The use of sports and celebrity marketing can be a very attractive tool for businesses of all sizes in today’s world. With these opportunities growing in popularity, sponsorship and naming rights agreements have become more commonplace and are an essential component to many businesses’ strategic plans. To successfully implement these arrangements, however, it takes a keen understanding of how to structure these deals. In this rapid-fire Q&A style session, attendees will gain an appreciation of:
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Key elements of these arrangements
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How best to leverage bargaining power
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Ways to maximize the benefits for the sponsor
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Fundamental considerations for social media
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Common pitfalls and risks
To view this webinar, click here.
Transcript
Jeremy Garvey:
Good afternoon, everyone. I am Jeremy Garvey, a member in the Corporate Practice Group at Cozen O'Connor. I would like to welcome you to the second edition of Corporate COffee Break. Today's topic is Sponsorship & Naming Rights. And we're very fortunate to have my good friend and colleague, Dave Franklin, with us.
Jeremy Garvey:
Dave has been a practicing transactional lawyer for over 30 years. He has built a very successful sports and entertainment practice over the last quarter century, and has worked on a number of naming rights transactions and engagements, including PNC Park and PPG Paints Arena outside of Pittsburgh. Dave has also helped the Prudential Center in Newark, KeyBank Arena in Buffalo, the PPL Center in Allentown, and several other facilities. Dave represents both sports teams and sponsors in these transactions and has a very keen view of what is important in them. Dave also handles a number of other matters in the sports and entertainment field, including sponsorship deals, luxury seating arrangements, celebrity endorsements, naming agreements for theaters and museums and—more recently—social media influencer agreements. Over the years, Dave has worked with professional sports teams in each of the major sports leagues, automotive racing teams, Fortune 100 companies, colleges and universities, athletes, and celebrities.
Jeremy Garvey:
Dave, thanks for joining. I am really looking forward to this as it is a topic that I think is very timely and is only going to get more timely. The idea of the series is to make this as consumable as possible and do it as efficiently and quickly as possible, so we’re going to hit this in less than a half an hour.
Jeremy Garvey:
Dave, welcome. Just give me a quick history of your view on sponsorship deals and maybe more importantly, where these things are going in the future?
Dave Franklin:
I appreciate everyone tuning in. This is a topic that I really enjoy and, like with a lot of things in the law, the law and history often intersect, which makes this particular practice very interesting. Sports and athletes were probably first used to help sell consumer products back in the late 1800s when tobacco companies started featuring professional baseball players on what were then known as tobacco cards.
Dave Franklin:
The idea back then was very similar to today. If those companies could connect their associate with popular baseball players through packaging their consumers, customers would buy more cigarettes. And people are probably most familiar with the Honus Wagner tobacco card, which is considered to be one of the most expensive, rare pieces of sports memorabilia out there.
Dave Franklin:
Only 60 Wagner cards are believed to be in existence today because Mr. Wagner demanded that the American Tobacco Company pull his card from circulation. A lot of people believe he did that because he didn't want to be associated with smoking. But there are just as many people that believe Wagner pulled the card because he didn't want the company to profit off of his likeness.
Dave Franklin:
Players weren't paid back then for these cards. The tobacco companies simply did it on their own. So, in a way, Honus Wagner was really setting the tone for the future of sports endorsements as far as athletes and celebrities are concerned.
Dave Franklin:
As for naming rights and stadiums, Fenway Park, which many people believe was named after the Fenway Realty Company and another family business of then Red Sox owner John Taylor and Wrigley Field represent perhaps the first uses of a stadium or arena to promote another line of business. Those two teams in those iconic venues have never made a penny off of a facility-wide naming rights agreement. But most professional franchises now rely on those agreements to add much needed revenue.
Dave Franklin:
Of course, as we all know, the availability of naming rights is somewhat fixed and limited by the number of facilities available to be named at last check. There was something like 90 to 95 out of 120 professional sports venues that have some sort of third-party naming rights deals in place. They don't pop up every year.
Dave Franklin:
When they do, there's often some fierce competition. Not in every market, but in a lot of markets. Some experts have questioned whether or not these investments are worth it. I personally think in some cases the price tag is simply too rich to result in any sort of meaningful return.
Dave Franklin:
But I also think there's a sort of keeping up with the Joneses mentality, Jeremy. That, when it comes to these deals, guys don't want to be left on the sidelines. So, I think naming rights and sponsorship agreements are here to stay. And, if recent events are any indication, the price tag is going up as it relates to the social media. You know the interest is ever increasing.
Jeremy Garvey:
That's terrific, Dave. It's good to have that history. Can you give me the three key things that you would look at, honing in on those key issues? I know there's probably more than that, but in every sponsorship deal, what are the fundamental ones that you care about the most.
Dave Franklin:
To sort of eliminate the mystery here, I mean, naming rights agreements aren't totally unique from any other commercial contract that you've read. I mean, we have reps and warranties. They have indemnification language. They have defaults in termination section. It's just like any other contract. But there are a few things that are unique to naming rights.
Dave Franklin:
Since probably the single biggest issue, in my opinion, is the exclusivity piece, the sponsor. Whether it's a bank, soft drink manufacturer or some other consumer product, the manufacturer will want to be certain that no other competitors will be able to promote or market their products with the team or within the building.
Dave Franklin:
That may sound easy and straightforward, but keep in mind that the team is going to be doing its best to limit the scope of your exclusivity. A good example of the give and take and the hand wringing that goes on in negotiating exclusivity is something like the field of financial services. For example, retail banks are no longer just engaged in providing checking accounts and mortgages. They offer credit cards. They offer investment management services. They even offer life insurance.
Dave Franklin:
As the lawyer for a bank that's entering into a naming rights agreement, I would certainly take the position that all of those products and services and everything in between that I didn't mention should be included in the definition of category exclusivity.
Dave Franklin:
On the other hand, the team knows that every product or service that is included in my category is something that they can't sell to a different sponsor. So, if I'm arguing for life insurance services to be included in the category exclusively of retail banking, the team may say, “Well, that's fine, but we've attached a $200,000 a year or $300,000 a year price tag to our insurance sponsors.”
Dave Franklin:
That's just going to be something that folks are going to have to think about when they’re negotiating.
Dave Franklin:
The definition of exclusivity is sometimes several paragraphs long with a lot of notwithstandings and provided howevers because everybody wants to carve out products and services and there could be rights of first refusal. If the sponsor backs out, I can come in that kind of thing.
Dave Franklin:
The second probably key factor in my opinion is the term of the agreements and rights to renew or extend. Typically, the parties will be aligned at the outset on wanting an initial term that is long enough to really underscore the partnership aspect of the relationship and create a stable revenue stream for the team.
Dave Franklin:
Some naming rights agreements are assigned to the lenders. So, the length of the term and the right to extend or terminate are key to that analysis as well. No one wants a naming rights agreement that lasts just one or two years. But by the same token, long-term agreements present their own set of issues.
Dave Franklin:
At what point does the sponsor begin to think that it's paying too much for the rights that it has enjoyed for the last two decades? At what point does the team think it could do better in the open market with a new deal?
Dave Franklin:
Those sort of doubts tend to creep in in the second decade of a naming rights agreement. However, sponsors should demand—no matter what the term is—some sort of right of first offer or right of first refusal or rights to match an offer at the conclusion of their initial term. In most cases, the discussion will come down to how the extended rights are valued, and the sponsor will suggest that the rights or should suggest that the rights have not really increased in value and perhaps may even have dropped in value.
Dave Franklin:
On the other side, the team's going to believe that they're entitled to an increase in the annual sponsorship or that they could generate more on the open market. The one leverage point that a sponsor will typically enjoy is the fact that not many companies will want to be the second naming rights partner for a stadium or arena. Teams don't necessarily want that either, because there's a ton of ancillary expenses that go along with changing the name of a facility. For instance, if you drive downtown to a stadium, if you're on the turnpike, if you're on the interstate, all of the road signs that make reference to a stadium arena bear the name of the stadium or arena. That has to be changed over time. Directional signs on the property, all of that goes into changing the name. It's not something that anybody loves to do, and that's really true if the facility has held the name for decades.
Dave Franklin:
Changing people's sports vocabulary, I think, is one of the most difficult things to do, and fans are resistant to change. Take PNC, for example, PNC Park. It's enjoyed a 20-year run as one of America's best ballparks. I think it would be a very tough task for a new sponsor of that stadium to get any real traction with a different name.
Dave Franklin:
The last probable key factor is identifying the opportunities to expand the brand and where those marketing opportunities exist within the naming rights agreement. They're sort of like two agreements in one. There’s the naming rights section, which is simple, right? It basically provides the sponsor with rights to put up signs on the exterior and the interior building.
Dave Franklin:
There's also the sponsorship component to the agreement, which is really where the meat is. That's where the guys in the marketing department really sink their teeth into it. It's the portion of the agreement that allows the sponsor to capitalize on the relationship and the association that it now enjoys with the team in order to grow its brand. And that's really the heart of what these relationships are all about.
Dave Franklin:
That's also how the sponsor justifies what it's going to pay on an annual basis. So in addition to the placement of signs, sponsors should be prepared to negotiate for the ads or what are often referred to as mentions on the team's television and radio broadcasts and web content.
Dave Franklin:
They should strive to brand things like the pregame or postgame show or the coach’s show. Don't limit your reach to the static in stadium hard signs. It's much more expansive than that. And, you know, sponsors should negotiate for the right to host off field events, which it can market to its customers and staff. Sponsors should also look to include a luxury box or club seating for all events at the venue, not just games. We all know that giving away tickets to concerts and games is one of the more time honored ways of rewarding and developing customers.
Dave Franklin:
When you become the naming rights partner, you know you have access to all of that at a different level than every other sponsor. It's why I encourage clients to get their marketing departments actively engaged in all of the discussions from an early stage. The legal department and the accountants probably won't spend much time with the naming rights agreement after it's signed. But I can promise you that the marketing department and the sales department will pick it up all the time because they're going to want to see how they can expand the association, expand the partnership, and drive revenue from that relationship.
Dave Franklin:
The best naming rights agreements are the ones in which the sponsor and the team develop a partnership that extends well beyond the name on the side of the building.
Jeremy Garvey:
What is one of the things that I would need to think about in the naming rights agreement negotiation? Probably a bunch I haven't even—I can't even—imagine. Just give me a quick view of what some of those things are.
Dave Franklin:
This is kind of where I really enjoy working on these deals because, it has a little bit of investigative nature to it. You become an architect—you become a marketing guy. It's really important to understand the inventory at a particular facility. If you think you can identify all of the components or parts of the building that can be branded, you're probably forgetting about half of them.
Dave Franklin:
Teams have limited revenue, so they're always trying to develop new things to sell and brand within their stadium. Teams are branding ticket booths, they’re branding entrance gates, club and suite levels, and bars within the facility. The press box cup holders—everything. You know, I'm all for teams maximizing the revenue, but it shouldn't be at the expense of diluting the primary naming rights partner.
Dave Franklin:
No one goes into one of these deals wanting their investments to look like, I refer to it as the NASCAR race, with ads everywhere. You're going to dilute your own message and, in turn, dilute what you're paying for if you don't understand the inventory. The naming rights partners are paying the highest annual fee of any of the sponsors in the building for the most part, so you want to preserve that.
Dave Franklin:
When a fan sits in the building, or perhaps more importantly, when people are watching on TV, they should be able to know who the naming rights partner is, and that's becoming increasingly difficult as teams sell off and brand different portions of their stadium. To avoid this, the sponsor should understand what is available to be branded on the property and claim as many of those features as it can. Spend some time walking around the property inside and out. Understand where camera locations are. For instance, for baseball, for hockey and for football, the camera positions rarely change. If you watch a game on Sunday or if you watch SportsCenter and you recognize what highlights are shown in hockey games and baseball games, you're going to have a lot of what's behind home plate; you're going to have left center.
Dave Franklin:
Pretty much every homerun is featured on SportsCenter, right? Those camera angles generally don't change, and you want to make sure that your signage is opposite those camera locations. You want to be behind home plate. You want to be behind the goal that your team shoots at twice in a hockey game. Be creative in identifying the inventory that's available.
Dave Franklin:
There's a lot of teams, you know. A lot of times the teams are receptive to those ideas. For instance, at the Prudential Center, the director of marketing for Prudential was extremely proactive, and this was about the time that they were putting the camera on top of the backboard at basketball games. He noticed that there was oftentimes a shot off the top of the backboard with that flat, two inch wide space. There was nothing on it, and he said, let's put www.prudentialcenter.com on the top of the backboard, and the New Jersey Devils had no problem with that. Then he decided that when there's a guy shooting a free throw or where there is an end shot or a hockey game, there's that big black space underneath the center hung scoreboard Jumbotron. And he convinced the Devils that they should put a big white Prudential rock logo underneath the scoreboard. So be creative.
Dave Franklin:
When I said watch games, my family hates it when I go to games because I'm always saying that they should put a sign here or not put a sign there. But that's really what drives your value. Because if you're not getting those looks, if you're not getting those mentions, you're really missing out on the value of the deal. It's really becoming an issue now, not just on the outside the building, but on the inside of the building, because so many architects, so many stadium builder's now are creating facilities with glass facades. As I walk up to the building, I can see just as many signs on the inside as I can on the outside. So there's got to be a standard in the agreement that maintains the arena name.
Dave Franklin:
The arena name has the visually predominant message for the building, and what's also becoming new wave is teams are trying to name the court to feel the ice surface and that really dilutes the naming rights partner. If a team insists on retaining the rights to name the playing surface, it's really important that that name and only that name, is the only name that appears on tickets and advertising and signage in the arena or the stadium name. You don't want a situation if Cozen O’Connor decides that it's going put its name on an arena, they certainly don't want it to be referred to as Franklin Field at Cozen O’Connor Stadium. It's just not conducive for what I'm paying for as the naming rights partner.
Dave Franklin:
And then it's also important to understand what's not included in your deal. No matter how much due diligence you do, and no matter how fiercely you advocate for your sponsor clients, there are always going to be some things you just can't get. One thing that you always have to understand is the league rules trump everything. There are going to be things that you can't advertise and you can't promote. Then there are going to be league-wide sponsorships that will trump your own sponsorships.
Dave Franklin:
Leagues all have official designations for various products and services, and the individual teams are subject to those relationships and subordinate to them, largely. If Budweiser becomes the official beer of the NFL, there's going to undoubtedly be limitations on how, for instance, the Philadelphia Eagles can structure a sponsorship with somebody like Yuengling.
Dave Franklin:
One issue that always ends up on the CEO’s desk is what happens when the NCAA tournament rolls into town. The NCAA, everybody knows 600 pound gorilla, and it's basketball tournament is easily one of the largest sporting events each year with significant amounts of airtime. However, if you've ever been to an NCAA game, you'd notice that all—and I mean all—of the signage and branding that typically appears in an arena is blacked out by the NCAA. Your signage will not be visible to anyone in the seats or anyone watching the game on TV. As people on the call might expect, that's going to be a difficult pill for the sponsor and, particularly its management to swallow, because this was the big event that they really thought they were going to get bang for their buck. Unfortunately, there's just no way around it. If your city and a local university want to host the NCAA Tournament in this building, that's the way it's going to be. And if there's any saving grace for naming right’s sponsor is the only thing that the NCAA or its broadcasters can't change is the name of the building, so at least you'll get a couple mentions during the broadcast.
Dave Franklin:
The last thing I mentioned on things you have got to watch out for—like green screen signs. This is becoming real prominent as technology improves. So much of the signage that you see on TV now isn't even in the building or in the stadium. It's super-imposed by the broadcast. If I'm sitting at a baseball game, the sign that's physically attached to the wall behind home plate might not be the sign that a television viewer sees at home.
Dave Franklin:
You've got to be wary of that, and you have got to make sure that your contract accounts for that sort of technique, we call it green screen or techno covering, things like that. You see it a lot in horse races, a lot of times in auto racing, where they’ll literally super-impose signs on the infield and other places.
Dave Franklin:
Lastly, I think it's important to appreciate that no matter what goes into negotiating the agreement at the end of the day, it's a partnership unlike any other really. My dad has always told me that things turn out best for the people who make the best of how things turn out. I think the same is true for naming rights agreements. If you're going to be miserable if the team you sponsor has five-straight losing seasons, no playoff appearances, and rarely gets the national TV game, the naming rights agreement probably isn't for you. If your marketing and sales teams are focused on growing their markets in other cities, other states, other countries, and no one is focused on maximizing the opportunities presented by sponsoring the team that you've signed up with, then a naming rights agreement probably isn’t for you.
Dave Franklin:
Similarly, if you're in a volatile industry with unpredictable revenue swings or if your revenue is impacted by a variety of outside forces, naming rights probably aren't for you. Unlike a commercial contract with a two- or three-year term a naming rights agreement is basically a long-term lease or a 20-year mortgage. You just can't break your office lease, and you can't walk away from your naming rights agreement. If the owner goes off the reservation and has radical political beliefs or the starting quarterback gets arrested, you're stuck in this marriage. You'll have some really fun times. You'll have some low times. You just have to take the good with the bad.
Dave Franklin:
It's important to point out, too, that even if you don't perform, that self-evaluation—what I call it—the team is going to doit for you as they search for a naming rights partner. They don't want to get into a relationship with the sponsor partner that won't be around for the long haul, who might struggle to make the annual payments over the course of a 20- or 30-year deal, or who won't be willing partner or a good corporate citizen in our market.
Dave Franklin:
Make no mistake about it, much is expected of the naming rights partner and even the second- and third-tier sponsors. You're going to be the ones who get hit up to support the team's charity events and other causes.
Dave Franklin:
But fortunately for you guys, since you participated in this COffee Break, you're going to know that you can bargain for at least one or two freebies at those charity events in the sponsorship section of your naming rights agreement.
Jeremy Garvey:
They are very helpful, but let’s talk a little bit and quickly about COVID and what has COVID done to naming rights agreements?
Dave Franklin:
Not a whole lot, Jeremy. This is one area in which COVID seems to be a non-issue. I don't want to say a non-issue, but it's a non-issue because most naming rights agreements already contained what is called a lost game section. This essentially provides that if a certain threshold number of games are not played in the stadium and not rescheduled—that's a key that they have to not be played and not be rescheduled—then the sponsor will get some sort of relief from the team, whether it be in the form of a refund, a credit towards next season, or an extension on the term. Given the nature of the beast, they've already accounted for the fact that what happens, whether it be because of a lockout, whether it be because of a strike—obviously a pandemic wasn't on anybody's radar screen—but the same analysis applies. And certainly baseball, basketball and hockey teams have all lost more than the threshold of games that would trigger a refund for this year.
Dave Franklin:
I think you see a lot of teams getting creative by proactively extending terms and things like that. So, overall, while it's unfortunate it hasn't been too problematic because the agreements already account for it.
Jeremy Garvey:
Right, Dave, so for some in the audience, you know, my company isn't going to put its name on a major sports team’s stadium. But, I like to partner with a professional athlete or celebrity to promote my business. An endorsement deal, if you will. You know, again, it's sort of in a quick view. How do you view those? And what are the areas that you kind of look at? Talk about the key terms there.
Dave Franklin:
That could be a half an hour all on their own. I'll try and fly through some of them. The scope of responsibilities is critical. When you're dealing with individual celebrities and athletes they are going to have complicated schedules. They are going to have egos. They are going to have a whole sort of other issues that make it difficult to do business. So the hard work begins once the agreement is in place. And that means getting guys to show up.
Dave Franklin:
You have to do your level best to make sure that all of your expectations and even specific dates of when you expect them to appear for things are in the agreement. And you also understand what other demands and expenses they are going to have along with it. Many celebrities expect to travel first class, stay in the largest hotel suite, travel with their own hairstylists and makeup people. Those costs rise pretty quickly, and that all comes out of your pocket. The best advice I can give is make sure as much of the specifics are nailed down in the agreement.
Dave Franklin:
Exclusivity is another issue when dealing with athletes and celebrities. You obviously don't want them selling competing products or endorsing products that you don't approve of. Some companies don't want their endorsers or celebrities to pitch things like alcohol or spend too much time on social media, so you need to make sure those exclusions are in there.
Dave Franklin:
And probably the most important thing is the morals clause. Unfortunately, when pushed, most reputable agents will acknowledge that some form of morals clause is appropriate. However, there is still a lot of discussion on what it should include. You know, the critical thing there is making sure that the brand, the sponsor’s brand is what's protected. The sponsor will want to have a broad definition of bad behavior. The sponsor will want the option of suspending rather than terminating the agreement.
Dave Franklin:
If they have a really good relationship with a guy who gets into a bad way, they might want to suspend the agreement rather than terminating in that they garner goodwill with celebrity, not lose them to a competitor. But really, the morals clause is where you're going to spend a heck of a lot of the time negotiating.
Dave Franklin:
Real quickly Jeremy because I know we’re going to run out of time here on the issue of social media, and I just want to talk a little bit about influencer agreements because that seems to be a topic that I hear about a lot lately. Clients who are interested in spending their money on influencer agreements rather than straightforward sponsorship agreements. It's important that the influencer’s post comply with the applicable laws.
Dave Franklin:
We're going to get a little legal here. We haven't spent too much time talking about the law. In the US, the FTC has several requirements that influencers must follow when they publish sponsored content. If the influencer or celebrity is being paid to promote a product that are featured in one of their posts, they must disclose that relationship. Usually this is done by adding #ad or you'll see #sponsored to the post. But oftentimes the influencer will get lax or run out of characters, and they omit that required language. That's where you get into trouble.
Dave Franklin:
The company also has to set up the objectives and the type of content that it wants the influencer to post. This is where the company needs to dictate how its products and services will be portrayed. It's important to remember that you've chosen a particular celebrity or an influencer because of their ability to connect with their target audience. And you need to remind yourself that the influencer knows the best way to share content and communicate with his or her followers.
Dave Franklin:
If you want your social media campaign to be successful, negotiate the specifics upfront, review every post, but give your influencer the freedom to maximize their results and use the analytics. The analytics out there are incredible. They can tell you when the 18- to 25-year old demographic checks their phone, and that should be when you want your influencer to make their posts. You know, during that particular timeframe in which they're most likely to be on so use the analytics to your advantage.
Jeremy Garvey:
Dave, I'm going put a lot of pressure on you. We got a couple of questions from the audience. The first one is at what point would you get involved in a naming rights deal? At the structuring level? You know, going to market or what? You know, when do you get inserted?
Jeremy Garvey:
My guess is it probably depends, but it's probably earlier is better. But, that was one question that came from the audience.
Dave Franklin:
It does vary. I mean, the interesting thing about this business is a lot of it is referral based. General counsel of X sports team will call general counsel of the Y sports teams and say, “Who did you use?” There's not a whole lot of new material in any of these documents, so they tend to be shared. So it's really just a function of when the particular sponsor of the particular team feels the need to get someone like us involved.
Jeremy Garvey:
Dave, the other one quickly and then we’re ready to sign off. What about city approvals and regulatory approvals and those things? Are those things that have hung you up and how do you sort of manage through?
Dave Franklin:
Great question. A lot of the teams that occupy these great buildings and have the right to sell naming rights are in those buildings subject to leases with the city or an authority. A lot of those logistics, a lot of those housekeeping items are going to be in the lease, and that's a great point. I'm glad you asked that question. It's going to be important that you see the lease pursuant to which the team occupies the facility. Rarely do these teams own their own building anymore. Maybe the Yankees and the Cubs. Or excuse me, the Cubs and the Red Sox are the exception, but I don't even know if they own their own building. But you're going want to see the lease.
Dave Franklin:
Then there are going to be zoning issues. For instance, in Pittsburgh we run into it a lot. There's a significant limitation on the size of signage. Obviously, local authorities tend to want to go along to get along with things like this. But no, it is something and that has a longer lead time than people anticipate. It's important to address those early and the best place to find them is in the lease pursuant to which the tenant, the team occupies the building.
Jeremy Garvey:
Great, Dave. Thanks. This was super. I know it's a very specialized area, but, you know, as social media continues to drive marketing and as people start to think about ad spend and where they're going to put their emphasis. A lot of this continues to evolve in. You've got a great grasp on a rich history. A lot of really interesting deals and some terrific insight. So thanks for spending the time and thank you, everyone, for joining us for our Corporate COffee Break, webinar.