Stadia naming rights - legal and commercial issues

Professional football today is a business and clubs are looking to maximise their revenue streams particularly in the light of the introduction of UEFA Financial Fair Play Regulations (“FFPRs”). One way in which clubs have sought, and indeed are increasingly seeking to, additional revenue is from the sale of stadia naming rights.

This article sets out the rationale behind why both clubs and sponsors are seeking to take advantage of the opportunities that are available under a naming rights agreement. In addition the article will highlight some key legal issues that the sponsor will need to be addressed within the naming rights agreement.

Introduction

A naming rights agreement is a financial agreement under which a corporation or individual purchases the right to name a stadia, potentially along with other benefits, for a set period of time in exchange for a financial payment. It is not uncommon for these agreements to be in excess of 5 years and are used as part of a sponsor’s marketing strategy to deliver greater brand recognition and improved sales revenue. However, on a number of occasions they have been under exploited due to an over focus on headline terms such as the sponsor’s name on the stadia and the associated reporting obligations.

The origin of naming rights agreements is rooted in American sports and particularly with in baseball. The first recorded agreement was in 1912 when the Boston Red Sox’s stadia was renamed Fenway Park in order to create publicity for the stadium owner's real estate company (Fenway Realty). A second example is the Chicago Cubs’ who renamed their stadium Wrigley Field to promote the owner’s chewing gum company. While both examples were with the stadia owners rather than with independent third parties, they are arguably sports two most successful examples of how a company name can become synonymous with a sporting team.

The acceptance of naming rights has grown so significant in the United States that over two thirds of top level baseball, American football, ice hockey and basketball teams currently play in branded stadia. Citigroup in 2006 agreed the largest pure naming rights deal to date ($400m over 20 years) in order to name the New York Mets baseball stadium as "CitiField". The sale of naming rights in England have been embraced more slowly and at the time of writing currently only a quarter of the twenty largest capacity stadia are sponsored (Emirates, Ricoh Arena, Etihad Stadium, Sports Direct Arena and Walkers Stadium) and only eleven out of the 44 Premiership and Championship teams currently have named stadia.

The traditional use of naming rights in England has been in association with newly built club grounds such as the Emirates (Arsenal), Reebok Stadium (Bolton Wanderers), Liberty Stadium (Swansea City) and the Ricoh Arena (Coventry City). There has however been a traditional resistance to the renaming of existing grounds as highlighted by the rebranding of St James Park in 2009 (Newcastle United FC) as sportsdirect.com@StJames’ParkStadium. Naming rights have recently extended beyond the clubs into the international arena with two notable examples being the Aviva Stadium (Republic of Ireland) and the Swedbank Stadium (Sweden).

Why do clubs and sponsors want to have naming rights deals?

Without doubt the main driver for club’s accepting a naming rights agreement is financial. There are numerous financial demands within a football club from wages, stadia improvements, agents fees to transfer fees which need to be financed through traditional and non traditional revenue streams. The money collected through the turnstiles, television revenue, shirt sponsorship, tournament bonuses, transfer fees and merchandise provide the club with the vast majority of their income. However as clubs wishing to compete within UEFA’s club competitions are required to comply with the FFPRs further revenue needs to be raised in most cases. The FFPRs require clubs to only spend what they are able to afford and to not accumulate losses of more than €45m over a rolling two year period. While the rules are not quite that straight forward, as some expenses such as improvements on stadiums and youth development are excluded and transfer fees are spread across the term of a player’s contract, they are of key importance to clubs. Where a club fails to meet the FFPRs or gain an exemption from them UEFA have the right to withhold payment of monies earned in their competitions or even to prevent clubs from competing in them. Clubs are looking to maximise all potential revenue streams and the opportunity of replacing the name of the ground seems to many as a no lose method to generate significant revenue or fund a new stadia.

The financial rationale is also true for sponsors as they seek to achieve a greater expected return on the investment. However, in addition to the short term financial driver sponsors are extremely conscious of the significant levels of competition particularly within established markets therefore a key driver for the sponsor is to improve or establish brand awareness. It is no co-incidence that naming right sponsors are often associated with established industries, which have traditionally been difficult to enter such as Financial Services (e.g. Amex Stadium - Brighton & Hove Albion, Aviva Stadium - Ireland) and Airlines (Emirates – Arsenal, Etihad – Manchester City). The increased brand recognition can, in part, be achieved through having the sponsor’s name on tickets and programmes which gives the opportunity for the sponsor to have their brand’s name/logo distributed through both traditional and new media. The brand awareness aspect is particularly attractive to firms who have yet to establish a significant foothold into a market and wish to challenge more well-known competitors. It was this opportunity that was decisive in regards to Emirates Airline’s decision to sponsor Arsenal FC’s new ground, indeed it was their guaranteed revenue that helped secure the necessary additional funding to build the ground itself. The result of the naming rights agreement was that the Emirates name recognition and sales have grown exponentially (both in the UK and worldwide) since the deal came into effect.

An additional incentive for sponsors who have an existing association with the local area is to use the opportunity to build upon their community image and establish greater local creditability and acceptance. Three examples of this driver can be seen with York City FC with Nestle, Stoke City FC with Britannia Building Society and Bradford City with Bradford & Bingley Building Society.

What areas should be covered in the agreement?

As with any commercial deal the success of the agreement is not only in the headline figures but the details that should be considered when drafting the agreements. Below are a few examples of issues that should be considered:
 

Range of rights

The Sponsor will seek to receive the maximum exposure opportunities for their brand in return for their financial payments. The sponsor will expect their name/logo to be displayed on both inside and outside of the ground (this may extend to include the roof particularly where the ground is on a major flight part). Both the brand logo and name should be included, in a prominent position, on all tickets and match day programmes. In addition the sponsor will seek to have access to advertise on the perimeter boards to display their logo prior to and during the matches. Ideally these boards should be located across from the stand in which the television cameras are situated and by each goal as these boards receive the most coverage.

One of the most important aspect of the arrangement often gets over looked and this is brand protection both from the grant of rights to use the brand but in addition the avoidance of the denigration of the brand. Due to the importance of brand awareness it is prudent for a sponsor to agree specifically which logos/words, and the colours used on the logos/words, that will be used in and on the ground, on tickets and the match day programme for example. The use of the sponsor’s colours and font is often a key aspect of increasing brand recognition that gets overlooked but which is important to ensure that the sponsor derives the maximum possible benefit from the agreement. These should be agreed by appending a colour schedule of the logos, the size and locations where they are to be used in a schedule to the agreement.

As the purpose of the naming rights agreements is to link the sponsor’s brand with the club, where the club suffers from significant negative publicity this in turn may have knock on effects on the brand itself. It is therefore imperative for the brand to have protection in the form of an option to terminate the agreement, or alternatively to receive damages, in circumstances where such a denigration of the brand occurs.

As part of the agreement the sponsor will wish to use the ground to build upon their own marketing through adverts which may incorporate images (or logos) of the club and players. Therefore the sponsor should obtain a licence for the relevant IP rights in order to use the club’s logo, names and footage (still and moving) in their own advertisements. An extension of this right may be to select specific individual players to be portrayed in their television adverts. The sponsor should also ensure that they are given, or at least have access on demand to, corporate hospitality tickets as they will want to take clients for marketing purposes.
 

Brand protection

As the purpose of the naming rights agreements is to link the sponsor’s brand with the club, where the club suffers from significant negative publicity this in turn may have knock on effects on the brand itself. It is therefore imperative for the brand to have protection in the form of an option to terminate the agreement, or alternatively to receive damages, in circumstances where such a denigration of the brand occurs.

A significant rationale for the value of the agreements is the exclusive partnership between the club and the sponsor. Therefore the sponsor will want to ensure that the club does not enter into an alternative sponsorship package e.g. shirt sponsor or advertising boards with a competitor of the sponsor. The sponsor may wish to go further and to include a right of first refusal over any future sponsorship opportunities that arise during the term of the naming rights agreement in order to maximise any potential opportunity that arises to further the brand.

Payment mechanisms 

Payments under naming rights agreements can be structured in a number of ways such as:

1. Lump sum payment upfront;
2. Lump sum payment with ongoing yearly payments;
3. Yearly payments;
4. Yearly payments with a bonus (for success);
5. Payment with additional payment in kind.

It is of course dependent upon the situation of the club as to which would be the most beneficial option. For example Arsenal FC took a lump sum payment upfront with lower yearly payments as this money was used towards funding the building cost itself. Other clubs may prefer a higher overall fee but spread across the life of the agreement. Due to the nature of the agreement the greater exposure (in a positive fashion at least) the brand receives the increased value obtained by the sponsor, therefore it may be prudent to build in flexibility for additional payments on the occurrence of specific events e.g. winning the league, European qualification or number of home televised games within a season.

Retail aspect

Additionally depending upon the nature of the sponsor's business it is commonplace for there to be a retail aspect to the arrangement through which the sponsor will sell their goods/services in and around the stadium, club shop and online. While secondary to the main aspect of the naming rights these rights are becoming more common as sponsors wish to see a 'payback' for their investment and is a simple way to maximise the exposure of their brand(s) and part fund the overall agreement. Database rights

In order to build the brand awareness the sponsor make seek to utilise opportunities to mass market through contacting the fans and other sponsors of the club. In order to do this the sponsor may wish to gain access to the databases held by the club. A potential problem with this is in complying with the Data Protection Act, therefore it would be more advisable, where viable, for the club to include a link or advert from the sponsor in their official communications to fans and other sponsors. The attraction for a sponsor of naming rights is that it creates an opportunity to establish a dominant platform from which they can achieve significant leverage over their competition. It is the access to the customer base that such an opportunity enables which is the appeal to many sponsors, however the key is not to rely on this visibility but to build upon the opportunities it offers, which is why sponsors will wish to have access to these database rights. Renewal rights

From a sponsor’s perspective it is important to ensure that they have the option of continuity of the agreement as it is often a case that the longer the name is associated the greater the likelihood is that the sponsor is accepted and commonly used. By setting out the timescales and costs (or a mechanism to establish the costs) of renewal from the outset of the original contract a sponsor can implement a long term strategy in relation to the brand. The advantage of structuring the agreement in this way is that the sponsor is not automatically tied into a longer deal but knows that for a set price, or at a price no higher than any other party has offered, they can continue to have the naming rights. As part of any renewal right it is prudent to enable the sponsor the option to amend the name of the stadium under specific circumstances, e.g. if they undergo a rebranding exercise or are purchased by another company.

Termination provisions

While both parties are entering into the agreement at a time it is mutually beneficial for them it is highly important for both the club and the sponsor to have specific termination rights in the agreement as circumstance may change. For example the sponsor may wish to have the right to terminate on the event of the club being relegated or failure to qualify for European competitions for a number of years. The club will want to ensure that they can terminate where there is a failure to pay the fee or where an alternative sponsor wishes to pay a higher fee. While a sponsor is likely to be highly resistant to the club’s right to terminate where there is a higher offer from an alternative sponsor this right could be drafted to only become effective within the last two years of the deal or by granting the existing sponsor a right of first refusal at the same value at the alternate offer. 
 

Conclusion

While not being everyones favourite idea naming rights are here to stay and will increase in quantity and value over the next few decades. The reality is that the average fan will have little hesitation in accepting a named stadium where the stadium is newly built, particularly where without the sponsor’s money the team may be stuck in an old and inadequate stadium. There continues to be a hesitancy in relation to the sale of the name of historic grounds but with the recent announcements from Chelsea FC and Newcastle United FC the financial reality is that in order to compete there is an air of inevitability that it will become more commonplace.

Sponsors are always looking to maximise their brand awareness and sales revenue and a link between their brand and high profile football teams has become an attractive proposition. The opportunity to have the sponsor's name repeated almost countless times on television, radio, newspapers and the internet is clearly an attractive one. As the cost of securing the naming rights increase sponsors are likely to become more demanding in what benefits they reap back from clubs, but clubs should be mindful to keep agreements commercially and legally flexible by utilising some of the methods outlined in this article.

Iain Taker is an associate at Kemp Little LLP and can be followed on twitter @iaintaker