Just because there’s language in a contract that offers protection for the sponsors, a high percentage of these stipulations were unclear as to what exactly was the default for a pandemic like Covid-19,” said Michael Neuman, evp and managing partner of Scout Sports and Entertainment. “We’re right smack in the middle of some of those discussions right now.”
By “discussions,” Neuman means that a variety of makegoods are on the table.
For example, a team owner might furnish a time extension to the sponsorship to compensate for weeks fans have been absent from the arenas. Or the team can look for ways to mention the sponsor on its social media feeds. And since some major sports have made at least a partial return to television, the camera offers other opportunities to effectively even the score—a few more shots of the name on the front of the house, for example, or of the scoreboard that probably has the sponsor’s name on it.
Matthew Eisler, partner at law firm Hogan Lovells, pointed out that the accentuated TV visibility is quite possibly better for the sponsoring brand anyway. “We’ve been deprived of sports for so long that there are more eyes on the TV,” he said, “so some of these makegoods and repositioning of logos have delivered on some of the promises.”
Eisler added that naming rights deals “go beyond just the butts in the seats” regardless. “There’s the goodwill associated with the brand,” he said, and the agreement between team and sponsor affords many “sweeteners” to keep the brand happy. Accordingly, “in Covid times, teams are getting creative,” he said. For example, they’re providing sponsors with greater access to star players and coaches via Zoom, “where a smaller group of invitees will be able to hear interviews with players, coaches, owners.”
Overall, Eisler said, “there’s a lot of value that a brand can get with a naming rights deal—even if there is no season. So that value persists regardless.”
A spirit of cooperation
Sports teams have ample motivation to offer makegoods these days. After all, with the venues empty, it’s not just the sponsors that are over the barrel; the teams are, too.
“If you’re an owner of a team or part of a league right now, you are extremely grateful for the companies staying with you,” said consultant Joe Favorito, who teaches sports marketing at Columbia University. “Figuring out a way to grow the business in these times? You’ll look for a way to do that.”
“I haven’t heard of a single sponsor looking to terminate its naming rights agreements based on a force majeure clause,” Eisler said. “Regardless of what those clauses say, the parties are working together very collaboratively to figure out a temporary solution for this year and for next year because nobody knows what’s going to happen.”
And since nobody does know what’s going to happen, brands inking naming rights deals now are arguably in a better bargaining position than those that did their deals a few years ago, since Covid-19 is likely to remain a wild card for some time.
“The advantage that UBS and Amazon had, or have, is that there’s a clear picture as to how devastating a pandemic or a force majeure moment like Covid can create, not only for the team ownership but also for the team’s sponsors,” Neuman said. “These companies signed contracts with eyes wide open, and they fully vetted the probability that this could happen again or could be elongated beyond the 2020-21 season and factored in smaller audiences, lower capacities … into the pricing structure over the next couple of years.”
Should Covid rear its head again and force a new round of cancellations and closures, Neuman added, the naming rights agreements being signed now contain “specific language that define roles and responsibilities for both sides, especially the reduction in investment that would need to be made for the naming rights partner.”
Tallying the damage
Meanwhile, despite the fact that Americans aren’t going to major venues for the time being, the reduction in visibility for the name sponsor, while significant, isn’t likely to cause lasting damage.
Natarelli pointed out that the sorts of companies with the money for huge naming rights deals are well capitalized enough to ride out the storm. Covid, he said, “is a short-term moment for brands like AT&T [which put its name on Cowboys Stadium in Dallas in 2013]. A brand of that scale isn’t going to suffer from the lack of impressions in one sports arena for a long period of time. This is not going to be a doomsday scenario.”
Some simple math can help explain why. MetLife Stadium, home of the New York Jets and Giants, seats 82,500 people. But when the venue hosted the Super Bowl in 2014, 112 million people watched it on TV or online—and none of them set foot in the place.
“The number of people who go to a ballgame is relatively small in terms of the number of people exposed to the ballgame,” said Michael Leeds, a professor of economics at Temple University. In addition, many fans who attend games in person are repeat customers, Leeds said, and since they’ve been to the site before, sponsor names on signage are less likely to make an impression on them.
“As long as it’s being broadcast, as long as the name is being mentioned in the media and mentioned on TV,” Leeds said, lack of attendance “is not as bad as people might think. I don’t see game attendance making that much of a difference.”
And though the pandemic has sent teams and brands back to the conference room to hammer out makegoods on their sponsorship deals, this period of hasty cooperation and renegotiation might bode well for the entire industry once Covid-19 is a thing of the past. At least, that’s what Neuman hopes.
“We’re seeing accommodations that we didn’t even think were possible when the pandemic broke out earlier in the year,” he said. “In my opinion, as someone who sits at the table with both sides, I think that approach to reconciliation is what’s going to make sports perform more in the future.”