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  • CFO.com | US

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.

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.

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.

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