Our insiders told us earlier this month that a National Basketball Association franchise would need to rely on a regional marketing approach to succeed in Louisville, drawing in-state fans from Pikeville to Paducah and out-of-state fans from Cincinnati to Nashville.
While this may well be true, one big supporter that holds immense sway as to whether professional basketball returns home to Louisville is right here in town, KFC.
Rewind almost a dozen years to the spring of 2001 when the Vancouver Grizzlies were looking for a new home and KFC wanted them in Louisville. In fact, KFC was so eager for the Grizzlies to relocate here, the company offered a $100 million, 20-year naming rights deal if an arena were built to house the team.
After the Grizzlies chose Memphis as their new home, KFC again extended the same $100 million dollar offer to the Charlotte Hornets later that summer when that team was looking for a new home. Alas, Louisville was again a bridesmaid when the Hornets buzzed off to New Orleans.
Ten years later in April 2011, KFC agreed to a $13.5 million, 10-year arena naming rights deal for the current KFC Yum! Center with only the University of Louisville men’s and women’s basketball teams as tenants, roughly a quarter of what the company was willing to invest annually if an NBA team were a tenant.
So without any adjustment for inflation or consideration of positive market trends for KFC, the company viewed a potential NBA deal as four times more valuable in terms of marketing exposure than U of L by itself.
This is by no means a knock on U of L as this is the second-richest college arena deal in the country on a per annum basis, exceeded only by Save Mart’s $40 million, 20-year agreement to name Fresno State University’s home arena, Save Mart Center. CNN Money has called KFC’s deal one of the three best recent naming rights deals in the country, professional or college, from a branding perspective.
Back in 2001, KFC’s deal would have been one of the richest arena deals in the United States and would still rank as the sixth-largest arena naming rights agreement in the NBA today. For the upcoming 2012-13 season, only Brooklyn, Atlanta, Dallas, Boston, Los Angeles and Houston have bigger arena naming rights deals on a per annum basis than KFC’s 2001 offer.
But what’s happened since 2001 that might continue to interest KFC in associating with the NBA?
First and foremost, KFC has thrived in China. KFC’s Louisville-based parent company, Yum! Brands, now has 4,000 units — mostly KFCs — across China, which generated $1.8 billion of the $3.6 billion in revenue the company reported for the third quarter of 2012. For perspective, McDonald’s has fewer than 2000 units in China. KFC has been so successful in China that a book and a Harvard Case Study have been written about it.
Investors have noticed, too. During 2001 when KFC pursued naming rights deals with the Grizzlies and the Hornets, Yum!’s share price traded at between roughly $9.00-12.00 per share; it closed at $70.01 per share yesterday.
Second, China also happens to be a booming basketball market. So much so that the NBA created an entity called NBA China in 2008 and immediately sold an 11-percent stake to ESPN and four Chinese financial firms for $253 million, giving the entity a market valuation of $2.3 billion. Clearly, the NBA is bullish on China.
Given KFC’s booming Chinese growth plus the explosion of Chinese interest in the NBA and the reciprocal interest of the NBA in China, what might KFC pony up now?
Generally speaking, naming rights deals can be broken down into three categories:
- local/regional companies looking to connect and cement ties to their communities,
- companies looking to increase brand awareness in a new geographical or expanding markets, or
- companies in pursuit of the ever elusive synergy, or a combination of these three.
Of the six NBA naming rights deals larger than KFC’s 2001 offer, four of them – London-based Barclays’ $10 million per year deal in Brooklyn, Amsterdam-based Philips’ $9.25 million per year deal in Atlanta, Toronto-based TD Bank’s $5.95 million per year deal in Boston and Toyota, Aichi, Japan-based Toyota’s $4.75 million per year deal in Houston – fall squarely into category number two.
In these cases, four foreign companies trying to establish and/or grow brand awareness in the U.S.
Staples’ $5.8 million per year deal in Los Angeles could also fall into this category as the Massachusetts-based company named a facility on the opposite coast to brand itself nationally and internationally.
Additionally, given that the NBA is such a global game now, these deals give these companies exposure outside the U.S., particularly in the holy grail of developing markets, China.
Other deals fall into the first category, notably Fort Worth-based American Airlines’ $6.5 million per year deal in neighboring Dallas. Interestingly, AA also holds naming rights to Miami’s NBA arena but pays only $2.1 million per year. Obviously, the home town NBA arena in Dallas got a far better deal than Miami.
Similarly, the two richest college arena deals, Fresno State and U of L, are also sponsored by nearby companies, by the aforementioned Modesto-based Save Mart and our hometown Yum! Brands, respectively. A case could be made that both of these companies overpaid when you compare their naming rights deals with other arenas.
Clearly, a hometown premium exists. However, according to Yum! Brands CEO David Novak, it’s worth it.
“We feel like we’re getting fair value. The big thing for us is we wanted to demonstrate that we’re an even bigger part of this community and the KFC Yum! Center does that,” Novak was quoted as saying in the Courier-Journal after the deal was struck.
So how does the third category work? Philips preached synergy between its electronics and the entertainment content produced by Time-Warner, the former owner of the Atlanta Hawks and Philips Arena. Those synergies have not been achieved and Philips may be regretting its $185 million, 20-year deal, especially after the arena lost its NHL franchise.
However, KFC believes potential synergy exists between it and an NBA franchise playing in its namesake arena in Louisville, according to quotes by Jonathan Blum, senior vice president at KFC, explaining in 2001 why KFC would pay so much to have a team re-named with the historical Kentucky Colonels moniker.
“There’s a marketing synergy there that is very, very powerful. It would allow us to put the KFC brand into the mainstream of professional basketball,” Blum said. “That’s why it’s important to us to associate the brand with the team in an unprecedented way that would include the name of the team, the Kentucky Colonels, the old [American Basketball Association] team.”
To what “unprecedented” synergy is he specifically referring?
Maybe the idea of KFC being the only multinational company in North America that would share its mascot with a professional sports franchise? Perhaps to the remarkable simultaneous growth in popularity of both KFC and the NBA in China? Or possibly even the growth opportunities of broadcasting Kentucky Colonels games throughout China and elsewhere inside their own KFC-branded sports bars?
For KFC, a naming rights deal would make a lot of sense from all three categorical viewpoints.
Add in the fact that a Louisville-based NBA franchise with KFC tentacles into China would draw the interest of other regional multinationals – i.e. UPS, Toyota, Proctor & Gamble, et al – that have not been huge spenders on global marketing via U of L basketball, and suddenly the financial picture looks even more attractive.
Whatever KFC’s vision was in 2001, it would make a whole lot of sense for them to re-visit this idea again in 2012 based on these market trends, especially with the NBA selling tickets at a record pace for the upcoming season.
Meanwhile, the lame-duck Sacramento Kings signed a naming rights sponsorship last week with Sleep Train Mattress Centers. Financial terms were not disclosed, probably because most observers expect the Kings to be playing elsewhere next year, so the deal is not as lucrative as an ordinary NBA naming rights agreement.
One possible destination for the Kings next season?
Louisville, where KFC might have a massive naming rights deal along the lines of 20 to 25 years and in the neighborhood of $120 to $15o million waiting if the KFC Yum! Center were to house both the Kings re-named Colonels and the U of L Cardinals.
Whatever one’s personal feelings towards professional basketball, there is no doubt that the KFC Yum! Center is in need of an additional tenant that could increase the facility’s revenues while also driving cash-wielding fans into the tax-increment financing district surrounding the arena.
Not only would an NBA team be a fantastic way for KFC to market itself globally, it would also eliminate the negative perception of associating the KFC name with poor financial performance of the arena every time a story appears in the press. For public relations purposes, KFC doesn’t want it’s name on the side of a financially struggling building.
J. Bruce Miller is the orchestra conductor in all of this, but Junior Bridgeman, with his connections to the local business community, U of L and the NBA, and Dave Novak and Jonathan Blum, representing KFC’s global brand ambitions and deep corporate pockets, will be the ones to drive this home if it winds up happening.
Yum Brands! has been a strong supporter of U of L basketball and does not seek to harm U of L, but certainly wants to maximize its own business interests.
Given the company’s dexterity in dealing with Chinese authorities and thriving in that market, I wouldn’t bet against the company’s ability to get UofL and an NBA team to share the KFC Yum! Center
It’s by no means a slam dunk, but the game plan makes a lot of sense.