Now that bailout season is in full swing, spring training is around the corner and the 44th President of the United States has taken oath, investors should be wary of publicly traded companies that enter into stadium naming rights and the exchange traded funds (ETFs) that hold these companies.
For those of us who are familiar with the sports world, corporate influence is no stranger. In fact, of the 105 major sports arenas in the United States and Canada, 72 have naming rights deals, of which 58 belong to publicly traded companies and 11 belonged to now-defunct deals among publicly traded companies. In a research study of these 69 naming deals conducted by Advisor Perspectives, performance of companies that purchase naming rights underperformed the S&P 500 by 4.7% over the course of the deal.
- Poor corporate governance leading to poor or risky capital allocation
- Excessive spending by corporate executives in the form of utilizing luxury boxes, stadium access privileges and hosting company events at arenas
Overall, the study indicates that paying for naming rights is a signal for poor future stock performance. Just take a look at the performance of Citigroup (C), down 61.6% as compared to an 18.6% average decline in the S&P 500, over the time period where its name has been on an arena or FedEx (FDX), which currenttly has its name on two arenas and is down 12.5% as compared to an avergae decline of 9.0% for the S&P 500.
Other factors could be at play here, as well – not just naming deals – but it’s an interesting study to note. The Financial Select Sector SPDR (XLF), holds Citigroup at 3.5% and iShares Dow Jones U.S. Transportation Average (IYT) holds FedEx at 9.8%.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.