Stadium Naming Rights - An American Tradition
Well, Super Bowl 56 has come and gone. Over the suspicious haze coming from Snoop Dogg's trailer and the through the wails of Bengal's fans, over 70,000 attendants filtered out of SoFi Stadium into the Inglewood night, I started to wonder: Does that big "SOFI" name out front and on the roof have any actual bearing on a company or their stock price? Sure, it's marketing spend, but does that marketing translate to a tangible, noticable difference in a company's stock price when they're featured on the biggest stage?
The stock market is meant to be a weighing machine: a long-term, forward-looking view of a company based on its business performance. However, short-term stock price movements can be based on, well, anything. We've seen it plenty of times: something dramatic happens that's only tangentially related to the company, and the stock tanks. Zion Williamson tore through his Nike's during a nationally televised game between Duke and North Carolina and Nike immediately dropped 2% the following morning. More recently, Meta Platforms reported disappointing earnings and that caused Pinterest and Snap to fall alongside it, despite both of those companies obliterating earnings just days later. Even Elon Musk's Twitter account can cause radical price changes in anything from his own company's stock price to a meme cryptocurrency that skyrocketed 1,000% after Musk talked about it.
So marketing spend is meant to capture the attention of users and ideally bring in more revenue, but does it? Does the name on the side of a stadium have any actual bearing on a company's stock price or performance in the days following an event? Let's find out using some of the more notably famous, recent examples of when sports and finance collide that would push these public companies into the mainstream.
Oracle Arena - Golden State Warriors (NBA)
There are champions, and then there are the Golden State Warriors. From 2015-2019, the Warriors established a basketball dynasty the likes of which haven't been seen since the mid-1990's Chicago Bulls, led by part-time baseball player Michael Jordan. Well Oracle Arena in Oakland, CA, is (was) the house that Steph Curry built, and Kevin Durant moved into the garage.
This team was EVERYWHERE in sports media during this time. Rising from relative obscurity, they suddenly became the unofficial mascot of ESPN, Fox Sports and everything in between. This meant plenty of exposure for Oracle as the name sponsor for the stadium. Each year in the NBA Finals, you'd get the gratuitous overhead shot of the stadium with the big "ORACLE" logo sitting right on top. But did this extra marketing exposure actually lead to anything?
In the above data set, I looked at the exact dates of the NBA Finals in which Golden State appeared between 2015-2019 when Oracle Arena would have the maximum amount of television exposure. The chart above tells us that the share price really didn't do anything out of the ordinary with the extra exposure. But maybe that's just basketball. What about other sports or other arenas?
Truist Park - Atlanta Braves (MLB)
I have to mention this one since I live a mile down the road from the stadium, but the Atlanta Braves won the World Series for the first time since 1995, and they did it while playing at Truist Park.
The stadium opened in 2017 after the Braves decided to depart the Olympic-stadium-turned-iconic Turner Field following a dispute with the city of Atlanta over renovation costs. The team migrated to the suburbs of Atlanta (very controversially) and local bank SunTrust announced that they had acquired the naming rights to the stadium in a 25 year deal. However, SunTrust merged with BB&T in 2019, and the ballpark was subsequently renamed to the new name of the merged entity: Truist Park.
As mentioned, the Atlanta Braves ended up going six games against the Houston Astros in October 2021, giving Truist Park likely the highest levels of exposure it will ever see. So how did Truist's stock price perform?
You'll notice in the data set above that there's a sharp drop in the share price during the first few games of the World Series, but that's actually the payment of Truist's dividend, resulting in a commensurate drop in share price. It also coincides with the successful migration of old bank accounts to the new Truist system, which was a major merger hurdle in the eyes of institutional investors. So there again does not appear to be any correlation.
SoFi Stadium - Los Angeles Rams/Chargers (NFL)
Finally, let's cover the most recent example: SoFi Stadium. SoFi's sponsorship of the stadium accomplishes something that has never happened before in the Super Bowl era: it was featured in both the NFL Division Championship round and the Super Bowl, thanks to the L.A Rams making their championship run.
SoFi is a tough stock to analyze thanks to its relative infancy as a public company, but they bought the naming rights so I guess it's fair game! Let's take a look at the stock performance during both the NFL postseason Championship and Super Bowl time periods:
Again, nothing crazy in the data here. So why the hell do these companies keep sponsoring these teams and stadiums?
The Future of Sponsorships
Professional sports teams the world over are revenue machines. They'll never turn down a check, and those checks are getting larger and larger. In my piece on Manchester United, I noted the sheer volume of revenue streams that one team has: from tractor sponsors to their own version of Chivas Regal, there's no shortage of avenues to generate more cash. Well there's a new player in town with more cash than ever, and that would be cryptocurrency exchanges.
You've seen the commercials, and now you're going to see a lot more of their logos if you tune into basically any sports league. The Super Bowl was FULL of cryptocurrency exchange ads, and the sponsorships are ramping up. FTX owns the naming of the Miami Heat arena as well as the shirt of every umpire in Major League Baseball,
Coinbase has a logo on the floor of every NBA franchise and Crypto.com has been busy. In addition to purchasing the naming rights to the iconic Staples Center in Los Angeles in a landmark $700 million deal in 2021, they also have a jersey patch with the Philadelphia 76ers, a title sponsorship with the UFC and have placed a comical amount of advertising on every Formula One circuit on the schedule.
Sponsorships Are All About Awareness
When companies spend their marketing budgets each year, not all dollars are created equal. Some dollars are aimed at getting direct sales, whether that's bringing you to the website or into a physical store. Other dollars are aimed at just making sure you know the company exists and to keep them "top of mind" with consumers. Professional sports sponsorships fall very much into the latter category.
While there are notable exceptions (Rakuten has absolutely crushed their sales goals thanks to their sponsorship with the Golden State Warriors), The goal of every company is to drive revenue, but in order to do that, consumers have to know that you exist, and they have to know what you do.
That's why companies like Oracle, Truist and SoFi spend hundreds and hundreds of millions of dollars on these types of sponsorships. Truist locked up a 25 year deal with the Braves for $250 million, SoFi spent $600 million on the NFL stadium in Los Angeles and Oracle actually never disclosed their Oracle Arena terms, but it's safe to say it was a huge number if their recent $500 million deal with Red Bull's Formula One racing team is anything to go by.
Do Sponsorships Actually Work?
Yes! But not in the way we want them to where we can create a "stadium sponsor" ETF and invest in that every week. Sponsorships are meant to break through the noise and the clutter to get eyeballs, and they work. Let's use FTX as an example:
FTX announced in March 2021 that they would be purchasing the naming rights to the Miami Heat arena in Miami, FL. They also captured the MLB sponsorship earlier the same year, and both of these coincided with the announcement that star NFL quarterback Tom Brady was on board as a partner and spokesperson for the brand.
Their marketing spend on TV commercials was loaded during the World Series, the start of the 2021-22 NBA season and the middle of the NFL season where Tom Brady was looking to defend his title. That resulted in the following:
It worked. FTX became a trending topic during the month of October, peaking in late October as all three of their main sports sponsorships coincided. And look at where it was most popular: Florida, the home of the Miami Heat and Tom Brady's Tampa Bay Buccaneers.
The Bottom Line
Sponsorships, as a concept, do work, just not in the way we want them to. When I see someone online say "the Super Bowl is being played at SoFi Stadium so I'm 'long' SoFi," that case really doesn't stand up. Sponsorships aren't revenue drivers (typically) - they're awareness drivers for later revenue. And while a sponsorship can be indicative of a stable company since they have the money to throw at something like this, it's not something to hang your hat on if you're an investor.
What do you think about investing in companies that have sponsorships? Is it part of your evaluation? Do you like it? Dislike it? Let me know in the comments below, and don't forget to get your free stock valued up to $200 by clicking this link. Thanks for reading!
