Scotiabank pays big for arena naming rights, but did it break the bank?

Scotiabank's record-setting $800 million deal for the naming rights to the building that houses Toronto's Maple Leafs and Raptors is a major move that shifts the sports marketing landscape, but it isn't without risks, experts say.

Under terms of the deal announced last week, the bank will pay a reported $40 million a year for the next 20 years to rename the building known as the Air Canada Centre tothe Scotiabank Arena.

The price tag is enormous more than 10 times what Air Canada paid for the inaugural rights nearly two decades ago and head and shoulders above similar deals elsewhere in the country.

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But it's a premium price for a premium product, branding and marketing expert Tony Chapman said in an interview with CBC News. "I'm a big fan of this deal," he said. "Sports is one of the last remaining franchises for live eyeballs, and people pay a big premium to be attached to any kind of sport especially something like hockey in Canada."

Naming rights

7 years ago

Duration 6:16

Marketing consultant Tony Chapman on Scotiabank's big payout for the naming rights to Toronto's major arena

Scotiabankhas been tying its brand to hockey for several years, with sponsorships of kids' hockey programs, a presence with Hockey Night in Canada, and other naming deals with NHL barns in Ottawa and Calgary.

The move for Toronto's sports palace is the culmination of that strategy.

"They've declared themselves as Canada's hockey bank," Chapman said. "There was no way they were going to let anybody else put their name on that building."

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Scotiabank officials were saying all the right things about the deal last week, with the bank's vice-president of sponsorship and philanthropy Jacquie Ryan noting the 8,000 community teams they already sponsor across the country.

"Hockey is a key driver of our brand health," she said, adding "the reach of a hockey sponsorship portfolio in Canada is significant."

Ryan cited consumer research done for the bank that shows people who are aware of its financial support for hockey are 3.5times more likely to consider using its services. "It's quite possible that number could go up," she added, thanks to increased visibility in one of Canada's premier sports venues.

Is it worth it?

But other experts are not so sure the bank will get what it's paid for.

Michael Leeds, an economics professor at Temple University in Philadelphia, co-authored a paper examining several similar deals with sports arena sponsorships, to see if they were worth it down the line.

The conclusion? "By and large there was no discernible impact on the purchase of naming rights on the profitability of the companies that bought them," he said in an interview.

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Companies love to make big splashes with arena naming rights, and they come up with all sorts of metrics to justify the price tag in terms of brand awareness. But when Leedscrunched the numbers, the payoff was negligible. "It's not that they lose money, it's just that there's no benefit," he said. "It'squite a high price for a very dubious return."

A naming-rights curse?

Not only that, he says, but in the dot-com boom and bust20 years ago there was a half-serious notion of a naming-rights curse where several high-flying tech companies tied themselves to sports arenas, only to go out of business shortly thereafter.

The most high profile example is Gillette Stadium, home of the New England Patriots. The NFL team has become a dynasty at the venue, winning five Super Bowls since the facility formally opened in 2002 under its current name.

But its original name was CMGI Field, after a technology company that paid$120 million for the naming rights for15 yearsstarting in 2000. That was beforethe now defunct internet firm reneged on the deal before the stadium ever opened, after its business got waylaid by the dot-combust.

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From a team's perspective, there's also the risk that a corporate sponsor lands indisrepute down the line, such as what happened to the Houston Astros, who found themselves playing in Enron Field while their namesake company was going down in one of the biggest frauds in American history.

While no one is suggesting the same fate would befallScotiabank, Leedsthinks the bank would get a better bang for their buck from "literally any other sort of ad campaign, or just save their money."

That's nowhere near the universal view, however.

Associate professor Laurel Walzak at the RTA School of Media at Ryerson University in Toronto notes $800 million is a big bet, "but very doable for a bank with their assets," she said in an interview.

"They'll be able to build in this market. It's great for retention of customers but really more about acquisition of new ones," Walzak said.

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Walzak agrees with Chapman's assessment that there's a good reason sports assets are considered a premium product.

"Sports dollars are increasing like a hockey stick," she puns. "In banking there's a lot of clutter, so this really allows them to be top of mind."

While the details of the deal are still unknown, Walzak suspects the bank's plan is for much more than just naming rights. "It's going to be much bigger than thename on the building;that's old school," she said. "They've got todo somethingwith it now."

Brand awareness is one thing, but it will take a lot more than a Scotiabanksign on the building to turn all that attention into paying customers and profits down the line.

How that's going to happenis still unknown."That's the $40-million question," Leeds quips.