Today I bring you the results of a research project that I have been excited to do for some time now, as the question is one that I find personally interesting and  has plagued me for almost as long as I’ve been a sports fan. Specifically this issue is the return on the ownership of naming rights of professional sports stadiums. More and more it seems like pro sports stadiums are named after businesses rather than either sports teams or the region that the team represents. I first remember noticing this trend as a kid growing up in the Seattle area when the Seattle Mariners’ Kingdome was replaced with a new park named Safeco Field. The average annual cost of retaining the naming rights to a pro sports stadium in North America is roughly $2.7 million and can range from $600 thousand to $10 million. This is no small amount, and brings the value of the benefits of owning these rights into question. A question punctuated by instances such as that of Portland Trail Blazers’ Moda Center. The Center was renamed from the Rose Garden back in 2013 at a cost of $40 million for 10 years, or $4 million annually, by a local insurance company that is now in financial trouble, and being forced to pull out of business in two states to cut operating costs.

With such a high cost to retain the naming rights of major league sports venues my questions are these: does the added name exposure add enough sales revenue to at least cover the cost to the firm of renting the naming rights, and in the case of publicly traded firms, does this expensive advertising practice have a noticeable effect on a firms bottom line therefore making a difference to investors? A third question that I found it necessary to ask in order to fully explore the issue is what effect does the addition of payments for naming rights have on a companies expenses? Or do firms that spend money on naming rights spend more on advertising or just shift away from other forms of advertisement expenses?

In order to answer these questions I have gathered financial data on 27 different publicly traded companies spanning over the past 20 years, most (but not all) of which have owned pro sports venue naming rights at some point during that period. I have estimated the effects of owning pro venue naming rights using data from all 27 firms as a whole and out of curiosity, I have also used several subsets of data representing specific industries. Specifically I looked at the insurance and the banking industries, as both of these seem to have a high tendency to purchase naming rights.

So what have I found? When producing estimates using my full range of data there is not a statistically significant effect on either revenue or net income from naming rights ownership. The only factor that was significantly impacted my naming rights ownership was a firms expenses, which by my estimates increase by an average of $2,473 million annually. This is much higher than the average yearly expense of owning the rights, which means that firms who own naming rights tend to spend much more in general than those who don’t. The lack of statistical significance of most of my results using my entire dataset is mirrored when focusing on data from specific industries, which means that it doesn’t make more sense for these industries to have higher preferences for buying naming rights than other industries, beyond the fact that they may have more extra capital in their accounts with which to make these expensive purchases.

One other significant take away here is that my estimates are likely a bit biased; to get technical for a second, I notice that my model error tends to be correlated with my estimates, which means that my model is missing something and I am more than likely seeing some omitted variable bias. Unfortunately what I believe I am seeing here is the effect of being constrained by a lack of access to data; I basically only have what these publicly traded firms are reporting to the investing public, which is not as detailed as would be ideal in the way of the breakdown of their expenses. For example a more ideal way to handle this would be to measure naming rights effects on a company’s advertising expenses specifically, rather than expenses as a whole or non interest based expenses, but I was unable to find numbers for this specific expense in the overwhelming majority of instances, and I believe it is this omission that is biasing my results.

So what does this tell us? The ownership of stadium naming rights is not a cost effective investment for a firm. There is some evidence that owning naming rights raises a firms expenses (weakened by potential bias as it is), and no evidence that this ownership increases either a firms revenue or the return on investment to the firm’s owners.

While there isn’t evidence to support a firm’s ownership of rights being an asset to the company itself there is one very big and very obvious benefactor in this deal, and that is the stadium owners; the ones who actually get paid for selling the rights. Usually in practice this tends to be the local city or county where the stadium is located rather than the pro team that uses the arena. Which means that the real benefactor here would be the general tax paying public who no longer has to support the stadium upkeep with tax dollars. This to me implies that if a company is interested in purchasing the naming rights to a stadium, it should look at this purchase as a public service and not as a means of increasing revenues.