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CorporateThe Metropolitan Counsel® www.metrocorpcounsel.com Volume 16, No. 3 © 2008 The Metropolitan Corporate Counsel, Inc. March 2008 Stadia Mania: The Business, Civic, And Legal Issues Of New Stadium Construction – Part II John R. Middleton, Jr., in November 2006, in the most lucrative Scott L. Walker naming deal in the his- and Matthew Savare tory of professional sports, Citigroup LOWENSTEIN SANDLER PC invested $20 million per year over a twenty- Cashing In: Economic Benefits Of New year period – with an Sports Facilities option to extend the John R. Scott L. Matthew contract an additional In Part I of this article, we briefly exam- Walker Savare ined two of the most prominent issues related Middleton, Jr. fifteen years – to name the Mets’ new stadium to the successful completion of new sports of such deals had skyrocketed, with 63 per- 8 facilities projects: public financing of new cent of Major League Baseball (“MLB”) Citi Field. The deal also includes the right stadia; and the use of eminent domain to teams, 83 percent of National Basketball for Citi to place its brand throughout the new park, use the Mets’ logos, advertise on the acquire all or part of the proposed stadium Association (“NBA”) teams, 58 percent of Mets’ cable network, and jointly develop site at a lower price than might otherwise be National Football League (“NFL”) teams, business opportunities with the club boasting paid in a free-market transaction. We now and 90 percent of National Hockey League the third-highest revenues in all of baseball turn our attention to two important ways that (“NHL”) teams playing in facilities with behind the Yankees and the Red Sox.9 Simi- sports franchise owners exploit their teams’ naming sponsors.2 In 2006 alone, thirteen larly, in January 2007, the Nets reached a new stadia and arenas to maximize the addi- naming rights deals were negotiated among twenty-year, $400 million naming rights con- tional revenue: the sale of naming rights to the MLB, the NFL, the NBA, the NHL, and tract with Barclays Bank for the team’s new facilities and the introduction of suites Major League Soccer (“MLS”), totaling planned arena in Brooklyn, while Prudential and other high-end seating typically targeted 3 more than $4.5 billion. Financial agreed to pay $105.3 million over to new and existing corporate clientele. Several factors have contributed to this twenty years for the right to name the Devils’ The (Lucrative) Name Game: Naming meteoric rise in the number and size of these new Newark arena the Prudential Center.10 Rights Deals deals. For sponsors, entering into long-term Thus, in a span of less than three months, sponsorships of sports facilities – particularly While there often appears to be no limit to three New York area teams from different sports marketers’ ability to create new spon- new stadia or arenas – enables them to build sports generated almost $1 billion in sponsor- an immediate and sustainable awareness of ship fees.11 Such astronomical numbers can be sorship opportunities, one of the most impor- 4 tant first steps is the sale of naming rights for their brands. In addition, unlike the naming attributed not only to the location of the facil- the new stadium, which frequently occurs deals from years ago – which consisted pri- ities, but also to the pent-up demand for such before the facility is actually built. marily of the sponsor’s associating its corpo- agreements. Indeed, prior to this string of In 1991, only five professional teams in rate name with the facility – more recent deals, the last naming rights agreement in the major American sports played in facilities transactions contemplate a wider array of New York area had been in 1996 when Con- with a naming rights deal, and the average sponsor benefits. Although deals vary based tinental Airlines put its name on the former 5 annual price tag for such sponsorship was on a number of factors, such additional ben- Brendan Byrne Arena in New Jersey’s Mead- 12 less than $1.25 million.1 By 2005, the number efits often include advertising time during owlands sports complex. telecasts, signage both inside and outside the The prospects for future naming deals John R. Middleton, Jr. practices intellectual facility, luxury suites, tickets to events, and look even brighter in the New York area. property and complex commercial litigation, preferred parking.6 For teams and facility Many believe that the planned 82,500 seat Scott L. Walker practices antitrust, intellec- owners,7 the primary benefit is self-evident: stadium at the Meadowlands for the Giants tual property, and complex commercial litiga- money, and lots of it. and the Jets will garner the most lucrative tion and Matthew Savare practices Recent deals struck by several teams in naming rights deal ever.13 Given the Giants’ intellectual property, media, and entertain- the greater New York metropolitan market improbable victory in Super Bowl XLII; the ment law with Lowenstein Sandler PC. are a microcosm of this trend. For example, immense popularity of the NFL and of the Please email the authors at [email protected], [email protected] or [email protected] with questions about this article. Volume 16, No. 3 © 2008 The Metropolitan Corporate Counsel, Inc. March 2008 two teams; the size, location and planned cut- Club seating sections are a second level of and lobbying. However, despite such com- ting-edge technology and amenities of the premium seating that are typically substan- plexities and the long lead times, inevitable new stadium; and the opportunity for the tially less expensive than luxury suites, gen- cost overruns, and frequent lawsuits associ- sponsor to showcase its name at least sixteen erally costing less than $10,000 per year. ated with such projects, the financial, eco- days each year on national television, it is Unlike suites, which are usually confined to nomic, and social benefits emanating from very likely that the deal will be extremely a separate area of the stadium or arena to new sports facilities will continue to be lucrative.14 Similarly, although the Yankees which other fans have no access, club seating championed as the current wave of construc- do not plan (at this time) on renaming their is usually located in special sections among tion continues. new $800 million palace – as the Yankee Sta- the general seating areas in the facility. How- dium moniker is as sacrosanct as names can ever, club seating sections typically feature 1 Maidie Oliveau, What’s in a Name? (Or, Why Pay Mil- be in sports – they do plan on selling naming wait service, a broader menu of higher-qual- lions to Name a Building), ENTERTAINMENT AND SPORTS rights for each gate at the stadium.15 In light ity food and beverages, video screens, wider LAWYER, Volume 23, Number 1, Spring 2005, at 29. of the history, popularity, and importance of seating and aisles, and prime locations. The 2 Id. 3 Howard Bloom, Location, Location, Location – the the New York Yankees, these mini naming amount of revenue generated from these sports naming rights bar is raised again thanks to the Big rights deals should prove very profitable as offerings can be astounding. For example, in Apple, SPORTS BUSINESS NEWS, January 22, 2007, avail- the 2003 season, the Washington Redskins’ able at http://sportsbiznews.blogspot.com/ 2007/01/loca- well. tion-location-location-sports.html (last visited January 6, revenue from their 2,500 club seats was $33 Hanging With The High Rollers: Luxury 2008). million.17 And the Minnesota Twins hope to 4 Elise Neils, Brand Value Plays a Role in Stadium Nam- Boxes, Premium Seating, And PSL’s ing Rights, ABSOLUTE BRAND, August 11, 2002, available generate $20-30 million per season from pre- at www.absolutebrand.com/RESEARCH/Default.asp? Sports franchise owners seeking public mium seating in their new open-air stadium dismode=article&artid=115 (last visited January 6, 2008). support and financing for new stadia and are- due to open in 2010.18 5 The benefits afforded to sponsors obviously depend nas frequently assert that their current facili- upon the value of the naming rights deal. There are a In certain instances, sports franchise own- host of factors impacting how much a sponsor is willing to ties are “outdated.” However, those facilities ers have required fans and corporations to invest, including: the team’s record and attendance, the rarely are no longer safe or functional, but pay a one-time up-front fee for a Personal facility’s location, the audience’s financial demographic, instead simply lack any (or enough of) the and the popularity of the sport. Id. Seat License (“PSL”) granting them the right 6 Jeffrey B. Gewirtz, Remarks at the Annual Meeting of luxury boxes and other premium seating that to purchase season tickets in a new facility. the Forum on the Entertainment and Sports Industries, generate substantial revenue from corporate The Carolina Panthers became the first U.S. The Sports Revenue Game: Latest Developments in customers willing to pay top dollar in order Media, Sponsorship, and Licensing, (October 13, 2007). professional sports team to require PSL’s 7 Teams and facilities are not always under common to wine and dine their own clients and asso- when it entered the NFL as an expansion ownership, which complicates the nature and scope of ciates or reward employees. these transactions. team in 1993. Since then, a number of fran- 8 Luxury suites at professional sports facil- Bloom, supra, note 3. chises have used PSL’s to help defray costs 9 Ben Klayman, Stadium Naming Rights Deals Make ities typically cost more than $100,000- of new stadia, particularly where no direct Rebound, COMMERCIAL ALERT, November 24, 2006, avail- $300,000 per year to rent, and boast public funding was available.