Does Owning a Major Sports Team Make a Company a Better Investment?

In this segment from Market Foolery, the team answers a two-part question from a loyal listener.

First, does a public company with a stake (or full ownership) of a sports team make it a more attractive investment? And second, are stadium and arena-naming rights worth the enormous cost companies pay to get their brands emblazoned on these venues?

Chris Hill: "The playoffs have started in the NHL and NBA. Most major arenas are named after a public company, and in some cases, public companies actually have ownership stakes in the teams themselves. MSG owns the New York Knicks and the Rangers. Bell Canada and Rogers jointly owned the Toronto Maple Leafs, Raptors, Toronto FC, and so on. We hear all the time about how major-league sports franchises seem to do nothing but go up in value. Does a company having a stake in a team help make it a more attractive investment? And, as a shareholder, how much value does a company lending its name to a major arena really generate? Are people really opening checking accounts at TD because the Boston Bruins and Celtics play there? I'm a longtime listener, I love your work. Thanks for everything."

Thank you for listening, and thank you for a great question. Really, two questions there. Let's take the first one. A company having a stake in a sports team, does that make it a more attractive investment? I don't know, MSG is one of those things that's just not a particularly well-run company, and certainly the stock performance over the last five years has trailed the market, so David, I'm sort of tempted to say it depends.

David Kretzmann: Yeah, it's never something I thought about, investing in a company and thinking it's more or less attractive because they have a stake in a sports team. It's never actually crossed my mind. Maybe I should pay more attention to it? But in general, I don't think it's a huge differentiator with a company. I don't think it's very common for a public company to own a stake in a sports team.

Jim Mueller: Not very common at all. MSG has owned Rangers, one site said from 1926 on to the present. But I didn't even know that until I looked it up.

Hill: But what about the second question, which is a company slapping its name on an arena. The way it's phrased is, "How much value does a company lending its name," let's be clear -- they are not lending their name; they're paying for that right.

Kretzmann: Yeah, it's part of their marketing.

Hill: Yeah, it's part of their marketing. To answer the question, I don't think people are opening checking account with TD just because the Bruins and the Celtics play there. But maybe it works, because in addition to slapping their name on their arena, they presumably also get tickets, they get a luxury box or suite or something like that.

Mueller: The executives might. I think it's the Carla's Diner's Little League sponsorship writ large. [laughs] Very large in some of these arenas. But you get free mention of your company name. It's always the Verizon Center here in D.C. for basketball and hockey, or the SunTrust Park in Cobb County.

Hill: Yeah, in Cobb County where the Atlanta Braves play. Although, as a Washington Nationals die-hard fan, our producer, Dan Boyd, referred to them, the Cobb County Braves.

Mueller: [laughs] Right. So you get mentioned that way, you get on-site promotion, and it's a way to say, "Hey, we're in your community, we're paying attention to you guys." But other than that, and advertising and name recognition, I don't think it's much.

Kretzmann: Yeah, it's really just a form of brand advertising. With that kind of advertising, like with the Verizon Center in D.C., which will be renamed sometime next year, Verizon is stepping away from that deal, but there's really no way for Verizon to measure the return on investment there. How many people signed up as a result of seeing Verizon on the side of the building? Compared to something like marketing on Facebook or Google, where you can measure the clicks and the engagement. Slapping your name on an arena, that's really just a form of brand advertising. In my own case, it's hard for me to think of a time where that was really effective for me as a consumer. Growing up, the Sacramento Kings, my beloved Kings, they played in Arco Arena, but we still bought gas from Chevron. It didn't really mean anything. They renamed it to Power Balance Pavilion, Sleep Train Arena. Now it's the Golden 1 Center at their new arena.

Mueller: Boy, that's a lot of corporate names.

Kretzmann: It went through a lot of names, yeah, they burn through it. But it's just a form of brand advertising. I question whether it's really the best place for a company to allocate their marketing dollars. Hence, that's why you generally see these big-name brands that have millions to throw at this.

Hill: That's the thing. I think you want to look at, separate from the money that is being paid -- because I think it's a legitimate question, If you're looking at an investment and saying, "OK, how are they spending their money?" If Company X is doing a good job with their business, you tend to overlook something like that. On the flip side, this email question reminds me of an article that our colleagues Tim Hanson and Brian Richards wrote in 2006, because in 2006, the NBA Finals featured the Dallas Mavericks against the Miami Heat. And at the time, the Dallas Mavericks played in the American Airlines Center, and the Miami Heat played in the American Airlines Arena.

Kretzmann: Hedging their bets, well done.

Hill: And as they pointed out in that article, American Airlines was staggeringly unprofitable, and spending somewhere in the neighborhood of $8 [million] to $10 million a year. That's a situation where if you are an American Airlines employee or shareholder, you're like, "Hey, folks, what are we doing here? Why are we spending this money when we could probably find a better use for $8 [million] to $10 million?"

Mueller: A company should really be able to measure its return on investment. David, your point about being able to measure clicks, or clickthroughs on direct-send emails, that's easy to measure, and get to your measure on investment. But how much really can you get, measure your radio spend or television spend, or your arena spend?

Kretzmann: Yeah, those are all their own bucket of brand advertising.

Mueller: I think it's just a way of keeping the name in consumer's minds. Coca-Cola has a huge advertising budget. Everyone in the world knows Coca-Cola because of that budget. How long would it take for that to disappear if they stopped advertising? Maybe that's what they're worried about.

Hill: I remember proposing, I think on this podcast a couple of years ago, I just think it would be interesting if Coca-Cola or Pepsi decided, "For one month, we're not spending a dime. We're just going to pocket the money. We're just going to put it aside."

Kretzmann: Would the world stop spinning?

Hill: The world would not stop spinning, and people would still be buying and consuming those two beverages.

Mueller: I'll switch to Shasta.