The economics of stadium names | Hacker News Reader

The economics of stadium names

axiomalpha.com

93 pointsthe88doctor64 comments

I have always wondered about the economics of these massive marketing campaigns. Take crypto.com for example:

> Crypto.com buying the naming rights to the L.A. Lakers’ home arena for $700 million

I guess they hope people see the stadium name and go use their site, right? crypto.com makes their money from trading fees. Let's take their most expensive fee of 0.4%[1]. $700M ÷ 0.4% = $175B. They would need to do $175 billion in trading volume just to make their money back. That's not happening any time soon. Do these companies even care about ROI?

[1]: https://crypto.com/exchange/document/fees-limits

I would guess the ROI from their perspective is legitimization, both of their brand and of crypto in general.

Presumably the have exposure to the crypto market as a whole, I've always guessed big crypto companies doing advertising blitzes are mostly concerned with the market going up and new money entering, if it enters via them that's just a bonus?

This might be cynical, but I suspect its bigger scale version of the ads and spam for random coins, assuming the coin isn't an outright rigged scam, whoever is paying for the ads probably collects marginal fees, the real aim of the ad/spam is to hopefully increase the value of their own holdings.

It’s 175B over (presumably) 20 years, so only something slightly less absurd like $10B/year. Still a major drag on free cash flow.

Interesting stuff. Here’s a couple more pieces to add:

The contract is for 20 years. Presumably the money will be spread out fairly evenly (as governments prefer predictable revenue). So for simplicity, let’s say $35 million per year.

Second, according to this article [0], it seems the arena hosts over 240 events per year, including the Grammy’s. That works out to roughly 145,000 per event.

So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume.

That is a much more reasonable proposition, even though the overall number sounds insane [1].

[0] - https://theathletic.com/2995939/2021/12/06/why-crypto-com-ma...

[1] - you also have to take into account inflation which reduces that effective cost a bit each year, so year 20 will be cheap compared to year 1 when measured in real dollars (dollars after adjusting for inflation)

Funny that whoever controlled Staples Center believed that crypto.com have a high probability to last 20 years..

Even 2 years would have been an unknown.

Can't be sure they did. Perhaps they got a good downpayment and good annual payments and even if it only lasts two years they'll be happy with what they got and just find another sponsor. The LA Lakers don't have a hard time selling naming rights.

These are vanity purchases that have nothing to do with ROI or stockholder interest. It’s like buying a vanity license plate. There’s no ROI. Probably some exec is a fan of that particular sports team and get it in their mind to buy the naming rights to claim himself “biggest fan ever”

> So the question I would have is does Crypto.com expect to make $35M ÷ 0.4% = $8.75B per year in trading volume.

That's $8B extra due to the stadium naming, not in total.

Crypto.com 24h trading volume is ~$400m, so they're doing $175B in trading volume every ~450 days. By those metrics, the sponsorship deal doesn't seem unreasonable? Clearly they're not getting $400m in incremental volume as a result of the sponsorship but over 20 years the ROI is in the right magnitude. It's also notable that retail traders (the target audience of a sports sponsorship) are the most lucrative and pay the highest fees.

So they spent over a year of revenue on a local marketing stint. That’s pretty far past the reasonable line to me.

Now maybe it was a good bullish move, but the article’s point is that so far this has never been the case for every other company that pulled something similar off.

It is very far from local. NBA has an audience of tens of millions per game and the viewership is growing fast in international markets.

They also sponsored the Miami GP and have a larger sponsorship with Formula 1 and other sporting events. Not to mention the tv commercials with Matt Damon.

They have easily spent billions of dollars in marketing this year alone.

There's a lot of value in legitimizing cryptocurrency on the whole. I think it serves as a signal that the industry is mainstream and can help push those that are on the fence. Also, can induce a bit of fomo for some.

This is what I was thinking, but couldn't quite articulate in my head.

Somewhat cynical point of view is that primary goal of most crypto tokens is to make founders wealthy. Price of CRO briefly went up almost 4x around the purchase. I think it is safe a fairly safe assumption most that founders and execs have a decent amount of CRO. I do not have hard data if any of them took profits around that spike, but they would be dumb not to. So when you look at it from this lens, this netted CRO whales a massive payday.

One interesting thing to look at is adjusted CRO/BTC market cap (https://i.imgur.com/9dlvZ0Z.png). There are two interesting points there. First is - BTC spiked around the same time which would imply that all of the marketing did absolutely nothing or it was only enough to keep up. Second is that CRO/BTC market cap ratio dipped by roughly half since the acquisition. I am going to count this as a sign of a large sell-off which is consistent with some whales getting out.

edit: ugh, I took a second look at that graph and the axis are not labeled. Green is CRO price and it is measured on the left y-axis, yellow is how much BTC you get per CRO and it is measured on the right y-axis.

I run eng at a prop fund that did over a trillion dollars worth in trading volume last year on the crypto-exchange side and that's not big. Jump is probably like colossal in comparison, and Alameda. We don't pay those fee rates, of course, but there's someone on the other side as well, and if it's retail (which it often is) they're paying retail fees.

But what if crypto.com would be the largest and only crypto exchange, 400m to grow faster and push out competitors is worth it

This might be Crypto.com's best investment. At least it can be sold off to someone else.

So best as in least terrible?

The domain name itself is a pretty good investment too, I imagine. It used to belong to a professor I had in college, and I remember reading his tweets over the year or two before the sale about how many inquiries he had been getting for it: https://www.mattblaze.org/blog/newaddress

I imagine that domain had a higher RoI than any cryptocurrency could have to the prof.

Of course we can't know what it was sold for, but $10 million wouldn't surprise me.

How can companies quantify the ROI of extremely non-targeted advertising like stadium naming rights? For targeted campaigns, they can survey whether that specific campaign influenced customers' perception of the product. But for non-targeted campaigns, I don't see how a company can reliably survey whether the implicit brand awareness stemming from e.g. stadium naming rights has any influence on consumer behavior.

I think buying naming rights is mostly done as a signaling factor to company stakeholders. If the company reports that brand awareness declines, it can cover its ass to board members and shareholders by claiming "well, we did all we could in the advertising department—we even bought naming rights to a stadium! Clearly the decline is due to market conditions and not our own advertising failures." If, on the other hand, the company reports that brand awareness increases (likely due to factors other than the naming rights), it can trumpet that buying the naming rights was a genius strategic move.

As an aside, I think this is a large part of why companies hire management consulting firms, knowing full well they will yield zero effective results. It gives them another CYA excuse if things go south: "we tried all we could to restructure; we even hired McKinsey and Bain, the best of the best! Our declining revenue must be due to factors beyond our control."

My original article actually included an entire section on how to measure the effectiveness of stadium advertising, but I ended up cutting it due to length.

Essentially, you can try to break down the benefits into more understandable pieces. E.g. seconds of stadium dome signage shown on TV, seconds of press conference backdrop with stadium name shown on TV, number of eyeballs passing a sign during a game (classic billboard problem), etc.

If you run through these estimates (which clearly not all companies do before buying), it almost always looks like a bad deal. The stock ROI analysis confirms this, and is also a bit more compelling imo because it's harder to argue that something was left out. However, there are exceptions (such as Target) where the advertising components of a stadium deal can actually appear to be quite favorable, and interestingly the stock performance backs that exception up. My next Market Intelligence newsletter mentioned at the end of the article will go into more detail on how to do that analysis for an arbitrary deal.

Once you’re at a certain marketing spend, more targeted advertising has diminishing returns — you’ve already targeted your existing audience and converted the ones that are ready to convert.

In addition to helping your existing targets convert due to an increase in brand trust, broad based advertising also helps you break out of that local maxima by delivering new customers that are unlike your current target. You can then identify new segments of customers, interview them to understand their unique use cases, and build targeted campaigns for those new segments.

Measuring this and executing on it is an order of magnitude harder than just running targeted ads, because the conversion effects are distributed across all of your campaigns and the timelines are much longer. However, most any sophisticated marketing team will develop these types of campaigns once they start seeing the effectiveness of targeted advertising start to decline.

That sounds plausible, but the data still suggests doing broad-based advertising through stadium names probably won't give you the ROI you're looking for.

In Stockholm, Sweden, two of the largest arenas are named by companies who paid to have the arena named something not associated with their company.

Friends Arena is named after the Swedish anti bullying foundation Friends as part of the Swedbank sponsorship of the foundation.

Avicii Arena is named after the artist by the companies Trygg-Hansa and Bauhaus.

That's pretty cool! I wish that would catch on in the US. I live next to Guaranteed Rate Field. :/

Amazon bought the naming rights to Seattle's newly-renovated NHL arena and named it the "Climate Pledge Arena."

I believe that's what the kids call "cringe ".

... but you knew exactly which companies were the sponsors, and you have a positive association with them. That's not an accident.

Of course. Companies will not spend money without expecting something back. But the sponsorships are not very obvious and you have to ready pretty far down on the about pages to find out. I would be surprised if 10% of the visitors to the arenas knew about the sponsorship.

In these cases I think it's mostly about employer branding and I think it's communicated much more within the sponsoring companies.

This article is interesting but I picked up on several errors.

For example: In case you were wondering how Q2 Holdings ($3B market cap) could possibly pay $260M to name a Texas soccer stadium... they can't and didn't. That number is the amount it cost to build the entire stadium. Q2 said the deal cost less than 1% of its annual revenue... Their annual revenues are <$500M. https://twitter.com/SportsPro/status/1354033011302477826?s=2...

An interesting naming right to consider is Overstock.com... in 2011, they bought the rights to the Oakland–Alameda County Coliseum, where both the Raiders and Athletics played... for a 6 year total of $7.2M. It was always a head-scratcher for me how that went so cheaply. (https://en.wikipedia.org/wiki/Oakland_Coliseum)

The Staples center has been mentioned a couple times in this thread. If one is going to pay to name a stadium, make sure its a new stadium. As buying the rights to a stadium that expired after many years means you are paying a lot of money to put your name on something that people just call by the old name anyway.

It just becomes a generational thing at that point which can actually work for you. There’s a concert venue that’s known by three different names depending on your age. So not everyone will continue to use the old name.

I know little about finance, but this seems pretty clever. Actions like this can definitely give some insight into how their leadership operates (at least the leadership at the time of the action —- can’t pin that on the team who comes in 15 years into a 20 year agreement)

Yet a further example of the absurd economics of sport franchises. Quite nice work.

A minor quibble: not every investment a company makes can have the same GAAP ROI. A small example that comes up frequently on HN is the free drinks for staff, which is a small expense that has a large benefit. At the opposite end can s like these, companies often have complex relationships with their local communities (expanding facilities, traffic, pollution, etc). Stepping in, like Qualcomm did, or just “local boosterism” like Target or AA can be valuable but only appear as a hard-to-quantify avoided expense. Whether a stadium is better than some “keep the highway clean” campaigns and some school programs is hard to determine, though the article manages to touch on it (the rigidity of being locked in).

Of course when the campaign is unambiguously a national or international one (as with crypto.com’s) an analysis like ntoskrnl’s is right on.

Funny. As a (sometime) SF Giants fan, their park is now on its fourth name, and it's only ~20 years old [1].

> The Giants' waterfront arena on 3rd and King Streets is on its fourth name change in 19 years. It was first named Pac Bell Park when it opened in 2000. In 2002, it was renamed to SBC Park before changing again to AT&T Park in 2006.

Life goal when I'm a billionaire: erect a stadium for some sport, call it "<Your name here> Park." Enjoy listening to all the announcers say that.

[1] https://www.cbsnews.com/sanfrancisco/news/oracle-park-is-the...

But those are just tracking the merger and acquisition status of one company.

My father-in-law worked at Bell Labs. He received AT&T stock as part of his compensation, from before the 1984 breakup. When we settled his estate, that AT&T stock had turned into over 30 different companies.

You're right. We still had to keep changing what we called it, though.

You could just say let's go see the Giants play. It's not a question of which stadium they are going to be playing. For American sports, I rarely refer to a stadium by sponsor name. In fact, I prefer to know the irreverant names for them. In Dallas, the cowboys play at Jerry World. When Barry Switzer was coaching, the stadium was referred to as Switzer-land. I also refer to stadiums by their Stadium Formerly Known As like I always used Candlestick instead of whatever corp name stamped on it.

re Candlestick: at 3Com, we used to refer to that as Building 11 (that was when 3Com had a corporate sponsorship).

Even if you don't use the name, you still have to hear the announcers say "The Angels are playing the White Sox at Guaranteed Rate." Yuck.

Ah, I see your assumption. I don't listen to announcers ;P

Also, I tend to watch very very little American sports. I'm pretty much a die hard English Football fan, and their stadiums have much more interesting names as well as some fun nicknames. The stadiums with corp names tend to be new money/onwers to the clubs. ManCity's Etihad (Emptyhad) comes to mind. Otherwise, "Stampford" Bridge, Old Trafford, Anfield, Goodison Park, St James' Park, Loftus Road, Stadium of Light, any and all much better than Corp$$OfTheSeason.

I am very conveniently ignoring the corp$$ on the jerseys. It doesn't fit my narrative here =)

The only UK stadium I could name is Old Trafford. And Wembley.

Also known as Old Toilet in some circles. Like I said, much more interesting names

Lumen field where the Seahawks play has had 4 names in 20 years.

And I still call it Seahawks Stadium, the name it had before the rights were sold

I may be biased though, as I did get married there the year it opened

Tell, tell! That must have been some wedding!

How many guests were there? 40,000? Were you on the big scoreboard?

I remember when PacBell bought rights to the new Giants stadium for ~$2mm per year. Usually these are testaments to executive ego, similar to large HQ purchases. Sometimes it works out (Salesforce and Apple) but many times it doesn’t (Bear Stearns and Enron)

They mention the Crypto.com arena at the start, but it is interesting that they seem to have skipped over the history of the arena before that - The Staples Center and how that may have impacted their business

The author mentions randomly sampling companies for the analysis.

Edit: Reading again, they specify that the randomly sampled companies are NFL stadiums, but I still wonder why Staples Center was skipped in the section that talks about qualcomm/target

Staples is a great example to study. Also Sports Authority, PSINet, Enron -- there are many fascinating case studies. The article would be way too long if I included all of them though. However, the upcoming Market Intelligence newsletter issue I mention at the end of the article will go into more detail on certain examples via the lens of a checklist that anyone running, advising, or investing in a company can use to vet a particular naming rights deal.

I was wondering...

Do this name changes change that people refer to landmarks in their day to day speech?

At least nearby, there are some places and companies that people still use their original name, even years after renaming.

For example as a foreigner I still occasionally refer to Mexico's capital as DF, instead of CDMX/Ciudad de México. And I've heard Costa Ricans still refer to their local airline as Lacsa instead of Avianca.

When Gov. Whitman and her crew first implemented "leasing" of stadium names, I think it was actually Plan B. What they _really_ wanted to do was privatize those publicly funded stadiums themselves. But that wasn't something that would fly at the time because ordinary voters still hadn't fully embraced full on privatization of everything.

After reading this article I'm more certain than ever that stadium naming rights are just very expensive NFTs.

Same as skyscrapers, isn't it? While things look like they're exponential, you can pay for anything. A stadium tells everyone your business has arrived in the big leagues.

One thing that I didn't see is whether you can sell on the naming rights to a bigger fool.

Typically stadium name deals prohibit any reselling or sublicensing of the naming rights because the Team want's to control what companies they are associated with.

Sure you can't just sell your stadium rights to anyone but can you recoup some money if the team is ok with whoever is found?

Not a bad rule of thumb, especially if the company is spending money on long-term brand marketing that's investor capital (or otherwise borrowed) and not from operating cash flows.

Wonder if this applies to cities that subsidize stadiums too? Are they worse off financially?

It seems like public subsidies for stadiums doesn't add as much economic activity as similar investments.

https://econreview.berkeley.edu/the-economics-of-sports-stad...

Cities claim to subsidize stadiums as an investment. However data doesn't usually back up those claims. https://en.wikipedia.org/wiki/Stadium_subsidy#Criticisms

As a couple others have mentioned, this is a different analysis, but the answer is that generally localities that subsidize stadiums do not see a good ROI. Local residents typically end up paying the bill through e.g. a slightly higher sales tax. Corollary: If you want to pay less local taxes, don't live in a city that has a major league sports team.

> Corollary: If you want to pay less local taxes, don't live in a city that has a major league sports team.

Or a state. Here in NY we’re chucking hundreds of millions at the Bills. https://www.politico.com/news/2022/03/28/buffalo-bills-stadi...

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