Sacramento Bee

For arena, the name's a big-money game

By Jon Ortiz
August 28, 2006

The deal that wed the Sacramento Kings and the Arco gas station chain 21 years ago ushered in the modern era of corporate naming rights on sports arenas. Now, Maloof Sports and Entertainment, which owns the Kings and Arco Arena, is talking about a new deal -- and hopes it can strengthen its bargaining position by dangling a new arena in front of Arco or another sponsor.

The current agreement with Arco, a division of London-based BP PLC since 2000, expires next year and is one of the cheapest in major league sports at $750,000 per year. Maloof Sports President John Thomas said "extension discussions are under way" with Arco but wouldn't divulge details.

The negotiations are taking place at a ticklish time for Maloof Sports and its Kings franchise.
Team owners Joe and Gavin Maloof are navigating speculative waters swirling around whether they will move their Kings and WNBA Monarchs franchises unless they get a new publicly subsidized arena.
All of that drives down the present arena's value to Arco or any prospective sponsor, experts say. Even worse, recent trends indicate that the naming rights market has gone soft.

Thomas said Maloof Sports hopes to extend its contract with Arco on the 18-year-old building in Natomas, then transfer the deal to a new facility.

"We're looking forward to having that discussion with Arco," Thomas said.

Of course, Maloof Sports won't have a new building to offer unless Sacramento County voters in November approve a quarter-cent general sales tax increase that would fund most of a new arena.

Under terms worked out with Sacramento county and city officials, Maloof Sports would keep any money that comes from naming rights.

"If the negotiations don't include a new building, the naming rights value (for the current arena) would be significantly diminished," said Dean Bonham, head of the Denver-based Bonham Group consulting firm that says it has negotiated $7 billion in sports property sponsorships worldwide.

Naming rights can be an important revenue stream for arena owners and operators. Just seven years ago, companies routinely signed sponsorship deals for $7 million to $10 million a year. It is unlikely Maloof Sports will get anything close to that, even with a new arena.
"Contracts for new ballparks and arenas these days run from $1 million to $6 million per year," said Josh Boyd, a Purdue University communications professor who tracks naming rights trends. "A new arena in Sacramento would probably be toward the low end."

There are several reasons for that. Sacramento is a midtier media market -- AC Nielsen last year ranked it 19th nationally -- so fewer people hear Arco's name during game broadcasts or on local TV news than in larger cities such as Los Angeles or San Francisco. And the Sacramento region doesn't have many corporate headquarters that Maloof Sports could approach about a sponsorship.

"For the most part, these kind of entitlements are done by local companies who want international exposure and at the same time want to be be part of the fabric of their local communities," said Frank Vuono, a former National Football League marketing executive and co-founder of 16W Marketing, a New Jersey-based sports business consulting firm. "Big city, more and bigger companies. Smaller city, fewer and smaller companies."

In Sacramento, the largest public companies with local headquarters are McClatchy Co., which publishes The Bee and approximately 80 other newspapers across the country, aerospace and defense manufacturer GenCorp Inc. in Rancho Cordova and Folsom-based garbage collector and recycler Waste Connections Inc.

McClatchy Chairman and Chief Executive Gary Pruitt said a naming rights deal on a local arena "is not an opportunity that we're searching for.

That being said, no one has approached us and as a result we have not considered it."

GenCorp would likely pass, said Tim Murphy, the company's director of public affairs. "Our products aren't sold to the general public, so we don't need the marketing advantages that come from naming rights," Murphy said.

Waste Connections did not return calls requesting comment.

Whipped topping manufacturer Rich Products was the first company to pay for a name when it doled out $1.5 million in 1973 for 25-year rights on the Orchard Park, N.Y., stadium of the NFL's Buffalo Bills.

The Arco-Kings arena contract in 1985 was the first of its kind in the NBA.

The deal was risky. TV network executives worried that mentioning Arco during games would upset their big oil advertisers. Some speculated that the deal could whip up anti-corporate sentiment among fans.

Nothing came of those concerns and by 1997, two years before Arco renewed its deal with the Kings, 36 percent of major league teams played in buildings that carried corporate names.

The trend gained steam as stadiums sprouted across the country, just as Wall Street went on a bull run in the late 1990s.

The height was 1999, when 10 corporations committed a combined $1.02 billion to plaster their names on the sides of sports buildings, according to the Warsaw Sports Marketing Center at the University of Oregon.

Today, 72 percent of major league basketball, baseball, football and hockey teams -- 88 of 122 -- play in a corporately sponsored stadium or arena, according to the Warsaw center.

But the building boom of the late '90s is a faint echo today, and just two building operators have signed naming rights deals in the past two years. Vuono, the former NFL executive, said that the slowdown may be good news for Maloof Sports, especially if it can offer a new downtown arena to potential sponsors.

"The trend continues to be strong, it's just that there's a lack of new product," said Vuono, who helped negotiate a 20-year deal between the St. Louis Rams and Edward Jones Financial worth an estimated $73.6 million.

"For the right kind of company, these deals continue to be a good investment."

On the other side, Dennis Howard, a University of Oregon sports business professor who does research for the Warsaw center, said the '90s building boom snagged most of the companies that would be interested in challenging Arco for an arena deal with Maloof Sports.
"A lot of the significant players willing to invest $100 million on naming rights have already made that investment," he said.

"So it's getting harder and harder for teams -- particularly in smaller markets -- to find corporations that are willing to make investments of this magnitude."