What is a Naming Rights Agreement?
Naming rights, at their most fundamental level, refer to the granting of a commercial right, by the sponsoring entity (generally a major corporate entity), in exchange for a fee or other consideration, to designate the title of a specific place, event or promotion, usually for a fixed period of time and under certain conditions. Naming rights are typically granted to entities holding substantial prestige in their fields of business. Where the naming sponsor is a corporation or similar entity, it agrees to pay royalties which contribute to the cost of erecting or maintaining a construction project, or, in other circumstances, to support a cultural, recreational or sports-related project. The most common example of this is where a corporation purchases the rights to name a public sports venue or arena, such as Madison Square Garden, Braves Stadium, Fenway Park, or Dodger Stadium. However , other common examples include the naming rights to the Hartsfield – Jackson Atlanta International Airport, Kennedy Space Center, or the Bonneville Salt Flats.
Naming rights agreements can be extremely lucrative for both parties, and can be highly beneficial to sponsors, property owners and organizers, and the general public. For government and civic authorities, naming rights can provide the vital funding needed to construct or operate major public infrastructure. For sponsors, naming rights can allow large organizations to market their wares, raise their profile and encourage repeat business and brand loyalty. The general public also reaps the rewards of naming rights, as sponsors usually fund public projects such as parks and stadiums, or in the case of public transportation projects, continue to support those projects every year. Accordingly, suit for breach of a naming rights agreement can be brought pursuant to the terms of the contract.
Major Elements of Naming Rights Agreements
The main components of naming rights agreements generally include the following: Duration of the Agreement, Financial Terms and Branding Rights. With respect to the duration of the agreement, a naming rights agreement will typically run for a period of 5 to 20 years. Although the term is often negotiable, it is not uncommon to run into issues with a naming rights agreement if the negotiating parties fail to have the intent to grant the other party the full benefit of the bargain. For example, if a naming rights agreement runs for a term of 5 years and one party has the right to cancel the agreement for failure to meet certain obligations, then both parties will have a vested interest in ensuring that the obligations are met for at least the first 5 years.
Other commonly used components are the Financial Terms. The financial terms will usually lay out how much money is to be paid under a naming rights agreement, when payment will be made, any incentives for early pay, and what will happen if the money is not paid on time. An example of a clause that may appear in a naming rights agreement is as follows: In addition to all other sums payable pursuant to this agreement, Licensee shall deliver to Licensor by the first day of each succeeding month starting on [DATE] and terminating on [DATE] an amount equal to one-twelfth of the Estimated Financial Commitment Amount, and on or before [DATE], an amount equal to the remaining Estimated Financial Commitment Amount less the amount of all prior payments made in accordance with the terms of this Section [X].
Branding rights will also be a common component of a naming rights agreement. A naming rights agreement will often contain a component that grants rights to advertise or market using the name of the venue for the term of the agreement. For example, the naming rights agreement may contain a clause that grants: Licensee shall have the right, at its sole cost and expense, to have its name, logo, trademark and similar vehicles of brand identification used in connection with events taking place at the [insert name of venue], including, without limitation, by way of signage at the [insert name of venue].
Advantages of Naming Rights Agreements
Assessing Naming Rights Agreements: Understanding the Good, the Bad, and the Ugly
Benefits of Naming Rights Agreements
The most common benefit of naming rights agreements is, not surprisingly, monetary. The property owner is able to generate income, while the sponsor has a known, measurable value for the next X years, normally with a scheduled payment. A second common benefit is brand visibility and exposure to a highly sought after target market. A highly visible property normally has some form of highly trafficked thoroughfare that passes by/on/at the property at all times. Under these circumstances, the sponsor achieves high brand visibility for a specific period of time. A third common benefit is long-term property sponsors have an opportunity to develop a long-term partnership with the naming rights holder and the community served by the property (i.e., meet certain corporate social responsibilities, etc.). There are also intrinsic benefits, such as value-added premium seats and/or personal lodges in a particular arena, that a professional sports property may offer another third-party naming rights holder. In sum, there are significant benefits to each party to a naming rights agreement.
Legality
There are common legal considerations that go into drafting and critiquing naming rights agreements. These are laid out in more detail in the article, but here are a few: The name or mark should not be deceptively similar to other trademarks or nomenclature relating to similar goods or services. If using a mark or phrase is contested by another party, there should be a right of termination for the licensor if the use would infringe the third party’s rights. If the use is going to take place for a number of going concern years, then that raises issues of competing rights/equities, so prior rights in the mark or name, trade name, etc., must be given attention. Care should be taken with respect to the type of rights which are granted. Naming rights are typically limited to a geographical area or territory. Names or marks cannot be secured by the licensor as personal property, for licensing, or for sale. The licensor shall not attempt to register such use as a trademark or service mark or other intellectual property owned by the licensor. Licensor should consider limiting or defining the scope of all of these rights. With respect to intellectual property rights at play, the long and short of it is that anything that is created in the course of the agreement is owned by the company granting the naming rights (unless the parties agree otherwise). However, the company that acquires the naming rights desires to have the maximum list of rights and the greatest flexibility possible in terms of use of the acquired name or mark. Therefore, the company acquiring the naming rights must be aware of potential conflicts with any existing intellectual property that it may have in the region or with respect to the types of goods and/or services being provided. From a compliance perspective, considerations should include, inter alia, a review of local and state laws, public policy implications, zoning implications and any other administrative law concerns.
Notable Naming Rights Partnerships
Soldier Field in Chicago
The home of the Chicago Bears is one of the most well-known naming rights deals in the country. The naming rights agreement was struck for 20 years in 2003. In 2018, it was rumored that the naming rights will be up for renewal and contracts for the new naming rights holders may exceed $228 million, which would be an increase of over $200 million from the original deal.
Heinz Field in Pittsburgh
The naming rights deal for the home stadium of the Pittsburgh Steelers and the University of Pittsburgh Panthers, both of which are known as Heinz Field , is a classic example of how naming rights deals differ to standard sponsorship agreements. Heinz agreed to pay $57 million to sponsor the stadium. Heinz has been the team’s top sponsor and the stadium’s naming sponsor since its opening in 2001.
Walmart Arena in Fayetteville, Arkansas
With an annual attendance of over 500,000, the indoor multi-purpose arena is the largest arena in Arkansas. Opened in 1997, the agreement for the naming rights was initially for 30 years but was extended in 2018 to run through 2043. Currently, the deal stands at $1.4 million for the naming rights over 25 years and includes options for three additional terms of five years.
Obtaining a Naming Rights Agreement
When negotiating a naming rights agreement, property owners and sponsors should focus on a number of key terms. First and foremost, both parties must agree to the value a name brings to the stadium, building, or space and how that value is measured. For example, it is important to understand how many people visit the location, the expected viewership of the event, and what kind of exposure the name will receive both during and after the event. These calculations are essential to arrive at a mutual decision regarding monetary value.
Secondly, it is important to agree on how long the agreement will last. Will it be for one year, five years, ten years, or something different? This is another method through which both parties can equate an estimated monetary value of the name and the agreement as a whole.
Third, what is the party responsible for maintaining the signage? If the property owner must maintain the signs, then who will cover the cost? Similarly, if the sponsor is responsible for maintenance, will the property owner pay for it?
Fourth, consider promotional opportunities. Will either party be able to use the name for promotional opportunities? In these instances, it is important to lay out the ground rules for its use for both parties.
Another area to consider is the termination of an agreement. Will there be any provisions for termination? If so, under what circumstances can the contract be terminated? How will it be communicated and accepted?
Finally, what happens when the agreement is up? Is there an option to renew? If so, who will determine if both parties sign onto the renewal?
Pitfalls and Issues
The hot-button issues surrounding naming rights are very rarely about the money. In fact, there are many parks, stadiums and arenas that still have their names to this day despite the fact that no one is paying for them. In this day and age, the most common issue is public perception. "Once you hang a name on something, you can’t go back," quipped a former PSC Credit Union VP at Better Banks during an interview. "It’s a big commitment (to do naming rights) and before you do it, all the questions are, "Is this a good match?" "Is the company stable?" "Will people feel good about the name you are affixing to your facility?" "Is it in good taste?"
If we further delve into the legal side of naming rights agreements, there is also a risk of non-payment, name infringement, mediation and, in certain states, sales tax. Indeed, these are some of the issues below we discuss with our clients who are considering branding opportunities with different area facilities.
Non-Payment
Very clearly, one of the most quantifying aspects of a naming rights agreement is the financial aspect and the risk associated with non-payment. If a local business or corporation removes its name from a naming rights agreement due to lack of payments, it may require the host arena to take action, such as changing the name to one of their sponsors, which could result in a loss of credibility and customers.
Public Opinion
With naming rights deals, you also need to be cognizant of how the public will perceive your decision to attach an organization’s name or brand to your facility. Are you confident that your customer or clientele base will benefit from this new name? Is it not going to create a backlash for you? This is especially true if you choose a company that suddenly goes bankrupt, which is why you need to be aware of a company’s business history, revenue projections and outlook. Doing your research ahead of time can minimize the risk of non-payment and negative public opinion, which can then make the agreement even more profitable in the long run
Infringement
If you and the rights holder have not agreed to the name usage in your contract, the other party might argue that you infringed on their trademark or intellectual property rights by doing so. This could mean that they try to get a court injunction to stop you from using the name, or they could sue you for monetary damages.
Mediation
If you do not specify in your naming rights agreement how a dispute should be addressed, it presents the opportunity for numerous parties to intervene and raise the stakes, such as any employees at the name holder’s company. Mediation not only helps you protect your own investment but the investment of other stakeholders, whether those stakeholders are the stadium owner or the sponsor.
Future of Naming Rights
With the growing commercialization of sports, we will continue to see a shift in sponsorship strategies for building the value proposition in naming rights deals. As sports teams and venues are becoming increasingly expensive to acquire and operate, owners and operators will look to maximize the return on their investments by eyeing new ways to enhance their revenue streams. We can also expect to see deeper investments from naming rights sponsors to fully realize the value that this tactic can generate. The giants of the outdoor advertising industry such as Lamar and Cumulus Media have already demonstrated that they are willing to invest heavily in the purchase and operation of physical spaces such as digital billboards and sports arenas in order to capitalize on the resulting media opportunities. While there is still not an organized data pool available to estimate the impact of these outdoor spaces, there have been various studies on the impact of digital billboards on viewers. On the technological side, as an ever-increasing amount of our daily lives move online, we can expect a similar trend to develop in the field of out-of-home media. This is particularly relevant as various civic bodies are moving to prohibit over-spilling digital billboards. We will also see a growing demand for sponsorship recognition in non-traditional areas. With the replacement of much of the physical signage and billboards with digital displays, there is a growing opportunity for advertising and sponsorship recognition in various digital spaces such as the arena intranet and the team website . This is particularly true for the latter, where the team can both continually engage fans via relevant content and leverage behavioral data to provide targeted advertisements and tailored sponsorship messaging. As media consumption in urban centers continues to grow, we can expect to witness a growth in non-sports naming rights deals. Sports venues continue to be the dominant player in this sphere, but we can expect to see a gradual increase in high-profile naming rights deals for non-sporting public venues such as art galleries, museums, and community centers. In the same way we have witnessed in the sports field, with a growing number of cities looking for new ways to fund various public institutions, we are seeing the same move in commercial rent setting, where more owners are looking to secure creditworthy tenants in exchange for preferred tenancy terms. Much of this trend can be explained with legislation such as the Municipal Competition Tax Act (2001), which allowed municipalities in Ontario to levy a municipal tax on commercial property worth the greater of the school rate or 1.1 times the commercial rate starting in 2001. From a sponsor’s perspective, an increasing number of competitive offerings will afford them more opportunities for securing naming rights deals. We may even see a day when businesses begin to market themselves using non-traditional assets such as the "name" of their province or city.