Friday, March 27, 2009

Name Over

Intriguing little nugget in the UK's Independent (h/t nolandgrab). The article discusses the disquiet in our fair Borough over Barclays' deal to buy the naming rights to the proposed Nets arena in Prospect Heights.

We'll leave to one side the hackneyed "grows" headline, on the grounds that British people won't yet be sick of it, and take a look at this sentence towards the bottom of the article.

The deal is a 20-year commitment, originally valued between $300m and $400m, but the bank is believed to have renegotiated the cost down since then.

This is, I'm fairly certain, the first time we have heard any indication that the naming rights deal might bring in less cash than originally anticipated.

Still, we're talking about a gap between two unknown numbers, since we only have rumour and guess work to go on about the size of the original deal. The conventional wisdom, echoed by this Independent reporter, is in the region of $300-400 million, over 20 years, or $15-20 million a year. By comparison, I think Citi paid the Mets $20 million per year for 20 years, and I'm tempted, given the Nets' weaker franchise (Mets fan bias here) to assume the Barclays number is nearer $15 million a year.

That the deal might have been renegotiated comes as little surprise, given the repeated delays, and the fact that the original naming rights deal had a deadline that had to be extended. Then there was the "value engineering" plan, which involved making the stadium cheaper and less shiny. Finally, there's the lingering suspicion that Frank Gehry isn't really working on the project anymore. I'd want a discount on my naming rights for a discount stadium.

I'm going to speculate a little about why this little nugget got out there at this moment in time. If you have the time, go read my earlier rant about the relationship between financial journalists and their PR handlers. I'm guessing that the reporter, not unacquainted with matters of reporting hygiene, went to Barclays for comment. Now when a US-focused scumbag (I use the term fondly) asks Barclays PR about their deal, they're bound to say "we remain fully committed to the fragrant Mr. Ratner. Screw those Brooklyn swine, they don't buy enough ETFs anyway" (I made the last sentence up, of course. Anyhow, Barclays' ETF business is up for sale, they say). The intention here is to keep the heat off Ratner and his political catamites in New York.

But the Indy doesn't have that many readers in the US (it doesn't have that many readers in the UK, either. Bad-Um-Chah! That's why they pay me the no bucks). So one assumes that if their man in New York goes to the PR, the PR will guess that the bigger story for the Indy readers is why a venerable UK high street bank is flinging money at a second-rate sports franchise in the middle of a financial nuclear winter. I imagine the bank PR might have said something like "this is strictly not for attribution but we're not on the hook for anywhere near as much. We're not that mental".

I could very well be wrong, and I apologise profusely in advance if I have traduced the reporter, who in fact has been working on a source inside the Empire State Development Corporation for many months. But if I'm right, then opponents of the arena might indeed have an ally in the form of the Great British Public, and its lack of tolerance for spendthrift bankers. And its poor impulse control.

Let's go back that old set of arena projections, shall we (you can find a discussion here)? We see that the developer was looking to meet between $30 million and $35 million of the arena's then-projected (and probably too low) $43 million in yearly debt service with sponsorship revenue, which would presumably include the naming rights. Any reduction in the naming rights' contribution to this already meager total might be fatal.


At 11:05 AM, Blogger Tor Hershman said...

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