Citi greenlights $400m naming rights

EMBATTLED FINANCIAL giant Citigroup recently confirmed that it plans to go ahead with its $400 million (€255 million) stadium naming rights deal with the New York Mets baseball team, writes Proinsias O'Mahony.

Citi is proceeding despite announcing a quarterly loss of $2.5 billion last week, remaining "strongly committed" to the deal. Shea Stadium will be renamed Citi Field in exchange for $400 million over 20 years.

Some eyebrows were raised among market historians when the deal was announced in November 2006 - it's long been said that the so-called "stadium indicator" is a sign of corporate hubris and future trouble. That has certainly turned out to be the case with Citigroup, which over the past three quarters has lost more than $17 billion as a result of massive credit losses and subprime writedowns.

The company has been forced to lay off more than 10,000 workers this year.

Back when the deal was announced, things looked very different - Citi had just announced quarterly profits of $5.3 billion and its share price had more than doubled from its 2002 low point.

Citigroup is not the only financial to have fallen from grace shortly after announcing such a stadium deal. Just months after the Citi Field announcement, British bank Barclay's reportedly paid another $400 million for naming rights to the future home of the New Jersey Nets.

Its share price peaked soon afterwards and has since lost almost 60 per cent of its value as $6.5 billion in writedowns sparked a run for the exits by investors.

The stadium indicator was popularised after Enron's spectacular fall from grace just two years after it paid $100 million for naming rights to the stadium of a Houston baseball team. It was forced to sell the rights for just $2.1 million shortly after filing for bankruptcy protection.

The Enron farce inspired CNN financial journalist Chris Isidore to compile a Stadium Sponsors Stock Index in late 2001.

Isidore spotted that the Enron example was not isolated - three other major stadium sponsors, including former airline giant Trans World Airlines, had all collapsed in 2001. The index fell by 34 per cent in 2002, or twice the decline suffered by the Dow Jones index that year.

Five other major stadium sponsors, including WorldCom and United Airlines, were victims of the curse that year, with the WorldCom bankruptcy being the biggest in American history.

In other words, Isidore subsequently noted, nine of 63 sponsors had filed for bankruptcy in a 19-month period.

A fluke? Legendary American trader and former academic Victor Niederhoffer undertook a "systematic study of the stadium jinx" to find out.

In Practical Speculation, Niederhoffer's 2003 book, he writes that companies who secured the naming rights to stadiums performed "significantly worse" than the SP 500 "during the year of naming and in the subsequent year".

Why? Not only is it "an example of a wasteful expenditure unrelated to the company's primary activity", Niederhoffer writes, "it also signals boastfulness, excessive pride, and a resulting lack of focus".

Arguably, "excessive pride" and "lack of focus" were evident when Citigroup announced its deal. It also paid $34 million to rename the Wang Centre in Boston, as well as indulging in expensive logo and rebranding changes around the same period.

Meanwhile, the subprime bonfire was about to alight, with the firm about to suffer $55 billion in writedowns that would see its market capitalisation cut by over 60 per cent over the following 18 months.

As biblical scholars would put it, pride goeth before destruction, a haughty spirit before a fall.