Power Balance Pavilion: I Don’t Hate To Say I Told You So
Posted: 2/21/2012 8:58:33 AM by
Jim Andrews | with 0 comments
Thirteen months ago when the NBA Sacramento Kings signed a five-year deal for wristband-maker Power Balance to take over the naming rights to the Arco Arena, I tweeted the following: “Did the Maloof/Kings/Power Balance naming rights deal just set the #sponsorship industry back 100 years? I'm leaning toward yes.”
News last fall that Power Balance had filed for bankruptcy protection did nothing to change my mind, nor have reports over the weekend that the Kings have now sued Power Balance for $8.3 million, the balance left on the five-year, $9 million deal (including $275,000 still owed for the first year that ends March 1).
I have written here before about properties that chase sponsorship dollars the way a cat goes after the red dot of a laser pointer and the consequences of not thinking before acting.
In most cases where that headlong rush takes place, the property is small, not experienced in sponsorship, or flat-out desperate for cash. That’s why I and plenty of others were so surprised at this deal. Yes, the Kings have their backs up against the NBA wall as a small-market team playing in an antiquated facility, but their ownership and management seemed too smart to jump in bed with a shaky outfit like Power Balance.
Given news of the lawsuit, I thought it was worth sharing an interview I did last year with Bleed Black and Purple (www.bleedblackandpurple.com), a blog devoted to the Sacramento Kings:
BBP: Can you elaborate on what you meant by that tweet?
JA: As somebody who is an observer and a longtime participant in the sponsorship industry, I don’t think this deal will be pointed to as a shining light and an example of what sponsorships can and should be all about.
BBP: What did you think about this deal when you first heard about it?
JA: I’d have to say I was surprised. The nature of the company that bought the [naming rights to the arena] was surprising given that it’s a company that has come under a lot of scrutiny.
The biggest question is – and I don’t know the value of the deal – assuming it’s a few million dollars, is that worth the risk of damaging the Kings brand or the Maloofs’ brand by associating with a company that has a lot of question marks?
BBP: So why would the Maloofs do it?
JA: They are looking for revenue. Maybe they really thought there were no other takers for those naming rights.
It raises the question: Are they really in need of in the neighborhood of $5 million, which wouldn’t seem to be a huge chunk of money when you are talking about an operation as large as theirs?
BBP: Power Balance is a relatively new company having been established in 2007, is it abnormal for a company so young to get a deal like this?
JA: It reminds me a little bit of ten years ago when there were a few dot-coms that did similar things. I think the Baltimore Ravens stadium was named after a dot-com for a couple of years until it imploded. So it has that kind of tinge to it.
From Power Balance’s standpoint, it’s a relatively smart play. They are obviously trying to build credibility.
BBP: And from the standpoint of the Maloofs?
JA: I find the deal questionable because I’m not sure that the revenue they are going to get from it is worth the risk that they are taking by associating with a questionable company and a questionable product.
BBP: If the Maloofs had come to you for advice on this deal, what would you have told them?
JA: It’s not just about the cash and just because somebody has the ability to cut you the check, you’ve got to do the due diligence and say ‘is this a company that we want to be in partnership with?’ I certainly would have, and I would imagine they probably have this in the details of the contract, made sure they at least have some out clauses in their contract so that if Power Balance somehow gets involved in more [legal problems], and if the FTC were to come down on them…you could immediately get out of the deal.
BBP: So is this a “roll the dice” kind of deal to you?
JA: It definitely is a roll of the dice because the upside is they are getting revenue in and they are hoping that this company is a company that is accepted by the public and is not going to run afoul of any regulations or laws. There is a much larger risk that there could be problems with a company like this than if they had done the deal with a more established and traditional company in banking or in the airline industry or in food products.
BBP: But would those types of companies come to Sacramento and put their name of such an aged building?
JA: It’s certainly a challenging market for a lot of reasons. Naming rights themselves have been more difficult to sell the last few years than they used to be – especially for smaller market franchises if you are in a market where there’s not a large corporate base.
I’m sure it has been difficult to find a company that is ready to cut a check for a few million dollars for that building.
BBP: Power Balance signed a five-year contract with the Kings. How do you see this playing out?
JA: The company itself, to its credit, seems to be pretty honest about the product. They are basically saying ‘there is no science behind this thing but people say it works so we are going to keep selling it because we can.’ Even though it is a questionable product and the value of it is questionable, at this point it doesn’t seem to be an illegal product so if they can continue to stay in business and sell a couple of million of these things each year to people who want to try it even if it is just a placebo effect, I could see that it could last five years.
This company is always going to have a taint to them and I think that will always be associated with the arena, so unfortunately when people refer to the Power Balance Pavilion, it is going to be in kind of a mocking way.
BBP: Are you going to buy a Power Balance bracelet?
JA: I don’t think so.
Read more blog posts
Filed under: non-traditional categories, pro sports, selling, valuation, venues, naming rights