When it comes to naming rights deals, sponsors of sporting stadia need to think tactically or risk an own goal. By Kim Walker and Steven James
As UK football club owners struggle to find the finances to balance the books, they are increasingly looking to naming rights to generate revenue – that is, the right to attach a sponsor’s name to a place or event.
Arsenal’s decision to sell the naming rights to its new stadium to the Emirates airline is perhaps the most high-profile deal in English sport to date. At the end of last year, two of its rivals, Tottenham Hotspur and Chelsea, announced their interest in tying up their own naming rights deals.
The benefits for brand owners are obvious: an exclusive association with a well-known sports team, repeated use of the stadium name by the media and the promise that, if the team performs well, then the stardust will rub off on that brand. In return, sponsors provide clubs with a valuable revenue stream to enable them to build, develop or redevelop bigger and better stadia.
Because of the large sums of money at stake, naming rights agreements are often negotiated aggressively. The following key points should be considered.
- Term: Agreements tend to be lengthy – the Arsenal-Emirates Stadium deal is reportedly in place until 2021. But while an association with a club may be in line with the sponsor’s vision at the start, attitudes can change significantly over a 10-year period. If the term is too long, there is a risk that potential new sponsors will be deterred because of the considerable amount of goodwill accrued by the previous incumbent. The parties should consider including options to terminate early, and lock-out periods to provide an early exit route if the arrangement is not working out as planned.
- Payment: It is important to consider how payments will be staged. In the case of the Emirates Stadium deal, they were weighted towards the earlier years of the contract, enabling Arsenal to meet loan repayments on the new ground. The sponsor may want the right to terminate if the club is relegated, and both parties will need to consider the consequences if one of them is forced to go into administration.
- Exclusivity and advertising opportunities: A sponsor will want a ’clean venue’ so it does not have to overcome another brand’s association. It will want to maximise its advertising opportunities both on perimeter boards and billboards, and will usually insist on the venue using its product or services. The club will have to determine whether the cash injection from granting naming rights to a single sponsor outweighs the risk of limiting interest from competitor brands.
- Exclusivity: The sponsor may insist on tickets and corporate boxes, and the right to present trophies.
- IP rights: Most agreements will result in both parties cross-licensing the rights to use each other’s branding on promotional materials. The licence should include terms forbidding any use that would denigrate the other’s branding, and the licensee will want prior rights of approval over any materials featuring their IP. Care should be taken to avoid composite trade marks (such as ’Barclays Premier League’) because of the problems this will cause in dealing with the ownership of the marks after termination.
- Other uses of the stadium: A stadium owner will often wish to recoup its investment by hosting other events. The sponsor will want assurance that this will not tarnish its brand or diminish the rights in its name.
- Practical considerations: It is critical to determine whether it is the club or the stadium owner that owns the naming rights. If the latter, the sponsor should review the terms for any prohibitions on granting other licences and also check existing agreements to ensure there are no restrictions or prohibitive grants of rights.
There is a risk for sponsors that generic use of its trademarks in naming rights deals (such as calling Arsenal’s stadium ’the Emirates’) could put the mark at risk of losing its distinctiveness. The brand owner will want to impose restrictions to minimise this.
Sometimes fans or the media may refuse to adopt the new name – many steadfast Arsenal football fans call the stadium Ashburton Grove (the street on which it is located) or the Grove. Further, some sports organisations prohibit references to sponsors in their competitions – Emirates Stadium is referred to as Arsenal Stadium in Uefa Champions League promotional material.
Naming rights deals should therefore be negotiated with the head as well as the heart. A poor long-term performance by a sports team (or allegations of corruption) could have a negative impact on the sponsor. Equally, the reverse could happen if the sponsor’s reputation is tarnished by scandal or poor financial performance.
The key to success is getting the contractual terms right while being sensitive to the wishes of the supporters and the media, who will ultimately decide whether the partnership between stadium and sponsor is a success.
Kim Walker is a partner and Steven James is a solicitor in the outsourcing, technology and commercial team at Pinsent Masons