Value of naming rights deal could be key in Miami Heat’s plan to extend lease with county

Experts say the Heat will get more than $2 million a year from a sponsor once the American Airlines deal ends. The county might give up its right to any extra money.

04/29/2014 12:01 AM

04/29/2014 12:30 AM

The Orlando Magic under-performs the Miami Heat on multiple levels: shut out of the playoffs, no All-Star players, and housed in a city better known for amusement parks than for celebrity glamour. Forbes ranked the Heat as the NBA’s seventh most-valuable team this year, worth $700 million. The Magic trailed at No. 15, with an overall worth of $560 million.

Yet the Magic has one clear bragging right over the Heat: an arena sponsorship deal worth $4 million annually, nearly double the $2.1 million that American Airlines pays each year to have its name on the building in Miami.

The future value of the Heat’s naming-rights deal could end up an important factor in whether owner Micky Arison can succeed in winning a 10-year extension on the team’s lease at the county-owned AmericanAirlines Arena.

Under a proposed deal that became public last week, Miami-Dade would give up its current claim to any naming-rights revenue above $2 million as part of a larger reworking of the existing deal, which expires in 2030.

American’s current naming-rights deal ends sooner — in 2020. That would give the Heat a chance to reset the arena’s naming revenue to a market that’s currently generating millions more for many NBA teams.

American’s other sponsored arena, American Airlines Center, where the Dallas Mavericks play basketball and the Dallas Stars play hockey, yields about $6.5 million a year in naming-rights revenue from a 2000 deal. Barclays Bank set a league record in 2012 by signing a $10 million-a-year deal to put its name on the New York arena that’s home to Brooklyn’s professional basketball and hockey teams. Smoothie King reportedly agreed to pay $4 million for the new basketball arena housing the New Orleans Pelicans — the same amount Moda Health is paying to sponsor the NBA arena in Portland, Ore.

American’s $2.1 million yearly sponsorship for the Heat’s home court “was a pretty decent deal when it was done,” said E.J. Narcise, founder of Team Services, a Rockville, Md., company that helps broker stadium deals. “Now it’s definitely at the lower end of NBA arenas.”

Matthew Parlow, a sports-law professor at Marquette University in Milwaukee, said he sees no chance of the Heat’s arena fetching less than $2 million in 2020. “The devil is in the details, but it would be hard to see that number going down.”

In all, the new Heat lease would cost Miami-Dade about $121 million more through 2040 thanks to higher subsidies that would be tacked on during the final 10 years, according to a two-page summary of the proposed deal distributed by Gimenez aides to county commissioners.

While Miami-Dade pays the Heat $6.4 million a year now, the payouts under the proposed deal would increase to an average of $14.7 million per year from 2031 to 2040. The deal would also extend by a decade the day that the Heat would be free to move to either another city or make the case for a new or overhauled county-owned arena.

Miami-Dade Mayor Carlos Gimenez publicly opposes Arison’s proposed subsidy package, saying the requested annual payouts from the county are too high. But while the mayor is pushing back against more taxpayer support of the arena, he said he’s fine with giving up future naming-rights money.

“I’m not in the naming-rights business,” Gimenez said. “It could be a windfall. It could be a loss for all we know.”

The naming-rights question hinges on the complexities of sports marketing, and the packages teams offer major companies to be associated with an NBA home court. Under the current arrangement, the county essentially agrees to forgo almost all of the naming-rights money for as long as the current deal’s $2.1 million value stays in place. But once that deal expires in 2020, the county is free to try and sell the naming rights itself for a higher price and retain any gains — or pay the Heat the difference if it can’t fetch more money.

Arison’s negotiators have presented the team’s request to take back the naming rights as a concession, saying the county would be hard pressed to win top dollar for the arena’s name without the Heat also contributing suites, floor seats, television spots and other perks that accompany most rights deals.

“The AmericanAirlines deal is not undervalued. It’s actually a loss-leader for us when you account for the suites, the floor suites and a variety of other factors,” said Jorge Luis Lopez, a lobbyist and lawyer for the Heat. “There are just so many other factors.”

He noted that many of the higher naming-rights deals involve arenas that are home to multiple sports, such as Boston’s TD Gardens, which hosts both the Celtics and the NHL’s Bruins.

Lopez said in a written response to questions that Amway’s $4 million deal in Orlando for the arena, where the NBA is the only major sports league to call home, doesn’t offer a fair comparison. Since team owner Richard deVos also founded Amway, a home-based retailer, the naming-rights deal should not be considered comparable to the Heat seeking a sponsor on the open market.

“Naming rights in a vacuum is a concept that doesn’t really work,” Lopez wrote.

Parlow, the Marquette professor, said a naming-rights package could be broken down with costs assigned to each element, but that the name itself usually carries the largest value.

“There are a lot of different factors that make each deal unique,” he said. “The Heat could play some hardball, given their ability to control all of the tickets.”

Others also bring with them far more valuable media markets: including Dallas, which is home to a metropolitan population with about 1 million more people than the 5.8 million in the Miami area. The prices for some naming-rights deals haven’t been made public, including what United paid last year to re-up its sponsorship of the Chicago Bulls’ home court.

Tom Mayenknecht, a former Toronto Raptors executive who catalogs naming deals on his website, said the Heat should easily land a much richer naming deal once the American Airlines arrangement expires. With online marketing and mobile devices now at the center of branding deals, sponsors with arrangements from the 1990s are enjoying payments from a more affordable era, he said.

“The key thing is the original deal was done essentially in the pre-Internet era,” said Mayenknecht, host of the Sports Market radio show in Canada. “Stadium naming has increased anywhere from three times what it was 10 or 15 years ago to, in some cases, more than 10 times what it was back then.”

With the Heat chasing their third consecutive championship and LeBron James free to switch teams next season, the Heat is escalating efforts to renew a lease that doesn’t expire for another 15 years.

Arison ramped up the pressure on Gimenez over the weekend with a full-page newspaper ad touting the financials of the team’s offer. It featured a photo of the current championship squad doused in celebratory confetti, and noted “there has never been a time when the Miami HEAT and AmericanAirlines Arena have been more important, more meaningful and more valuable to the residents of Miami-Dade County.”

The proposed subsidy package is sure to get the most attention in the coming weeks as Gimenez and county commissioners weigh stadium proposals from the Heat, David Beckham’s would-be soccer team and the Miami Dolphins — all in the midst of budget discussions being framed as a choice between tax hikes or service cuts.

But the naming-rights issue is attracting notice, too, for the potential gap between what American pays now and what the name might be worth in six years.

“What happens if for some reason downtown Miami becomes Times Square in 20 years and the ad rates are through the roof?” asked Commissioner Juan C. Zapata, a critic of Arison’s proposed deal. “Is there any point where above a certain amount we would get a piece of the deal? No.”

In 1996, Miami-Dade voters approved a plan allowing the Heat to lease their county-owned waterfront site. Arison agreed to have the team finance the $240 million development cost of the 19,600-seat arena in exchange for the rent-free arrangement and a yearly county subsidy.

Arison also agreed to a profit-sharing deal that has wound up paying virtually nothing to Miami-Dade. After 14 years, the AmericanAirlines Arena has paid out shared profits only once — in a single check cut in November 2013 for $257,134.12 made out to the Board of County Commissioners.

With the profit-sharing arrangement paying so little during the Heat’s hottest time in history, Arison’s negotiators are pitching fixed payments as a better alternative for the county. The Heat Group would pay $552,215 this year, and a little bit more every 12 months until the total hits $1.5 million in 2040. That averages out to about $963,000 a year, and Arison and Gimenez agreed to earmark that money for the county’s parks system.

The approach mirrors the team’s naming-rights strategy, in that Arison is touting the certainty of the dollars in the proposed deal.

“It all depends on what the market is for naming rights in 2020,” said Ed Marquez, Miami-Dade’s deputy mayor for finance.

Miami Herald staff writer Patricia Mazzei contributed to this report.

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