Latest Stadium Naming-Rights Deal Raises Eyebrows
Five-Year Pact Between Controversial Power Balance, NBA's Kings Points to Problems of Small-Market Teams
CHICAGO (AdAge.com) -- American Airlines, Pepsi, Toyota ... Power Balance?
When news broke this week that a controversial and trendy bracelet -- not an airline, cola or car maker -- was the latest to slap its name on an NBA arena, it raised more than a few questions about a sports-sponsorship industry that seemed poised for a major-league rebound. After all, before inking the five-year deal with the Sacramento Kings, Power Balance was in the news for withdrawing ad claims in Australia, where regulators found the bracelets do not "improve balance, strength and flexibility" as the company said they did.
"It doesn't speak highly of the medium when a major property like an NBA team and an NBA arena enters a deal with a company that is not a blue chip established company -- a company that has a lot of questions hanging over it," Mr. Andrews, a senior VP at WPP's IEG, which tracks sponsorships, added in a later interview. "Were there not more established companies, more bigger brands that were interested ... if that's the case, why not?"
The short answer, and one that might relieve those hoping for a sponsorship rebound, could be that the Kings simply don't have a lot going for them right now. The team is stuck near the bottom of the Western Conference standings, draws a paltry attendance of 13,287 a night -- second-worst in the league -- and, despite trying for years, has been unable to finance a new arena to replace the 23-year-old Arco Arena, which will be renamed Power Balance Pavilion beginning March 1. The Kings also play in one of the smallest media markets in the NBA and have recently been the subject of relocation rumors.
"For the smallest of the markets, getting a meaningful naming rights deal for a sports facility has always been challenging, but it's more so today than it's historically been," said Marc Ganis, president of SportsCorp, a sports-business consulting firm.
That's mostly because the universe of potential sponsors has shrunk: Fewer companies are willing to invest big sums in a single advertising vehicle, and marketers are reluctant to ink long-term deals with the economy still on shaky ground, Mr. Ganis said.
But there are signs of a rebound. Sports sponsorship spending, including more than just naming rights, grew by 3.4% in 2010 to $11.66 billion, up from the 1% decline in 2009, according to the IEG Sponsorship Report published earlier this month. And spending this year will jump by 6.1%, the report forecasts. Even so, two of the biggest sports properties remain unnamed as owners seek deals worth several million dollars a year: the stadium shared by the New York Giants and Jets, and the Dallas Cowboys stadium, which hasn't secured a deal despite hosting the Super Bowl this year.
Kings owners Joe and Gavin Maloof had been searching for a naming rights partner since September to replace its $750,000-a-year deal with Arco, the BP-owned company that operates gas stations in five Western states. By turning to Orange County, Calif.-based Power Balance, the Maloofs -- who own the Palms Casino Resort in Las Vegas -- are making a big gamble, some experts said.
"I think it's an incredible risk," said David Carter, director of the Sports Business Institute at University of Southern California, noting that if Power Balance were to go out of business, "the value of the next naming rights deal really goes down."
The Kings have not disclosed terms of the Power Balance deal, which experts estimate could be worth about $1 million a year, potentially including tie-ins with the Palms. Some of the richest naming rights deals in the NBA include American Airlines' sponsorship of the Dallas Mavericks arena, valued at $6.5 million a year, and the Houston Rockets deal with a regional Toyota distributor, worth $5 million, according to Marquette University Law School's National Sports Law Institute.
Power Balance bracelets feature holograms that are marketed to "resonate with and respond to the natural energy field of the body." Boosted by endorsers including NBA star Shaquille O' Neal, the bracelets were named 2010 sports product of the year by CNBC. But late last year, Power Balance was slapped by the Australian Competition and Consumer Commission, which said the company admitted "there is no credible scientific basis for the claims" about the bracelets, adding that "consumers should be wary of other similar products on the market that make unsubstantiated claims, when they may be no more beneficial than a rubber band."
In the U.S., the Federal Trade Commission has not taken any action, but the company faces lawsuits from consumers alleging false advertising. Power Balance declined an interview with Ad Age, but in a statement on its website denies the Australian charge that it admitted that the product does not perform.
The naming-rights deal could bring more attention to the ad controversy, but it could also bring needed exposure for a brand seeking mainstream status, experts said.
"They've got to have an implementation strategy that simply goes beyond putting their name on the building," Mr. Ganis said. "They have to go out and define themselves ... almost like a politician does."
As for the Kings, spokesman Mitch Germann called Power Balance a "young, hungry, up-and-coming brand that we're excited to align with."
And for a team in need of revenue, "it's probably worth it form their perspective to go and take the risk," said Dany Berghoff, VP-business development of 21 Sports & Entertainment Marketing Group. "For the market they play in, for how the team's been doing ... I say it's great deal for them to get that money."
After all, the Kings could be the New Orleans Hornets, which has been searching unsuccessfully for a naming rights partner since 2001.