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Tech Industry

Tech stocks, NFL not always a winning team

    The Baltimore Ravens may be in the Super Bowl, but the team is associated with one dog of a tech stock: PSINet (Nasdaq: PSIX).

    At least PSINet isn't alone. In recent years, technology companies have rushed to put their names on NFL stadiums. But sponsorship deals don't mix with stock performance.

    At least three other tech or communications companies -- CMGI (Nasdaq: CMGI), Network Associates (Nasdaq: NETA) and Adelphia Communications (Nasdaq: ADLAC) -- have seen their shares tank since putting their names on NFL stadiums.

    Is it fair to blame a company's Wall Street fortunes to stadium deals? Probably not.

    Stocks and Stadiums
    Ticker/Team Price when announced Current price Change
    CMGI/Patriots 43.93 (8/00) 5.87 -87%
    PSIX/Ravens 16.5 (1/99) 2.28 -86%
    NETA/Raiders 40.5 (9/98) 7.96 -80%
    ADLAC/Titans 64.12 (7/99) 44.5 -31%
    COMS/Niners 9.6 (3/96) 10.6 10%
    AT/Jaguars 29.12 (4/97) 59.87 106%
    ERICY/Panthers 2.47 (7/96) 11.25 355%
    QCOM/Chargers 7.22 (11/97) 81 1022%
    Prices as of 1/26.

    "I don't think it's a cause and effect thing," says Paul Sagawa, an analyst at Bernstein & Co. "It's interesting that the stocks of most of the companies that have paid for these naming rights are now hurting. However, pretty much all the technology stocks are hurting these days."

    But shareholders might ask why their companies would continue to shell out big bucks for sports sponsorships where the immediate return isn't always quantifiable.

    Sports marketing executives point to stadium and team sponsorships as vehicles for building and increasing business through promotions, keeping employees happy and improving relationships with customers with perks such as luxury suites. The deals also boost a company's presence in the community.

    Those advantages are obvious for certain companies, especially consumer-oriented ones. On the other hand, the boost to a company such as PSINet -- a provider of corporate services for Internet access, Web hosting and e-commerce -- doesn't immediately stand out.

    PSINet announced its Ravens deal two years ago, with a reported worth of $105 million over 20 years. PSINet got its name on the stadium, advertising time on the Ravens' radio and TV shows, access to a pair of connected suites at the 50-yard line, and a host of relationships in its home city.

    "More than anything, a sports sponsorship let's a company take advantage of a wonderful association with a hometown team," says Andrew Appleby, president and CEO of sports marketing firm General Sports and Entertainment, which did not negotiate the Ravens deal, although it has handled other stadium naming agreements. "If you have your headquarters in that town, you can leverage the heck out of it."

    At the time the deal was struck, PSINet was trying to get its name out.

    "That (Ravens agreement) was almost strictly to launch the brand," said Andrew Appleby, president and CEO of General Sports and Entertainment, which did not negotiate the PSINet deal, although it has handled other stadium sponsorships for other companies.

    Did it work?

    PSINet's revenue has soared almost 760 percent over the last two years, from $260 million in 1998 to an estimated $2 billion for 2000.

    Yet even as the Ravens stunned the NFL with best season since arriving in Baltimore, PSINet stumbled through its most disappointing year ever. National awareness of the Ravens soared -- presumably giving the team's biggest sponsor a little more exposure -- but it couldn't help PSINet overcome slowing growth in its core access business, or a slump in e-commerce consulting.

    While PSINet executives struggle to dispose of unprofitable assets and consider strategic options, the company remains beholden to the Ravens for $5.25 million per year, or about 3 cents per share, based on 191.2 million shares outstanding, according to MarketGuide.

    Three cents might not sound like much for a company expected to report a $4.86 per share loss in 2000, but 3 cents could be the difference between beating or missing analyst estimates. Given that PSINet's stock currently trades at slightly more than $2.30 per share -- down more than 85 percent since the Ravens agreement was unveiled -- investors might care about every penny on the bottom line.

    U.S. brand awareness

    Or consider the case of mobile phone giant LM Ericsson (Nasdaq: ERICY), which on July 27, 1996 unveiled an agreement to sponsor the stadium of the Carolina Panthers, a new team in the NFL. You can't describe it as a hometown deal -- Ericsson is based in Sweden, and its U.S. corporate headquarters is in Texas.

    "That one I can't necessarily explain outside of the fact that they needed to build their brand in America," Appleby says. "And it did."

    Ericsson became well-known for a football-themed commercial in which its cell phones are used to light up a stadium that went dark, Appleby recalls.

    Ericsson did well for a couple of years after the deal, increasing its market share chiefly at the expense of Motorola (NYSE: MOT). That hasn't been the case in recent years, though, as rivals surpassed Ericsson, which reeled further as handset sales growth hit a wall in recent quarters. The company today announced deep losses, thousands of job cuts, and a plan to hire subcontractors to do all the manufacturing.

    At least shareholders for the last four years can't complain. Despite the decline in the value of ERICY shares in recent quarters, the stock remains 355 percent above its price at the time the Carolina sponsorship was rolled out.

    'A fantastic deal'

    You might think Network Associates (Nasdaq: NETA) would be less than pleased with its marketing, given that company's recent financial woes. Shares of Network Associates have dipped about 80 percent since the company began sponsoring Oakland Coliseum on Sept. 23, 1998

    But the company says it's very satisfied.

    "We feel that we got a fantastic deal," says Tara Ryan, vice president of worldwide marketing for Network Associates. "We got in at a good time considering how high these naming rights are going for now at other venues."

    Network Associates signed a 10-year contract at a $1 million a year for the naming rights to the home of the NFL's Raiders and Major League Baseball's Athletics. The company also has an option to renew for another five years at the same price.

    Rather than shelling out $125,000 or more per 30 second or 60 second spot during an NFL broadcast in the regular season, Network Associates figured it would be far more effective to commandeer the Coliseum's naming rights to reinforce its brand.

    Ryan said the company realized that it would be a waste to throw millions into TV ads, especially during the Super Bowl, when it could garner as much or more publicity this way.

    "We think about gross impressions," Ryan says. "This form of advertising is very effective because we can make impressions on TV, radio and in print this way. This gives us great brand recognition. It also helps that the A's and Raiders both had very successful seasons."

    The $1 million-a-year Network Associates shells out for naming rights represents about 5 percent of the software developer's annual advertising budget.

    Beyond the incessant reinforcement of the company's name, the co-marketing and sales opportunities created by sponsoring a professional sporting venue can have a direct impact on a company's bottom line, Ryan says. "A lot of deals were closed by taking our customers to the 'Net," she says.

    Cheaper than other advertising

    Even companies that got into the game later insist they remain happy with their decision to sponsor a team or stadium. CMGI (Nasdaq: CMGI) bought 15 years of naming and sponsorship rights related to the New England Patriots football and its planned stadium.

    The price tag of $7.6 million annually for the first decade -- fees for the last five years will be adjusted based on the Consumer Price Index -- might sound steep, but the CMGI executives have repeatedly said they are happy with the deal, even with the recent market turmoil. At CMGI's shareholder meeting in December, CEO David Wetherell said he remains committed to the Patriots agreement.

    CMGI shares have plunged 87 percent since the deal's announcement on Aug. 23.

    "We can't control the valuation that the Street provides technology and Internet companies in the short-term," says Bill White, executive vice president of corporate communications and marketing for CMGI. "All we can do is build our business."

    More than $7 million a year may sound like a lot, but the value of NFL naming rights agreements are rising 10 percent a year, White says. CMGI doesn't start paying for the Patriots deal until 2002.

    The company recently said it will have about $600 million to $700 million in cash as it exits its fourth quarter ending July 30.

    "We got this at 2000 rates," White says. "We essentially get two years of free publicity. We continue to believe this deal is absolutely phenomenal in terms of the efficiency it provides as part of our branding and lead-generation campaign."

    The Patriots agreement costs less than $1.50 per thousand impressions, or far less than the $15 to $70 per thousand required for other parts of CMGI's marketing strategy, White says. The deal includes other items, such as use of the to-be-built stadium's facilities for events that would normally require rentals of convention halls or other large facilities.

    Shareholders concerned about the cost should remember that $7.6 million is a small part of CMGI's marketing budget, White says. "You have to spend money to make money," he says.

    The contract allows CMGI terminate or resell the naming rights if it wants to, he added.

    Not all tech or communications companies have done poorly in the wake of a naming agreement.

    Wireless technology vendor and chipmaker Qualcomm (Nasdaq: QCOM) stock remains an impressive 1,000 percent higher than its price on Nov. 3, 1997, when the company said it would sponsor the home of San Diego's Padres and Chargers.

    Competitive local exchange carrier Alltel (NYSE: AT) has more than doubled in market value since naming the Jacksonville Jaguars' home stadium on April 18, 1997.

    And the first tech company to stick its moniker on a stadium -- network hardware specialist 3Com (Nasdaq: COMS), whose name adorns the home of the San Francisco 49ers -- is at least slightly higher, up 10 percent since the partnership began in March 1996.

    But slapping a corporate name on a stadium might not work for every tech company, Appleby says.

    "You need five or six reasons to do anything," he says. "I think a lot of those dot-coms that got involved with these naming rights didn't have a clear vision of what it was about.">