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?

A full transcript follows the video.

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This video was recorded on April 18, 2017.

Chris Hill:"Theplayoffs 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 stakesin the teams themselves.MSGownsthe New York Knicksand the Rangers.Bell CanadaandRogersjointly owned the TorontoMaple Leafs,Raptors, Toronto FC, and so on. We hearall the time about how major-league sportsfranchises seem to do nothing but go up in value. Does a company having a stake in a team helpmake it a more attractive investment? And,as a shareholder, how much value does a company lending its name to a major arena really generate? Arepeople really opening checkingaccounts atTDbecause the Boston Bruinsand Celtics play there?I'm a longtime listener, I love your work. Thanks for everything."

Thank you forlistening, and thank you for a great question. Really, two questions there. Let'stake the first one. Acompany having a stake in a sports team,does that make it a more attractive investment?I don't know, MSG isone of those things that's just not a particularly well-run company, andcertainly 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'snever actually crossed my mind. MaybeI should pay more attention to it? But in general, I don't think it's a hugedifferentiator 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. ButI didn't even know that until I looked it up.

Hill:Butwhat 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'spart of their marketing. To answer the question,I don't thinkpeople are opening checking account with TDjust 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:Theexecutives might. I think it's the Carla's Diner'sLittle League sponsorship writ large.[laughs] Very large in some of these arenas. But you get freemention of your company name. It's always theVerizonCenter here in D.C. forbasketball and hockey, or theSunTrustPark in Cobb County.

Hill:Yeah,in Cobb County where the Atlanta Braves play. Although, asa 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-sitepromotion,and it's a way to say, "Hey, we'rein your community, we're paying attention to you guys." But other than that, and advertising and namerecognition,I don't think it's much.

Kretzmann:Yeah,it's really just a form of brand advertising. Withthat kind of advertising, likewith the Verizon Center in D.C., whichwill be renamedsometime next year,Verizon is stepping away from that deal, but there's really no way forVerizon to measure the return on investment there. How many peoplesigned up as a result of seeing Verizon on the side of the building? Compared tosomething like marketing onFacebookorGoogle, where you can measuretheclicks and the engagement. Slappingyour name on an arena,that's really just a form of brand advertising. Inmy own case, it's hard for me to think of a timewhere that was really effective for me as a consumer. Growing up, the Sacramento Kings, my beloved Kings, they played inArcoArena, but we still bought gas fromChevron. Itdidn't really mean anything. They renamed it toPower BalancePavilion,Sleep TrainArena. Nowit's theGolden 1Center at their new arena.

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

Kretzmann:Itwent through a lot of names, yeah,they burn through it. But it's just a form of brand advertising.I question whether it's reallythe 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 overlooksomething like that. On the flip side, this email question reminds me of an article that ourcolleagues Tim Hanson and Brian Richards wrote in 2006,because in 2006,the NBA Finals featuredthe Dallas Mavericks againstthe Miami Heat. And atthe time, the Dallas Mavericks played intheAmerican AirlinesCenter, and the Miami Heat played in theAmerican Airlines Arena.

Kretzmann:Hedging their bets, well done.

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

Mueller:Acompany should really be able to measure its return on investment. David, your point aboutbeing able to measure clicks, orclickthroughs on direct-send emails,that's easy to measure, andget 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-Colahas a hugeadvertising budget. Everyone in the world knows Coca-Cola because of that budget. How long would it take for that to disappear if theystopped 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 orPepsidecided, "For one month, we're not spending a dime. We're just going topocket the money. We're just going to put it aside."

Kretzmann:Wouldthe world stop spinning?

Hill:Theworld would not stop spinning, andpeople would still be buying and consuming those two beverages.

Mueller:I'll switch to Shasta.

Chris Hill owns shares of Coca-Cola. David Kretzmann owns shares of Facebook. Jim Mueller, CFA owns shares of Coca-Cola. The Motley Fool owns shares of and recommends Facebook, PepsiCo, and Verizon Communications. The Motley Fool recommends Chevron and Rogers Communications. The Motley Fool has a disclosure policy.