On one hand, I’m pleased that MLSE was able to cement a deal for $800,000,000 with Scotiabank for the 20-year naming rights to the formerly named Air Canada Centre (ACC). The deal speaks volumes about the importance of connecting with existing or potential customers on their turf and legitimizes sponsorship as a vehicle to get this done. It also shows the importance that companies place on branding and how competitive it is in getting into the hearts and minds of Canadians.
On the other hand, it has a downside. There are two main reasons why I think there is a downside. Here’s why:
Reason 1: It’s a lot of money!
In case you haven’t checked your bank account recently, $800 million is a heck of a lot of money. That’s almost a billion dollars! I guess if you make $2 billion dollars a quarter like the banks, it doesn’t seem like an extraordinary amount. I’m not being a “leftie” here, but you know who ultimately will pay higher service charges and interest fees for these excesses – you and me; because profits must continue to delight investors and at a minimum, they must stay at least the same to keep everyone happy.
The real problem with the reported $800 million over 20 years is that they set the bar so high on what companies will pay for these rights, it’s not sustainable in the marketplace. Just so you know, $800 million is roughly 10 times what companies have historically paid for the naming rights to the ACC, one of the country’s hockey shrines.
It’s like the event/music industry I was in for several years at Lansdowne Park. If three people are willing to pay $10,000 for an artist and the fourth offers $15,000 because they really need an artist to fill a spot, the price tag of the artist goes up because they now know they are valued at and can command $15K in fees. The same concept applies to other pricing strategies.
I’m not suggesting that naming prices be under-valued, but the danger is that municipalities with less attractive assets will look to compare what they have in the way of naming opportunities and adjust their expectations based on the Scotiabank deal as a benchmark for pricing strategies. THIS IS A ONE-OFF SITUATION and cannot be used to rationalize your pricing. The (former) ACC is special. It is downtown at the center of the Canadian universe. You need to conduct a thorough valuation for your facility; part of which includes research into what companies pay for similar reach and/or impact in your community.
Reason 2: Raises the bar to unattainable, unsustainable heights!
Secondly, a bank’s ultimate desire is to acquire customers and the numbers are probably one of the true qualifiers of success – number of new customers, increased spending by existing customers, etc. I don’t know how much a bank expects to earn per customer, but let’s say that they earn $500 annually per new customer – it would take 40,000 new customers annually at $500 per year for the bank to just break even on the venture. And to show the true success of the naming opportunity, the bank would need to measure how many had signed on specifically because of the bank’s affiliation with the sponsored facility.
These and other concepts will be discussed at the 7th annual Municipal Forum on Sponsorship, October 25th at the Grand Hotel and Suites Toronto. For now, the jury is out on whether this deal is a good thing or not. It highlights the importance of sponsorship in the marketing mix, but could seriously disrupt the industry by raising the bar to unattainable heights. History will tell.
What do you think – good for MLSE or over the top?