Lucrative naming rights deals and attractive interest rates are persuading clubs this is the right time to build a new stadium
“What’s in a name,” Juliet asked herself in literature’s most famous rom-com. Had the answer been £14.9m a year then perhaps Romeo might not have shed his so lightly.
Remarkably that near-£15m figure is what analysts at American Appraisal estimate the naming-rights of Arsenal’s Emirates Stadium to be worth if they were to renew the deal today. It makes Arsenal’s ground theoretically the most valuable naming-rights property in English sport (venues such as Wembley or Wimbledon being unlikely ever to cash in).
Currently the Gunners are earning only £3.6m a year from their 15-year agreement with the Dubai airline. That was because the deal was discounted to generate a lump sum of cash that was instrumental in building the stadium Emirates would sponsor.
The deal commenced in 2006, and since then analysts believe the rise in global interest in English football to have driven huge value in naming rights. Five years ago the Premier League’s overseas broadcast rights were collectively worth £320m over three years. The current set of three-year agreements generates £1.4bn, a multiple of 4.375 on the 2006 figure.
That exponential trend has been tracked by the value in stadium naming rights, according to American Appraisal’s managing director, Mike Weaver. “The price for the equivalent media exposure in such deals can be valued relatively easily using the cost of buying the media direct, but the more intangible brand association is more difficult to quantify and can sometimes be significant,” he says.
Yet the media exposure is not always positive. As Newcastle United found, the proposal to sell rights to St James’ Park, unusually marketed by attaching the Sports Direct name to it beforehand, proved disastrous.
Newcastle fans stirred up a storm of protest that led sponsorship consultants to say the announcement had reduced the value of the property.
Indeed, whereas the club’s managing director, Derek Llambias, hopes to raise “between £8m and £10m a year” from the deal, American Appraisal’s analysis estimates it now to be worth £1m.
It is for this reason the same analysts gauge that Old Trafford and Anfield, despite being the homes of England’s two best-supported clubs both domestically and overseas, would raise less than £10m each. Local resistance to renaming a beloved community asset for a few dollars more would dissuade even the most globally focused corporate sponsor.
Weaver suggests that if Liverpool were to move away from Anfield, they could expect at least to double the estimated £9.3m a year they might raise in their present home, even more than Arsenal. “There is no question that stadium rights deals are much less valuable for existing stadiums,” Weaver says. “The deal value for a sponsor of a new stadium comes from a close brand association and corporate partnership rather than simply the value of the airtime and column inches it generates in the media.”
Such are the rewards on offer that American’s analysis transforms the calculus for clubs considering whether to build new stadiums. In 2008-09, their third year at the Emirates and when gross debt taken out to finance the stadium and Highbury Square construction projects peaked at £415.6m, Arsenal’s total interest bill was £19.3m.
Since then general interest rates have fallen to historically low levels (although even at the height of the easy-credit culture Arsenal did achieve an exceptionally cheap deal). Indeed if the interest expense on a stadium project can be covered by naming rights – as Weaver’s estimates suggest – then a new ground could theoretically be built at zero net cost to the club’s cash account. All extra gate money from the expanded capacity would go straight to the bottom line.
But there is another twist: regulatory developments could provide a further incentive to development for the biggest clubs. Uefa’s financial fair play rules make allowance for infrastructure spending on capital projects like stadiums and training grounds.
It means that while they have to be paid for in cash, the project-finance expenses associated with stadium development do not count towards the overall losses a club makes when they are considered by Uefa’s regulations. If so, clubs will have two cash boosts: the overall sponsorship take will grow through an eight-figure naming-rights deal and the ticket revenue from executive boxes and general admissions will also improve. But, crucially, at the same time as clubs add these tens of millions extra to their revenues the losses they incur under FFP regulations would be unaffected.
So, for example, a club spending £400m to improve their stadium from 40,000 to 60,000 may pay £20m a year in interest on project-finance loans. That expense could be offset by £18m of naming-rights revenue while also adding an extra £80m a year in match-day income, making the club £78m better off each year. For the purposes of FFP, because the bank interest is allowable, the effect for regulators is that the club’s income has improved by the full £98m.
That, for any club, is a game-changing sum. Those who may wonder why Tottenham Hotspur, Liverpool and Chelsea have been considering expensive new-stadium projects – even in the face of the deepest recession in living memory – may now have their answer.
Premier LeagueBusinessArsenalLiverpoolChelseaTottenham HotspurMatt Scottguardian.co.uk
