November 17th, 2003
Nextel, Las Vegas Link Brands in Monorail Deal
By Jerry Hirsch
Los Angeles Times
Imagine a city where travelers land at the Expedia International Airport terminal, board a shuttle for the General Motors Transit Center so that they can catch the Coca-Cola light rail and head to the OfficeMax Convention Center downtown.
This mythic capital of corporate sponsorship could become reality as cash-strapped cities, school districts and transit systems nationwide explore how to sell naming rights, sponsorships and other forms of advertising to close budget gaps.
Once limited to the naming of sports stadiums, the corporate sponsorship game will sail into new territory this week when Nextel Communications Inc. announces a 12-year deal, estimated at $50 million, to plaster its name on the monorail station at the Las Vegas Convention Center and one of the nine trains in the city’s light rail system.
Marketing experts say they believe this is the first time a transit system has sold the naming rights to a station. It probably won’t be the last.
Last summer, a Minnesota funding bill for a light rail line authorized officials of Metro Transit in Minneapolis to sell naming rights for station stops. In Seattle, a naming rights package that could include everything from stations, lines and cars was the topic of Sound Transit’s finance committee meeting two months ago.
The name game isn’t likely to end with transit systems, either.
Also this year, the Minnesota legislature passed a bill allowing the sale of naming rights for school properties—everything from classroom buildings to football fields. What’s more, Houston, Tacoma, Wash., and several other large municipalities have hired consultants to examine naming opportunities for their public buildings and facilities.
Then there’s New York, which in April named former New York Yankees executive Joe Perello as its first chief marketing officer. His first deal—a much-ballyhooed five-year, $166-million city and school district arrangement that gives the Snapple drink company exclusive vending rights—faces a crucial vote from a city commission next month.
The reason so many places are considering selling naming rights is simple: They need the money.
For fiscal 2004, state governments face budget shortfalls approaching a record $80 billion in total. That collective gap affects many municipalities, as fewer tax dollars trickle down from state coffers, according to the National League of Cities. County governments, too, are tackling fiscal crises of their own, with 72% reporting lower revenue this year, the National Assn. of Counties reports.
By all accounts, the Las Vegas Monorail transaction breaks new ground because of its scope and duration.
Neither the nonprofit, quasi-public corporation in charge of the project nor Nextel would disclose the value of the contract. However, in sales documents circulated this year, the monorail company sought annual fees of $4 million for rights to the convention center station, $2 million for each of the other six stations and $1 million for each train. That would peg the Nextel contract at about $50 million (with the train contract running for a shorter period).
That figure, according to people familiar with the transaction, includes about $16 million from Nextel to pay for construction of the main station. In turn, hundreds of thousands of monorail riders would funnel past a 15,000-square-foot Nextel Pavilion, which would include a retail store and a business center with a 30-seat theater.
“This is new for Las Vegas,” said Cam Walker, president for the Las Vegas Monorail Co., which is funded with tax-free bonds and whose board and budget are approved by Nevada’s governor.
Walker sees the Nextel deal as putting Las Vegas “on the corporate map for Fortune 500 companies” that want to be linked with the tourist mecca.
The monorail—an advanced version of the system that people ride at Disneyland—is scheduled to start service in January. The line will run east of the Strip, from the Sahara Hotel on the north to the MGM Grand on the south. Eventual extensions are planned, first to the city’s fading downtown and then to McCarran International Airport.
But it is the stop at the Las Vegas Convention Center, which sees more than 1 million visitors annually, that is the crown jewel of the system and makes such a lucrative advertising contract possible.
Nextel became immediately interested when it was approached last year because it wanted to be associated with one of the busiest convention centers in the nation, said Mark Schweitzer, the wireless company’s senior vice president of marketing.
“We would not have been interested in a different station or just one of the trains,” Schweitzer said. “We recognized this as a one-of-a-kind branding opportunity with a unique combination of the convention center, the monorail and Las Vegas. We have been approached about a lot of opportunities all over the world but nothing like this.”
Advertising is a key component of the monorail’s business plan. In addition to Nextel, Las Vegas Monorail has signed Hansen’s Beverage Co.’s Monster Energy drink as the sponsor of one of the nine trains. It also says it is negotiating train and station naming deals with Coca-Cola Co., Bacardi, Motorola Inc. and General Motors Corp.
All told, the monorail hopes to sell advertising contracts for each of the seven stations and nine trains. That would bring the transit system about $23 million a year in ad revenue. That and an anticipated $50 million in annual fare revenue would fund operating costs and debt service for the $650-million tax-exempt bond issue used to build the system.
“If we were doing $23 million a year in advertising, we would be very happy,” said Patrick Pharris of Promethean Partners, the consultant who put the advertising plan together and is marketing the monorail to corporations. “The bonds call for just $6.5 million a year to come in from advertising. Anything above that is just gravy.”
Despite pressing budget needs among states and cities, not everybody is thrilled with the notion of slapping corporate names and logos on public structures.
In 2001, the Massachusetts Bay Transportation Authority tried to raise $22 million over five years by selling naming rights to four subway stations. The effort drew the ire of consumer advocate Ralph Nader, who decried the Boston transit agency’s “crass commercialism” in a letter to the governor.
“Once you start selling off the names of history, where will it end?” wrote Nader, who mockingly suggested that the subway stop at Harvard Square might be renamed for McDonald’s.
The Boston agency ultimately aborted the plan when it failed to attract a single bid.
“The problem is that with subways you just don’t have the type of media and promotional opportunities you do with a sports stadium,” said Dean Bonham, who heads a Denver-based marketing firm. “The image association you get with a sports team like the Los Angeles Lakers is very positive. You don’t get that with a subway.”
But you do get it with Las Vegas, which is a brand unto itself, said James Twitchell, an advertising professor at the University of Florida. “Vegas is advertising nirvana because there is such a churn of people moving through that city,” he said. “This makes a lot of sense for Nextel considering that wireless companies sell nearly identical products and the only way for them to separate themselves from the competition is to do something like this.”
Nevertheless, Twitchell sees problems in the inexorable creep of advertising into other public-sector endeavors where society has an interest in protecting people from what he calls “commercial speech.”
He said the most egregious example is schools, where an increasing number of officials are debating whether to turn both the inside and outside of school buses into literal advertising vehicles.
Other naming deals have run into different kinds of troubles. Cincinnati officials, for example, have had difficulty selling the naming rights to a planned convention center expansion. They thought they had a 30-year, $12-million agreement with Cinergy Corp., but talks hit a snag over how much in reciprocal energy the city was willing to purchase. A city official said last week that the two sides were still trying to iron out an accord.
As for Nextel, there’s no doubt that the company will get the type of exposure it is looking for with the monorail project, but in the process Las Vegas may be diminishing its own identity, said Perello, New York’s marketing official.
“That’s why I am not the biggest fan of naming rights deals,” he said. “If Yankee Stadium was called General Motors Stadium, it just wouldn’t be the same. It wouldn’t be authentic.”