“Ninety-Nine Problems but a new Brooklyn Arena ain’t one.”
This admittedly nerdy adaptation of Brooklyn Nets minority owner Jay-Z’s lyric
could have applied to his team over the past five years. The team had four
coaches and two general managers. Its most famous player was arguably Kris
Humphries and that was because of his short marriage to celebrity Kim Kardashian.
Yet, it finally appeared that the Nets fortunes were changing. The team signed
its marquee free agent in point guard Deron Williams, acquired All-Star Joe
Johnson in a trade with the Atlantic Hawks, and appeared to be the leading
contender to land All-NBA Center Dwight Howard. All of this positive momentum
suggested that the Nets luck was finally changing for the better.
And then the
Barclays’ London Interbank Offered Rates (LIBOR) scandal broke almost at the
same time that the team announced its most recent transactions. What does LIBOR
have to do with the Nets? Barclays’ chief executive officer, chairman, and
chief operating officer have resigned for illegally manipulating the rates that
are used for a number of different debt capital transactions including setting
rates for subprime and adjustable rate mortgages. Barclays is also the naming
rights sponsor for the Brooklyn Nets’ new home (called the Barclays Center).
After signing a $400 million 20-year agreement with Barclays in 2007, the Nets
are “stuck” with having to deal with the fallout of a major scandal involving their
largest sponsor (many sports organizations would probably like to be “stuck”
with $20 million per year from a naming rights partner).
This is not
the first time that a corporate partner has done something that would potentially
embarrass a sports team after signing a naming rights deal. As The New York Times noted, there have been numerous
companies with naming rights that have gone bankrupt or been involved in a scandal.
The most famous example of both of these problems occurred when the Houston
Astros agreed to name their venue Enron Field in 2000. The Smartest Guys In the Room ended up making a deal that caused the
Astros to look pretty stupid after Enron’s spectacular flameout in 2001.
The New York Times article brings up
more critical questions that need to be considered by sports organizations in
light of what occurred with Barclays. Do sports organizations evaluate the risk
of naming rights deals before signing these agreements? For example, the
Houston Astros seemed to be as fooled as most financial analysts when it came
to the health of Enron in 2000. Yet, there is little evidence to suggest that
the Astros put any consideration into what would happen if Enron did get into
some kind of legal or financial trouble. More importantly, what impact do
scandals of corporate partners have on the brands of sports organizations?
Sports organizations usually have little or no control over the management of
their sponsors (the primary exception being if a team’s owner(s) also has a
controlling stake in a corporate partner). Yet, one of the most visible symbols
of a sports organization’s brand is their stadium, arena, or venue. When
scandal hits a naming rights partner, fans, media, employees, and other
sponsors can create a connection to the sports organization.
Despite the
problems with Barclays, the revenue and benefits generated from naming rights
agreements make it unlikely that these agreements will substantially
change. In addition, most companies that
can afford large naming rights deals are relatively unlikely to have the types
of scandals that have impacted Barclays or Enron. Yet, enough problems have
occurred with these types of corporate partners that sports organizations need
to be prepared for a worst-case scenario. This does not necessarily mean
finding a new naming rights sponsor for a venue (as the Astros did by renaming
their stadium Minute Maid Park after Enron collapsed). Sports organizations
need to have a comprehensive communication and crisis management plan in place
to deal with the fallout that could occur when corporate partners have
significant legal or financial issues. This includes completing an audience
analysis to see how the fallout impacts a sports organization’s key customers
and demographics. By understanding how a problem with a naming rights partner
can damage its brand, a sports organization can be prepared to deal with any fallout
that occurs while maximizing the benefits of its current agreements.
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