In today’s dollars Carrier’s 2.75 M naming rights is worth 8,500,000.00, which is not pocket change. In the naming market today that would be a great deal for a “forever”deal, which is not done today. I will not fault them for making a good, smart business decision in 1980.
My hope SU and Carrier can work this out amicably and not waste money on attorneys and bad press.
Context: The average S&P 500 closing price for the year 1980 was 118.71. As I write this comment, the S&P 500's current price is 3,041.31. Put another way, it's now 24.62x higher than it was. If SU had taken $2,750,000 and put it into the S&P 500 (not even 1500, 400, or 600 - the 500), SU would have a stadium naming rights portfolio of $67,704,068.74 (ignoring dividends). The S&P 500 CAGR over that time was 8.23% (ignoring dividends). Assume an average investment rate less 2% to account for inflation, the $67,704,068.74 would yield $4,219,277.85 per year (inflation-protected, with a 2% inflation assumption) in
capital appreciation (again, ignoring dividends).
Assuming dividends were NOT reinvested (i.e. they were pulled out to pay for operations), then the school would have received about $500k/yr over that 41 years. The $500K sounds low, but the payments are back-loaded (which makes sense because of inflation, especially as it relates to collegiate athletics). Putting things in today's dollars, the most recent year would have been $1.35 MM
in dividends.
It's probably not the best deal in the world, but it isn't anywhere close to as bad as many make it sound, and I'm using the S&P 500 as a benchmark. Anybody with half a brain would see the money as windfall money and SU as an institution with a long horizon and put the cash into a far more aggressive benchmark, like the S&P 600, which would have had a much better yield.
*
Since the dividend and capital appreciation number is on par (or better) than the number that many suggest, I have a hard time criticizing the initial agreement. If SU wasted the money, then that's on the school, not Carrier.
The school should leverage its academic arm to find some mutually beneficial project that it can engage in with Carrier, use that value + a nominal fee to "buy back" the naming rights, and then lease them back to Carrier in a a ~10 year lease. Finding some cheap workaround or letting this situation turn into a public dispute is a mistake, especially if lawyers are involved in anything other that writing the above-referenced contracts.
*Don't take my word for it. David Swensen and the Yale endowment model are famous for taking this exact approach and chasing higher yields by over-weighting in illiquid (and therefore riskier) alternative assets - starting in the 1980's.
Interactive chart of the S&P 500 stock market index since 1927. Historical data is inflation-adjusted using the headline CPI and each data point represents the month-end closing value. The current month is updated on an hourly basis with today's latest value.
www.macrotrends.net
S&P 500 Dividend Yield table by year, historic, and current data. Current S&P 500 Dividend Yield is 1.59%, a change of -1.88 bps from previous market close.
www.multpl.com
www.espn.com
