Heavy Lifting - thoughts and web finds by an economist
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Wednesday, September 27, 2006
Following in the path of Gillette, FedEx, and Reliant, the University of Phoenix has bought the naming rights to a National Football League stadium, it announced on Tuesday.There is mounting empirical evidence that stadium deals are busts for those who purchase the naming rights. Not only is there anecdotal evidence that companies that buy stadium naming rights become financially troubled, e.g., Enron, TWA, American Airlines, Delta Airlines, Compaq, to name a few, but there is a growing empirical literature that supports this intuition.
What's going on? Perhaps firms are spending money on stadium rights that would be better spent in other advertising/marketing efforts. This, in turn, reduces profitability. On the other hand, purchasing naming rights might be a principal-agent problem. Firm managers buy stadium naming rights in order to hang out with team owners, famous players, gain access to luxury suites, and so forth, at the expense of the share holder. Finally, stadium naming rights might be a signal (a poor one at that) towards other firms that the purchasing firm has money to burn. This signal might be losing credibility as more firms that purchase naming rights go out of business or are in serious financial trouble.
One wonders if the students at U. of Phoenix are thrilled that, while their "university" doesn't have a football team, it does have the naming rights to a football stadium.
A final note, the "investor relations" link from finance.google.com brings up a "HTTP Error 404 - File or directory not found," which might explain the decision to spend money on a questionable stadium naming rights deal.
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