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Busch Corollary: Progressive and Its Naming Rights Deal PDF Print E-mail
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Articles & Opinion
Written by Kurt Hunzeker   
Wednesday, 23 January 2008 20:40

A Biz of Baseball ExclusiveAs soon as the Cleveland Indians put a “For Sale” sign on Jacobs Field’s naming rights, I immediately thought of two companies: Progressive Insurance and Sherwin-Williams.

I have never understood why out-of-market corporations spend millions for naming-rights deals in markets they do not have a physical presence (i.e. a headquarters, or at the very least, a large distribution center or regional office complex).  A local sports team’s home should be branded by a hometown business. 

And thus why Progressive and Sherwin-Williams popped in my head.  Both are Cleveland area-based.  Both are Fortune 500 companies (Progressive, 159; Sherwin-Williams, 309).  And most importantly, both can tie-in their services with the Indians and its fans in relevant ways.

But the $57 million question needs to be asked, “At what price would do you agree to this naming-rights deal?” 

As highlighted in the original naming-rights diminished value equation (dubbed “The Busch Corollary”), companies should not expect the same value for a secondhand-rights package its predecessor enjoyed, primarily because the venue itself has already been branded.  The first name attached to a sports facility will be the first answer when asked where does the “insert-team-name-here” play.

In Cleveland, you have the added component of a nickname that has become common vernacular amongst fans and visitors alike: let’s go see a game at “The Jake.”  Does anyone really think even a handful of fans will refer to the ballpark as Progressive Field? 

So what is Progressive’s diminished value on this deal?

A QUICK RECAP – THE BUSCH COROLLARY EQUATION

Using simple algebraic letters to denote naming-rights deals’ quantifiable variables, The Busch Corollary Equation calculates the percentage of diminished value percentage (dv, which will always be a negative number) for non-original, naming-rights agreements: 

dv = s / [(p / n) / y]

The variables to solve such an equation remain the same regardless of sport: 

  • s = secondhand-rights holder’s annual sponsorship fee
  • p = previous rights-holder(s)’ average annual sponsorship fee
  • n = total number of names the venue has held since its opening
  • y = total number of years the venue had a previous rights-holder(s)’ name

THE BUSCH COROLLARY – PROGRESSIVE FIELD

Here is the breakdown on the Indians’ new deal with Progressive:

  • s = Progressive pays $3,562,500 annually, per its naming-rights agreement signed this January
  • p = Former owner Richard Jacobs paid $833,333 annually for the $10 million/12-year, naming-rights deal that expired in 2006
  • n = The ballpark has had two (2) names during its existence
  • y = The Jacobs Field brand lasted 13 years (including a “free” year last year) 

dv = s / [(p / n) / y]

dv = $3,562,500 / [($833,333 / 2) / 13] 

dv = $3,562,500 / [$416,667 / 13]

dv = $3,562,500 / $32,051 

dv = (111.15%)

 According to The Busch Corollary Equation, the diminished value of Progressive’s naming-rights agreement with the Indians is 111.15 percent.  That’s alarming.  The two major factors for such a drastic loss is the fact that Progressive is paying approximately 4 ¼ times more per year than the original rights-holder (special circumstance notwithstanding) and that the Jacobs Field name officially has been in use for 13 years.

In order to quantifiably justify this annual expense, Progressive will have to leverage this new relationship as much as possible.  Media trackers will note that if the Indians enjoy another postseason run in 2008, the number of times “Progressive Field” will be mentioned on national telecasts will equal millions of free advertising dollars.  Well, that’s the hope with any large-scale branding deal such as naming-rights agreements. 

Progressive should utilize this asset as much as possible: host annual meetings at the ballpark, offer ticket vouchers for policy renewals to reduce churn, dangle VIP access as sales incentives for agents, showcase its concierge service by establishing a working center adjacent to Progressive Field’s parking lots, and so on and so on.  I have no doubt these ideas and many others are currently in development right now.

All of this again makes me question why the Washington Nationals’ have yet to close its inaugural naming-rights deal for what is now dubbed the über-generic “Nationals Park.”  Even if the team signs a deal for ’09 and only plays one season in Nationals Park, the rights-holder will not receive the same bang for its buck. 

Instead of looking at it as a premium to pay, being the naming-rights holder for the inaugural season of a ballpark enhances the overall brand value you would experience for the life of the deal: your brand is the original name; no matter what happens, a majority of fans will always label the ballpark with your brand; etc. etc. etc. 

Even if a deal was struck today, I would try to incorporate the new name into as many facets of the ballpark as possible, and continue to add more branded features as the season progressed.  Remember, the Nationals play host to the first, nationally-televised game of the season March 31st.  I start the over-under for the number of times ESPN says “Nationals Park” during the broadcast at 37 ½.

“Amtrak Ballyard” and “XM Park” roll right off the tongue….

For more read Hunzeker's Busch Corollary: Valuating Second-Hand Naming Rights


Kurt Hunzeker is a staff member of the Business of Sports Network. He is the former editor of the Team Marketing Report, and the founder Sparts Marketing (www.spartsmarketing.com), a sports-centric design and consulting firm where sports, art and marketing fuse together to create award-winning campaigns, unique brand identities and innovative sponsorship platforms.

He, as well as all other authors on The Biz of Baseball can be contacted through the Author Profiles page.

 

 
 
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