Baseball, Apple Pie, and Corporate Scandals

For major league baseball owners, multimillion-dollar stadium sponsorship deals seemed like such a good idea. Then the corporate scandals started.
Marie LeoneOctober 20, 2002

As a rule, baseball fans tend to have real long memories.

Much to the chagrin of managers and players, fans of the national pastime keep remembrances of bad trades and butchered balls alive for decades — long after the misdeeds have yellowed in newspaper archives.

Amazingly, Boston Red Sox followers still rebuke the ghost of Harry Frazee for trading Babe Ruth to the Yankees in 1920. To this day, Dodger fans curse catcher Mickey Owen for letting a pitch get by him with two out in the bottom of the ninth during the fourth game of the 1941 World Series. And octogenarian members of the legendary Brooklyn Symphony get a dark, pained look in their eyes when they think about Ralph Branca’s third pitch to Bobby Thomson in the deciding game of the 1951 series.

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Little wonder, then, that club owners are starting to worry about long-term, multimillion-dollar stadium deals struck with corporate sponsors. In the old days, such naming-rights deals were few and far in between. Ballparks were generally named for their environs (Fenway Park, the Polo Grounds, Candlestick Park) or longtime owners (Comiskey Park, Wrigley Field).

But now, more than half the ballparks in the Major Leagues carry a corporate moniker (see list below). And that rising tide of sponsorship carries a heretofore unforeseen risk: what if your stadium sponsor turns out to be the business equivalent of the 1919 Chicago White Sox?

The odds of such an occurrence have gone up dramatically in recent months. A seemingly endless parade of high profile corporate scandals has rocked investor confidence and left club owners questioning the soundness of long-term naming-rights deals. Many of the corporate meltdowns over the past year have involved aggressive, high-profile companies — the sorts of companies that typically seek out naming-rights deals.

The potential brand damage from having a disgraced company’s logo on your ballfield is hard to estimate. At the very least, it’s not good. Indeed, concerns about bum stadium sponsorship deals have club executives doing extensive homework before signing away the ballpark. Ray Schaetzle, acting CFO of Energy Technologies and former finance chief of the National Basketball Association’s New Jersey Nets, says, “At the minimum, CFOs have to do credit checks on sponsors to make sure they are worthy [from a public relations perspective] and financially sound.”

But even the most meticulous due diligence effort may not be enough to avert disaster, warns Schaetzle, worked closely with executives from the New Jersey Sports & Exposition Authority (owners of the Nets home court) when a 1996 sponsorship deal changed the Brendon Byrne Arena in the Meadowlands to the Continental Airlines Arena. “Over the span of a 25-year deal,” concedes Schaetzle, “a franchise is still making a leap of faith.”

Houston, We Have a Problem

You don’t have to tell that to executives of the Houston Astros. In 1999, the team’s ownership signed a thirty-year, $100 million stadium naming-rights deal with a local energy company called Enron Corp.

At the time, the agreement seemed like a perfect fit. Astro management needed the cash to help finance the building of the splendiferous new ballpark, which was to replace the aging Houston Astrodome. And Enron was a Texas-sized success story, growing from a small utility to the dominant player in the burgeoning energy trading business.

In fact, everything was just fine at Enron (the stadium) until Enron (the company) turned out to be a bust. And not just any bust, mind you. Enron’s collapse in October was the single largest business failure in U.S. history. Moreover, the company quickly became a symbol for corporate greed and deception, a sure candidate for early election into the Business Hall of Shame.

With the prospects of being forever linked with the poster child for corporate malfeasance — and with local fans in an uproar — the Astros ownership scrambled to back out of the naming-rights deal. In February, a mere 28 years before the contract expired, the Houston Astros shelled out about $2 million to wipe the memory of Enron Corp. from the team annals.

A few months later, the San Francisco Giants asked a federal bankruptcy judge to force Enron to remove its tilted “E” logo from a scoreboard sign at the team’s Pacific Bell Park. The reason? According to court documents, Giant officials didn’t want fans, customers, or sponsors getting the idea that the franchise supported Enron.

Two-Way Trades, Three Strikes

Other major league teams have not been immune from the Enron contagion, either.

The Seattle Mariners, for example, play in Safeco Field. But as reported in July, insurance giant Safeco was named in an Enron-related law suit filed earlier this year by JP Morgan Chase.

Essentially, lawyers for JP Morgan Chase claim that Safeco and ten other insurers cheated the bank by issuing $1 billion in surety bonds to limit JP Morgan Chase’s exposure to Enron energy contracts. The suit claims the insurer’s issued the surety bonds despite knowing that the instruments were probably illegal — and therefore invalid.

By August, the insurers countersued JP Morgan Chase, charging that the bank provided off-balance-sheet financing to Enron that helped conceal the energy trading company’s true liabilities.

At this point, the court battle continues to drag on and may well go into extra innings. While the case has so far failed to garner much media attention, it’s not likely that owners of the Mariners are thrilled with any association with Enron — even a tangential one.

Meanwhile, down in Anaheim, the World Series-bound Angels got their wings singed by the Enron fallout as well.

The Angels have a stadium naming-rights deal with local utility Edison International. Last spring, state regulators in California hammered out a deal to keep the energy company’s main subsidiary solvent. The subsidiary, Southern California Edison, was a casualty of California’s botched attempt to deregulate the state’s electricity industry — a situation that was apparently exacerbated by Enron’s alleged attempt to drive up power prices in the Golden State.

Three strikes for Enron. But given the recent revelations about two-way trades in the energy business (and the rolling blackouts in California last year), any association with a power company could turn out to be a PR millstone for a sports team, at least for the time being.

Moreover, the recent consolidation in the power sector illustrates another potential pitfall in naming-rights agreements. For owners, stadium-naming deals not only help pay for new ballparks, but also help establish an identity for that park — and the team that plays in it.

But all bets are off when the sponsoring company is acquired, or changes its name after a merger. Such a scenario is a branding nightmare. “What’s the value of naming rights when a stadium has to be rebranded more than once?” asks Tim Hofferth, president of Nelligant Sports Marketing and former athletic director of Villanova University. “Rebranding causes confusion, the very thing marketers want to avoid.”

On-Deck Circle

They also want to avoid scandal. And at the moment, a number of major league owners are likely sweating out controversies surrounding their stadium sponsors.

The Pittsburgh Pirates, for instance, are facing a tough marketing pitch if the team’s stadium sponsor, PNC Financial Services Group Inc., draws any more fire.

Since January, PNC, the nation’s 17th-largest bank, has been caught in a swirl of controversy related to questionable accounting practices. Investigators at the Federal Reserve, Securities and Exchange Commission, and Office of the Comptroller of the Currency are all apparently interested in $762 million of bad assets that were stashed in three off-balance-sheet entities by PNC. Regulators want to know if the bank’s management set up the special purpose entities to hide liabilities — and hence tart up PNC’s balance sheet.

Likewise, executives of the Detroit Tigers, who play in Comerica Park, are no doubt watching the outcome of an ongoing court case. In September, Comerica Inc. and UnionBanCal Corp. were named in a lawsuit that claims the banks aided Earthlink co-founder Reed Slatkin in a Ponzi scheme. Court papers allege that Comerica and UnionBanCal gave Slatkin the “aura of legitimacy needed to continue to fool victims.”

This is not to say all club owners have run into problems with their corporate alliances. In Cincinnati, stadium sponsor Cinergy Corp. has been fairly immune to the bad news coming out of the energy sector. Interestingly, the ball park in Cincinnati was the first major pro-sports arena to be turned into a massive billboard. In 1996 Cinergy Corp. signed a five-year, $6 million pact with Hamilton County to change the name of Riverfront Stadium to Cinergy Field.

“Back then, naming rights were a hidden asset,” recalls ex-Nets CFO Schaetzle, who had an inside line into the Continental Airlines Arena naming-rights deal in late 1995. “The idea was invented out of thin air.”

Since the Cinergy deal, 16 major-league clubs have followed suit. The roster of stadium sponsors has grown to include financial service companies, beer brewers, juice peddlers, hardware makers, and apparel specialists.

Certainly, baseball owners seem to have no problem accepting the extra revenue. As an industry, Major League Baseball (MLB) lost $520 million last year. Consolidated losses from 2001 baseball operations alone totaled $232 million — a loss that increases to $345 million when net interest expense is added. And according to MLB officials, the league’s total debt exceeds $3 billion, although critics challenge that number.

And despite the growing risk of chiseling a corporate name on a brand new ballpark, stadium sponsorships deals remain hot. Just four months after the Astros ejected Enron from its park, the Coca-Cola Co. offered the owners $100 million to stick the name of its juice division on the stadium for 28 years.

The Astros said yes. As a result, Jeff Bagwell and Craig Biggio now play at Minute Maid Park, a name which isn’t likely to instill fear into the hearts of visiting ballplayers.

But in sports these days, cash usually calls the shots. “Today, naming rights is an asset that must be captured,” insists Schaetzle. “You can’t leave the money on the table.”

If so, Major League Baseball owners better hope they’ve placed the right bets.

Name Game: Major League Ballpark Corporate Sponsors

Anaheim Angels — Edison International

Detroit Tigers — Comerica

Oakland Athletics — Network Associates

Seattle Mariners — Safeco

Tampa Bay Devil Rays — Tropicana Products (PepsiCo)

Arizona Diamondbacks — Bank One

Cincinnati Reds — Cinergy

Colorado Rockies — Adolph Coors Co.

Florida Marlins — Pro Player Apparel (Fruit of the Loom)

Houston Astros — Minute Maid (Coca-Cola Co.)

Milwaukee Brewers — Miller Brewing

Pittsburgh Pirates — PNC

San Diego Padres — Qualcomm

San Francisco Giants — Pacific Bell

St. Louis Cardinals — Anheuser-Busch

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