Friday, January 19, 2007

The Brooklyn Barclays?

The model on the left is the proposed arena in Brooklyn the New Jersey Nets will occupy as soon as the city council allows it to be built. Barclays Bank just agreed to pay $20 million a year over 20 years to put its name on the building. The Sports Economist contends that the British bank should have just bought the team instead, because Forbes Magazine estimated the Nets value at "only" $244 million.

I'm not sure Barclays overpaid, as it appears they matched the market price for naming rights to a New York City sports facility. Who cares how much other NBA teams get to rent the name of their arenas? Recall that the Mets also got $400 million to slap a Citi on their new stadium. But here are a few good reasons why Barclays did not buy the Nets and rename the team:

(1) Bruce Ratner bought the team with the intent to move it to Brooklyn. He's been building in that borough since 1988, and took over development of the Atlantic Center (currently a shopping mall and the site for the proposed Nets arena) in 1991. The arena wouldn't exist (even as a model) without Ratner's pull as a prominent New York developer.

(2) The value of the Nets as a Brooklyn franchise will be much greater than Forbes' recent estimate of the team as a tenant of the Meadowlands. That the team commands $20 million a year just to name the arena speaks to both the potential attendance boost and other sponsorship opportunities for a Brooklyn team over a New Jersey team.

(3) The NBA frowns on corporate ownership of franchises. Cablevision owns the Knicks. The Toronto Raptors are held by Maple Leaf Sports and Entertainment Ltd. That's it.

(4) Speaking of the Knicks, that team is a perfect example of why corporations don't want to own sports franchises: If the team starts to suck, after the coach and GM take their share of the heat, it becomes the owner's fault. That's happened with the Tribune Company (Cubs) Time Warner (Braves) and News Corp. (Dodgers). It's much easier for a corporation to put its name on a shiny new arena. Nobody's blaming Madison Square Garden for the Knicks' troubles.

So Barclays couldn't have bought the team and didn't want to buy the team. It wanted to popularize its name, perhaps as a part of an expansion into the US. Of course, it might not even get that, as people will probably end up calling it "The Bark."


Anonymous said...

Who says that purchasing the Net's franchise would give you the right to name their arena? The arena is part of a $4 billion development and I assume the owner of it would own the naming rights. Certainly, if the team owned a $4 billion development, it would cost more than $400 million to buy it (or $212 million, which is the present value of cost of the naming rights, using a 7% discount rate).

Quality said...

Discounting the naming rights package to present value is an essential step in analyzing such a long-term deal, one I overlooked.

I believe that the Nets' agreement to lease the (now-named) Barclays Center included the team's right to sell naming rights. That's why The Sports Economist suggested Barclays might have purchased the team instead.

A commenter over there reminds us that when the Grizzlies were moved to Memphis, ownership wanted to rename the team the Memphis "Express" in honor of Memphis being the corporate home of Fedex. The NBA forbid it.

The bottom line, though, is that Ratner wouldn't sell the team for $400 million (even in cash) right before it moved to Brooklyn and right before the franchise's value increased as a result.