Inside Naming Rights Deals

Another key issue in naming rights deals is the length of the agreement, including rights for extensions or renewals, as well as so-called “back end rights.” Back-end rights include rights of first offer, rights of first refusal, matching rights and numerous other processes that increase the likelihood that the partner's rights will continue beyond the initial term. Both parties must cope with the tension between the desire for a long-term agreement and the need for flexibility if there is a shift in the “fair market value” of the rights. The parties must also negotiate what the elements of the specific back-end/extension/renewal rights (including pricing) will be, and which aspects of promotional, marketing, advertising and sponsorship rights will be included in that extension/renewal. The crux of this issue is whether there is an absolute right to some kind of extension/renewal or whether the partner merely has a right to discuss an extension/renewal. The breadth of possibilities is what often makes this provision so challenging.

If the rights holder is a sports team, there are additional considerations dictated by the involvement of professional leagues and collegiate associations. With a professional sports team, its governing league will typically have the right to exercise significant control over the use of the team name and logo. A league inherently needs flexibility in its use of the team's name and logo, and does not want to be involved in the negotiation of each individual team's approval rights and name uses. Put simply, there is a general rule that “the league always wins.” This can be a difficult pill to swallow for a partner paying a significant fee for these rights. As a result, there are numerous discussions and negotiations revolving around the provision of “make-goods” and substitute entitlements to address any material loss suffered by the rights holders resulting from a league action. Similarly, collegiate associations have unique specifications, including the types of partners they will not allow and the need to appease their member colleges and universities.

While these negotiations are quite complex, the marketplace has seen a proliferation of naming rights transactions in recent years. Prior to 2008, blockbuster naming rights deals often involved financial institutions as the partner (Citi Field, Barclays Center, etc.). The recession of 2008 changed the landscape of naming rights deals as financial institutions became somewhat hesitant to enter into highly-publicized partnerships with large-sounding bottom lines. However, there has been a resurgence of transactions in the last several years. The marketplace for naming rights deals is booming and has expanded beyond sports arenas and stadiums, and even beyond sports themselves. The types of properties and ventures entering into naming rights deals now include healthcare facilities (UCLA Health Training Center, Inova Sports Performance Center, HSS Training Center, etc.) and also non-sports related properties such as large municipal projects and venues for the arts.

As the market is expanding and naming rights deals are becoming more common, partners are targeting different benefits and seeking to capitalize on unique advertising opportunities. There has been a shift towards partners utilizing their naming rights investment as a chance to give greater value to their clients and customers. Take the Golden 1 Center, for example. As part of its naming rights transaction for the arena in Sacramento, CA, Golden 1 Credit Union included automatic ticket discounts for all of its bank patrons, discounts on merchandise, access to venue tours and a fast-pass lane for its patrons in all concessions stands at the Golden 1 Center. This new focus of naming rights deals opens up the possibility for even broader partnership opportunities and benefits that will enhance the consumer experience.

The uptick in naming rights transactions looks likely to continue, as naming rights allow both partners and rights holders to reap numerous benefits, provide the opportunity to realize both “quick money” and “long term money,” and are recognized for their ability to marry sponsorship rights with enhanced customer experiences.

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Rich Brand is based in Arent Fox's San Francisco office where he is managing partner and head of its sports practice group. Christina L. Campbell is an associate in the firm's real estate practice.