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Winner Of Red Wings Arena Naming Rights Nets Brand Recognition, February 14, 2016

By Bill Shea

Speculation on who will put their name on the new Detroit Red Wings arena, and just how much they'll pay, is in overdrive after it was announced that a naming-rights deal is done and will be unveiled within a month or two.

Chris Ilitch, son of team owners Mike and Marian Ilitch and the day-to-day chief of their business operations, last week disclosed that the naming-rights negotiations were finished for the $627.5 million arena during a luncheon honoring him and his father as the 2015 Crain's Detroit Business Newsmaker of the Year.

"There was incredible interest (in the naming rights)," Ilitch said. "We were shocked."

Sports industry insiders expect any Red Wings arena branding deal to be on par with the most recent National Hockey League naming-rights contracts, which pay around $4 million annually. Others say it could command as much as $7 million to $10 million a year.

Olympia Development of Michigan, the Ilitch real estate unit that is overseeing construction of the 20,000-seat venue at I-75 and Woodward Avenue set to open in 2017, has declined to discuss naming rights other than to say companies are interested in putting their name on the new venue.

"I would expect it to have the potential to be closer to the Penguins deal," said Matthew Logue, executive vice president of strategy and COO of Toronto-based consultant S&E Sponsorship Group Inc., which brokers naming-rights deals for corporate clients.

Suburban Pittsburgh-based Consol Energy Inc. is paying the Pittsburgh Penguins $4 million a year under a deal that runs from 2010-31.

The nine most recent NHL arena deals, from 2007 to 2014, average $3.65 million in annual payments, according to data from S&E Sponsorship Group.

Banks and financial services companies have paid to put their names on eight NHL arenas. After that are telecom/wireless companies, with four, and airlines, with three.

The Red Wings and the New York Rangers at Madison Square Garden are the only NHL clubs to play in venues without a corporate name.

A natural tie-in for the new Red Wings arena could be the Little Caesars pizza chain the Ilitches launched in 1959. It fuels much of the $3.3 billion in annual revenue for all the family's holdings.

A Little Caesars Arena branding deal likely would come at a discount.

"If it was Little Caesars, they're going to get the best deal for the venue in the market," Logue said. "It would be below what they could get from another brand."

Among the criteria driving the value of a naming-rights deal are the prestige of the venue and team, the size and economic condition of the market, and how many events will be at the facility, Logue and others said.

In the Red Wings' case, two nonhockey deals already have been struck to use the new arena: The Horizon League men's basketball tournament will be played there under a five-year agreement (which includes its first two years at Joe Louis Arena), and first- and second-round games of the 2018 NCAA men's basketball tournament.

Olympia has said the building will be used at least 180 days a year.

Naming-rights trends

Naming-rights deals today aren't just a name on the building. They include a dizzying array of elements that drive the value.

"The price is based in part on the inventory given, e.g., tickets, suites, commercial TV spots, radio ad spots, etc.," said Michael Rapkoch, president of Addison, Texas-based Sports Value Consulting LLC. "The more assets a team throws into the deal, the potential for a higher value."

Recent arena naming-rights deals are raising the bar on what companies are willing to pay.

The Golden State Warriors on Jan. 27 announced a 20-year naming-rights deal with New York City-based J.P. Morgan Chase & Co. to put the banker's name on the National Basketball Association club's 18,000-seat, $1 billion arena slated to open by 2019 in San Francisco's Mission Bay neighborhood.

While the financial details were not disclosed, industry insiders have estimated the financial services firm will pay about $10 million-plus a year.

It's expected to beat the current top arena naming-rights deal — the 20-year, $200 million contract between British financial services giant Barclays PLC and the Brooklyn Nets (the NHL's New York Islanders moved into the venue last year). The deal runs from 2012-32.

NBA arenas tend to get more lucrative branding deals than hockey. Baseball and football, with their better TV ratings, also command larger naming-rights premiums than hockey venues.

For example, New York City-based Citigroup Inc. is paying $20 million annually for the naming rights to the New York Mets' home, Citi Field, under a deal that runs from 2008-28. And New York City-based insurer MetLife Inc. will pay $450 million from 2011-36 for the MetLife Stadium, home to the NFL's New York Giants and New York Jets. That translates into $18 million a year.

Two of Detroit's pro sports teams have long-term naming-rights deals.

Dallas-based Comerica Bank Inc. is paying the Ilitch-owned Detroit Tigers $66 million over 30 years for the right to brand Comerica Park in a deal signed in 1998 (when the bank still was based in Detroit). That contract averages $2.2 million annually, and doesn't preclude the Ilitches from doing a deal for the Red Wings with a rival bank.

Ford Motor Co. paid the Detroit Lions $50 million in three lump sums in 2002 to put its name on Ford Field for a 20-year term. The automaker and football team are owned by the Ford family.

Detroit Pistons owner Tom Gores has been shopping the naming rights for the Palace of Auburn Hills, which Palace Sports CEO Dennis Mannion told Crain's in January 2014 could fetch about $100 million over 20-plus years.

PS&E last year hired Santa Monica, Calif.-based, Premier Partnerships to create a valuation inventory for various naming rights possibilities at the Palace. It talked to more than 200 regional and national companies to get business intelligence on feelings about the building and the region.

Companies sometimes opt to put their name on a section of a ballpark rather than the entire facility.

For example, MGM Grand Detroit last year signed a 10-year naming-rights deal with the Detroit Lions to sponsor the new "MGM Grand Detroit Tunnel Club," built for $2 million as a VIP experience space inside Ford Field.

PNC Bank in October struck a deal to pay the Palace to add its name to the upscale Courtside Club and the Courtside Studio. Terms were not disclosed.

The PNC-PS&E deal came a week after Auburn Hills-based automaker FCA US LLC bought the naming rights to the Palace's renovated West Atrium and renamed it the Dodge Atrium.
A branding rebound

The recession deflated the length of arena and stadium branding deals as companies became skittish about such public spending.

The average length of new naming-rights deals in the four major U.S. pro sports leagues was 10.8 years from 2010 to 2014, down from 17.3 years during the 2005-09, according to a recent Chicago-based IEG Sponsorship Report.

As the economy has improved, terms have begun to creep back up.

Most recently, the average term length for 2014 deals was 13.3 years, up from 11 years in 2013, 8.5 years in 2012, 9.9 years in 2011 and 11.2 years in 2010, the IEG report said.

Why brands buy

Companies buy arena naming rights for the value of the brand exposure.

"A brand putting its name on the new arena can expect consistent high volumes of media exposure garnered not only locally and regionally, but throughout all of North America, as well," said Eric Wright, president of Ann Arbor-based Joyce Julius & Associates Inc., which measures the impact of sponsorships across all forms of media.

"A company would need to spend tens of millions on advertising annually to approach the sheer number of individuals a venue sponsorship of this size will reach."

Name buyers can get revenue directly back in deals, too.

"Some firms will earn a portion of the naming-rights fee back by providing services such as banking, telecommunications, tech firms, etc. Beer is another great example, as they get pouring rights throughout the arena," Rapkoch said.

Companies also will be eager to get their name involved with the Red Wings project because it also involves a 50-block redevelopment around the arena of new housing, offices, retail and a hotel.

"You're looking at the potential to be associated with that entire movement, and be the anchor," said Logue, whose firm brokered the 20-year, $20 million deal for Toronto-based Scotiabank to puts its name on the Calgary Flames' Saddledome in 2010.

Keeping the cash

Olympia keeps all revenue generated at the arena, including naming rights, under the contract signed in 2013 with the venue's public owner, the city's Downtown Development Authority.

Naming-rights deals are not shared revenue, meaning Olympia and the Red Wings keep all of the money instead of splitting a portion of it with the NHL's 29 other clubs.

The Ilitches will pay off the construction cost from the arena's revenues generated from ticket, concession, parking, rental fees and other cash streams.

The state sold $250 million in bonds Olympia will pay back from arena revenue, and an additional $200 million in bonds a special downtown property tax already on the books will repay.

The subsequently announced arena construction spending that brought the project to its current $627.5 million cost will be assumed by Olympia via private financing.

A naming-rights deal of $4 million a year means nearly half the annual bond repayment obligation is covered before a ticket or beer is sold.