A Brief Analysis of New Orleans’ Smoothie King Center naming rights deal

In case you haven’t heard, the New Orleans Arena (home of the NBA’s Pelicans) is now the Smoothie King Center. Days before the 2014 NBA All Star Game, terms were reached with Smoothie King for $40 million over 10 years, with an option to renew for another 10 years. Unlike MLB ballparks (EP’s discussion of Rangers’ naming rights deal), arenas have different and diversified aspects to them, such as the opportunity for more events and exposure; concerts, multiple sports tenants, protection from weather elements, and other factors.  As such, these nuances warrant a different set of considerations when constructing terms and value. Some highlights of the deal:

  • Length – 10 years:  This length fits in line with typical recent deals.
    • Of the seven (7) US arenas that signed naming rights deals since 2011, four deals have terms of at least 10 years.
    • Of the 33 US & Canadian arenas that disclosed naming rights terms and have at least one major league tenant, approximately 46% of these naming rights deals have terms of 20 years.
      • Of these six arenas with naming rights terms greater than 20 years, most were signed before 2002, with the exception of Consol Energy Center, which signed their deal in 2010 for 21 years.

 

  • Yearly average revenue – $4 million per year:  Of arenas that disclosed naming rights terms and have at least one major league tenant, the average annual naming rights revenue is $3.8 million. The Smoothie King deal’s yearly average is in line with the average.
    • At the high end of this metric, the Barclays Center in New York reached an agreement with average annual naming rights revenues of approximately $10 million per year over 20 years.
    • On the other end of the spectrum, the Target Center in Minneapolis and Wells Fargo Center in Philadelphia reached naming rights agreements in 1991 and 1994 respectively, for approximately $1.5 million per year on average. The Target Center deal is expected to expire in 2014, while the Wells Fargo Center is expected to expire in 2023.
    • The Smoothie King Center is approximately 15 years old. Of the other arenas in this age group at the time of their respective deals, the average annual revenue from naming rights was also $4 million, which also indicates this deal to be in the middle part of the range.

 

  • Average yearly naming rights revenue to MSA population:  While the New Orleans-Metairie MSA area ranks near the bottom of the top 50 US MSA’s based upon 2012 estimated populations, it ranks near the top in this valuation metric.  Based upon our recent research and 35 years of experience with major league teams, MSA populations surrounding the arena is not necessarily always a critical component when constructing naming rights terms (think about Green Bay & Pittsburgh).

 

Obviously, there are many economic, legal, and financial nuances and intricacies involved in constructing the naming rights terms which are not discussed here. However, based upon the reported terms and metrics, what we can observe is that it appears as if this deal falls in line with market norms.