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It's a whole new ballpark name game
Forget those Bubble-era upstarts. Some major-league companies are now slapping their names on Major League parks. For 3 companies, it's a home run investment -- and for 3 others, a potential strikeout.
By Robert Walberg
Baseball is a great game of traditions, but also of adaptation. As the season opens this week, fans must adapt to the odd idea of the Chicago Cubs being among the early World Series favorites, and to games being played in new places called SBC Park, Citizens Bank Park and Petco Park.
While I would be happy to ramble on about my predictions for the season, alas, MSN Money pays me to write about stocks, not sports. So we turn our attention to the increasingly common practice of corporate sponsorship of ballparks -- and what it means for blue-chip stocks. For just as we note that the Cubs have morphed from lovable losers into potential champions, we observe that bubble-era waste in sponsorship has given way to rationality in big companies marketing spending.
Gone are the days when you could short a stock simply because its high-living executives threw millions of shareholder dollars away to sponsor a team -- times when fast money chased fast fame, and corporate sponsorship was used as much for bragging rights as naming rights.
PSINet Stadium in Baltimore was typical of that 90s era. The company paid the National Football Leagues Ravens millions for 20-year stadium naming rights when its shares traded for $51. Today, with the company buried in debt, the stock trades at less than 25 cents. Then there was CMGI (CMGI, news, msgs), the Internet incubator, pledging to pay $8 million over 15 years to the New England Patriots for the stadium naming rights just before its shares plunged from $163 to $2.58.
Big numbers and big names
Now those undercapitalized tech companies have been replaced by the bluest of the blue chips. Coca-Cola (KO, news, msgs), Edison International (EIX, news, msgs), PepsiCo (PEP, news, msgs), Comerica (CMA, news, msgs) and PNC Financial Services (PNC, news, msgs) are among the establishment companies taking swings at growing mindshare by associating their brand with Americas pastime. Other well-known names involved in the sponsorship game include Anheuser-Busch (BUD, news, msgs), Safeco (SAFC, news, msgs), Adolph Coors (RKY, news, msgs), SBC Communications (SBC, news, msgs) and Petco Animal Supplies (PETC, news, msgs). The oldest of all in this game, of course, is William Wrigley Jr. Co. (WWY, news, msgs), sponsor of the Cubs park in Chicago.
By my count, more than half of todays ballparks have sold their naming rights to a corporate sponsor. With payrolls mushrooming to $100 million or more, how much longer will it be before Fenway Park, or even Yankee Stadium, succumbs to the name game? Corporate sponsorship is as much a part of baseball today as hotdogs, beer and labor negotiations.
Is it money well spent?
The pressing question for investors is which of the companies involved in the sponsorship game are using their hard-earned money wisely to hit the ball out of the park. Before we get to the winners, lets take a quick look at some potential losers -- beginning with Coca-Cola.
At a time when most corporate sponsors pay $65 million to $75 million for the naming rights to stadiums, the Houston Astros squeezed over $100 million out of Minute Maid, a Coca-Cola subsidiary. Given that the Astros were scrambling to recover from a public-relations nightmare -- the team sold the naming rights of its ballpark to Enron prior to that companys freefall into bankruptcy -- it seems that Minute Maid overpaid, even if the term of its deal is longer than most. Additionally, Minute Maid is already a household name, so the value of this investment is questionable.
Dont make the same mistake as Minute Maid and overpay for the stock of Coca-Cola, which at todays price trades at a hefty 29 times trailing earnings and 5.9 times trailing sales.
Similarly, I'm not sure Tropicana, a unit of PepsiCo, made a wise investment when it coughed up big bucks for the naming rights to the Tampa Bay Devil Rays field. Not only have the Devil Rays been a bad team, Tropicana Field is one of the nastiest ballparks in the league -- sterile and usually half-empty. Both leave a bad taste in your mouth, and thats probably not the association Tropicana wanted to make.
Though PepsiCo recently guided earnings estimates slightly higher, at 26 times trailing earnings theres little juice left in the stock.
My final loser is U.S. Cellular (USM, news, msgs). The company agreed to pay $68 million over 20 years to rename Comiskey Park as U.S. Cellular Field. While the company didnt overpay, and it did score a quick win given that last years All-Star game was played on the field, the ballpark lacks character, its inconveniently located in a questionable part of town, and ownership shows no signs of wanting to build a winner. In the highly competitive cell phone industry, this is not an ideal way to go about building brand awareness and winning customers. An investment in US Cellular is likewise not the best way to build your portfolio, especially when you consider that analysts have been cutting their estimates over the last 60 days.
3 winners down at the ballpark
Now for my winners. Lets start with Safeco. Safeco Field is a beautiful ballpark, and the Seattle Mariners are always in the hunt for the division lead. Safeco wasnt a household name, so investing in naming rights to gain public awareness was a good idea. Snapping up the stock also could be a good idea, as the company expects to grow earnings by 13% or better over the next couple years. Meanwhile, the stock trades at only 11.6 times 2004 estimates, with a relatively low price/sales ratio of 0.81 and a dividend of 1.72%.
Our next winner is Coors, for lovely Coors Field. While the team has taken a turn for the worse over the past few years, this is still one of the best-looking ballparks in baseball. Unlike the Rockies team, Coors stock has exhibited plenty of momentum lately, gaining nearly 40% over the past year. Yet Coors still trades at a considerable discount to its peers on a price/earnings and price/sales basis. It also has a return on equity of 15.9%, a dividend yield of 1.21%, healthy earnings prospects and the stock exhibits relatively little volatility.
My final contender is Network Associates (NET, news, msgs). Though the stock has seen its price fall considerably since originally striking its deal with the Oakland Athletics, it has rebounded nicely over the past year, climbing 31%. Earnings are projected to ramp to $0.69 per share this year and by another 20% to $0.83 per share next year. Resulting price/earnings multiples of 26.2 and 21.8 arent cheap, but if the company can achieve its targeted growth rate, a P/E of 30 -- one and a half times its growth rate -- isnt unreasonable. By the same token, if Oaklands pitching holds up, a trip to the World Series is also a realistic possibility.
As the season plays, and my beloved Cubs drive toward the pennant, Ill report back on the progress of these stocks.
At the time of publication, Robert Walberg did not own or control shares of any of the equities mentioned in this column.
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