The Value of Naming Rights
Leeds, E., Leeds, M.,& Pistolet (2007) explains a case on the value of naming rights to firms. They argue that Professional sports are known to sell naming rights of their sports facilities to private firms. Franchises and cities holding sport activities are among supporters of construction of sports facilities. Private firms involve themselves with naming the sports facilities using their product names to increase in sales and advertise their products. The article comments that residents do not enjoy any benefit in form of jobs or incomes. Moreover, the author explains that private firms do not reap any benefits from naming the stadiums. He supports his argument from marketing literature.
The literature explains that firms that buy naming rights from sports firms have recorded great bankruptcy that ended in failure of those firms. Studies conducted from marketing literature indicate that returns are only found during announcement days and the following ten days. The following day’s record diminishing returns as days continue. The author discourages potential sponsors who may be aiming at supporting sports by indicating that there are no profits earned because the costs of naming rights are similar to future benefits earned. He cautions that some firms may also go bankrupt if there are no higher returns above costs incurred.
Event analysis is another method used in Finance to analyze benefits realized by private sponsors. The method uses dummy variables to estimate abnormal returns earned by naming firms. Similar to the other method, it identifies that positive results are realized during announcement days and shortly after. Afterwards the firms encounter little or no sales of their products.
The author asserts that naming rights positions the brand of the company at the top and allows it to have a say over other market segments in a single moment. The author supports his discouragement to potential sponsors by offering examples of firms who have sold their naming rights due to bankruptcy and financial distress. Example is Adelphia Coliseum in Nashville city, which gave up its name because of bankruptcy. Other companies those posses naming rights have their stocks decline due to expensive nature of sponsoring construction and naming of the stadiums. Moreover, stadium sponsorship is referred as a curse that demands further investigation.
The author stresses that naming rights possession has some advantages and challenges it faces. They include difficulties in finding announcement dates of naming rights and establishment of the time when the event happened. It is also difficult for investors to know the purchase price and negotiate earlier. Some companies may also fail to be listed despite having purchased the right, thus not advertising their products leading to low sales. Various methodologies used to get evidence of positive effects of naming rights indicate negative impact and temporary positive effects. Teams represented include Panthers, Mariners, Spurs, and Bulls among others with sponsor companies such as Republic industries, Safeco, SBC, United airlines, and US Airways.
Critique of the paper
The paper has proper organization and discussion regarding naming rights. It has good support points about the disadvantages of naming rights. It comments that most sponsors have lost in their efforts to sponsor construction and naming of stadiums. The costs incurred while naming the stadiums equals costs benefits realized in the first days of the announcement and shortly after. Moreover, most companies end up in bankruptcy and decline of their sales. Some companies also fail to be listed on the stadiums, which leads to loss of money and fame.
Although the author has listed various disadvantages about naming rights, he failed to research enough information on the same. Example Toyota Company has increased its sale of cars due to their high speeds during athletic competitions. Moreover, Toyota brand has been known all over the world due to these competitions.
Toyota has participated in sponsoring IAAF World Championships that has brought together world’s greatest track together with field athletes (Toyota Motor Corporation, 2016). It has also sponsored Santa Clara stadium, which has translated to hulking ‘Toyota plaza’ at the entrance on the North of the stadium. The author also fails to explain methods used to position their brands in the stadium. Chances are that their positioning styles were poor which lead to failure in establishment of their products and contributing low sales. Moreover, those failed sponsors might not have been persistent in attracting the attention of the champions and attendants on their products.
Leeds, E., Leeds, M.,& Pistolet, I.(2007).Journal of sports economics,1-16.
Toyota Motor Corporation.(2016).sports sponsorship. Toyota. Retrieved from http://www.toyota-global.com/events/sports_sponsorship/