The Los Angeles Rams. The Los Angeles Chargers. The Los Angeles Rams. The Los Angeles Chargers. Both of these still have a funny ring, no?
However odd, the Chargers will indeed move to Los Angeles for the 2017 NFL season and NFL owners have approved a lease agreement for the Chargers to cohabitate a yet-to-be-named stadium with the Los Angeles Rams. After decades of uncertainty and failed proposals, the Los Angeles NFL picture is finally clear; in 2019, the Rams and Chargers will settle into the “Los Angeles Stadium at Hollywood Park”. If you think that name doesn’t quite roll of the tongue don’t worry, its only temporary. Now that the Chargers situation is settled, Stan Kroenke (owner of the LA Rams) is free to execute a naming rights deal for his new stadium in Inglewood. The question now becomes – how much will a corporate sponsor pay for the rights to name this new stadium? I decided to try and answer this question utilizing historical naming rights data and a regression model outlined here.
Before we dive into the model and a potential price for the naming rights, it is worth looking at what is already known about this new stadium and its attractiveness to potential sponsors. The stadium now guarantees 16 NFL home games a year in Los Angeles, America’s second biggest media market. The only stadium that can top this in terms of media exposure is MetLife Stadium, which also has 16 home games per year, but in New York City – America’s largest media market. Additionally, the NFL has already reach an agreement to have the stadium host Super Bowl LV in 2021 and LA 2024 has confirmed plans to include the stadium in its plans for the Olympics, should LA win the bid. The Final Four and other sports entertainment spectacles such as WrestleMania are not locked in, but will almost surely utilize the venue at some point. Due to its location, exposure, and promise as a modern technological marvel, the new stadium will have no shortage of high-profile events that a sponsor would love to be associated with.
In addition to the promise of high-profile events, there is historical precedent for the naming rights to a Los Angeles NFL stadium. Back in 2011, AEG and Casey Wasserman led a project to develop a NFL stadium in Downtown Los Angeles. As part of the proposal, naming rights to this hypothetical stadium were sold to Farmers Insurance Group at a cost of $700 million over 30 years, approximately $23 million annually. If the stadium ended up housing 2 NFL teams, the deal would be worth nearly $ 1 billion over 30 years, or approximately $33 million annually.
While the guarantee of major events and the historical precedent of Farmers Field indicates the potential for the “Los Angeles Stadium at Hollywood Park” to shatter the record for highest grossing naming rights deal, what does the historical data say? After developing a regression model that explained nearly 70% of the variance within NFL stadium sponsorship deals, I made a few tweaks to remove the model’s heteroscedasticity. This is a fancy way of saying I improved the model’s predictive ability and its ability to handle recent massive stadium deals such as MetLife Stadium and Levi’s Stadium. With the assumption that the deal will be signed sometime in 2017, the model predicts that the average annual value (AAV) of a naming rights deal will be approximately $35 million. If the deal is signed in 2018, it predicts the AA`V to be $37 million. The key factors in determining this figure are:
- The Los Angeles media market size
- The fact that both the Rams and Chargers will play in the stadium
- The year in which the deal was signed
To understand the total value of the deal, the potential length of the deal is needed. Recent naming rights deals have varied in length – from 20 years (Levi’s Stadium) up to 32 years (NRG Stadium). By essentially splitting the difference of this range and assuming a 25-year deal with a $37 million AAV, the price tag to rename the “Los Angeles Stadium at Hollywood Park” comes to approximately $925 million.
The AAV predicted by the model ($37 million) and the 2-team AAV proposed by Farmers Insurance Group in 2011 ($33 million) are quite similar. This indicates that the model is in line with market expectations, but may be underselling the value of a naming rights deal. If such a sponsorship is worth $33 million in 2011 without the guarantee of a Super Bowl and the possibility of Olympics-level exposure, then a price of $37 million 6 years later may be on the low end.
Taking all factors into account – guaranteed future events, historical precedent, and quantitative modeling – it is reasonable to expect that the “Los Angeles Stadium at Hollywood Park” will change its name only for a deal that averages about $35 – $40 million annually. To Stan Kroenke and stadium stakeholders, that “funny ring” associated with saying “Los Angeles Rams” and “Los Angeles Chargers” sounds more like a cash register than any linguistic awkwardness.
Kevin Hisey is an MBA student at the USC Marshall School of Business. He can be reached at email@example.com.