America’s Most Convenient Bank

How $1.4 million in goodwill might have cost the College a whole lot more.

This story appears in the Oct. 20 issue of G Magazine.

On Jan. 12 of this year, College of Charleston President Benson affixed his signature to a letter to Robert Hoak, the newly named regional president of TD Bank Financial Group. The letter informed Hoak that CofC was terminating the agreement signed by the College in 2007 that named the College’s soon-to-be-opened coliseum “Carolina First Arena.”

TD Bank, a New Jersey-based subsidiary of the Canadian financial services company, acquired Carolina First in 2010, giving the College the opportunity to walk away from the 2007 naming rights agreement. Benson told Hoak, “the College will begin seeking new naming opportunities for the arena.”

The President then dispatched Athletic Director Joe Hull, Executive Vice President for Business Affairs Steve Osborne, and Executive Vice President for Institutional Advancement and Executive Director of the College of Charleston Foundation George Watt to do just that.

But, they didn’t have to look too far for a willing partner in a completely new agreement. TD Bank signed a naming rights agreement with the College in August, and the news reached students on the first day of classes.

“The College of Charleston’s basketball and volleyball arena will be renamed TD Arena this fall, under the terms of a new licensing agreement with TD Bank, America’s Most Convenient Bank®,” the College’s press release announced on Aug. 23.

The terms were fairly straightforward. TD would pay $600,000 to the College, or just over $85,000 per year for seven years. In exchange, the Bank would see its name on the Arena through June 2018. The Bank would also receive men’s basketball tickets, parking spaces for games, and other additional benefits for the term of the contract.

How the College reached the deal, however, is a more complicated story. The results of more than a month of investigation by The George Street Observer show the College found TD Bank perhaps a bit too convenient. The College, of course, doesn’t agree with this interpretation.

 

Updating a relationship status

George Watt says understanding the new naming rights agreement begins with the relationships the College had with Carolina First, long before TD acquired the now-defunct bank.

“It was very important to us that when we looked at the TD name going forward, that we took into account all of the relationships that we had with Carolina First and its predecessors,” he said.

The first of two relationships Watt mentioned was a 2006 $1 million gift to the College of Charleston’s Foundation from the South Financial Group Foundation, the legally separate non-profit charitable giving arm of Carolina First Bank. According to Watt, the gift was to then-President Leo Higdon’s Fourth Century Initiative, a fund held by the Foundation to do strategic programming at the College.

“As long as it was used strategically,” Watt said, “all the discretion was given to the College.”

The second relationship the College had with Carolina First was the previously mentioned 2007 naming rights agreement. That agreement, for $1 million, gave Carolina First naming rights for the life of the building.

According to Watt, when combined, these distinct relationships create the 2005 vision President Higdon and Carolina First CEO Mack Whittle had for Carolina First becoming a $2 million contributor to the College’s $45 million coliseum project.

“President Higdon was trying to get $4 million from private sources, and then he’d do the rest of [the arena project] with bond money. Of the $4+ million that come in from donors, $2 million was promised from Carolina First,” Watt said.

Steve Osborne corroborated Mr. Watt’s explanation, saying that the two agreements were “offered as a package.” While the actual naming rights portion of the agreement was signed after the gift was presented to the College, the two were a part of one negotiation – the $2 million promise – that, Osborne says, was never put on paper.

(Watt and Osborne, it should be noted, were not part of the original negotiations. Watt came to the College in 2008; Osborne in 2006.)

The College acknowledges in the 2006 gift agreement that the gift “is not in payment or exchange for any naming or similar rights provided by [College of Charleston Foundation] to the [South Financial Group Foundation] or [Carolina First Bank].”

The College also confirmed that “no goods or services, as those terms are defined by the Internal Revenue Service relating to Private Foundations, has or will be provided to the [South Financial Group Foundation] and/or [Carolina First Bank] in exchange for this grant.” Additionally, the College claimed no exceptions to this statement.

Watt explained how the gift is recorded at the Foundation.

“It was very important to the [South Financial Group Foundation] that [the gift] be used exclusively for the Fourth Century Initiative fund, so we attest to that every year that that money goes into the fund,” he said. “They wanted to make sure that it had nothing to do with the arena because that protects their status under the IRS code.”

The 2006 agreement remains intact following TD Bank’s acquisition of Carolina First; it was unaffected by the new agreement and the College is guaranteed the full $1 million.

While recollections suggest the two were related, the documents themselves tell a different story. The George Street Observer gained access to the two distinct agreements through a Freedom of Information Act request. The separate agreements make no reference to one another, and the 2006 gift expressly cannot be applied to naming rights.

 

One major goal

Those relationships considered, the negotiations for a new contact with TD Bank began, and the College had a new set of priorities.

“We had a very good relationship with Carolina First, so we wanted to give [TD Bank] the opportunity to continue the agreement, if they wanted to, under terms we felt were more favorable to the College,” Steve Osborne said.

Most importantly, a new agreement would have an expiration date.

“The biggest factor leading to [the new agreement] was the fact that we had given them an agreement for perpetuity,” Steve Osborne said. “We saw the opportunity to have an opening to not have the perpetuity provisions in there.”

Had Carolina First not been acquired by TD, the College’s coliseum would have been called Carolina First Arena for its entire life, expected to be 35-45 years.

The new agreement ends the perpetuity clause, and the College could extend the revenue stream, by seeking a new naming partner, at the conclusion of any naming rights agreement, including in 2018 when the TD agreement expires.

Osborne said that when TD Bank was agreeable to that condition, negotiations moved swiftly. The College had other objectives, too.

“We wanted to feel like we were getting a fair market value for the naming rights. We also did have a relationship with Carolina First and wanted to continue, to the extent we could, a good collaborative partnership with the bank,” Osborne said.

The perpetuity issue having been addressed, and a relationship set to continue, did the College receive fair market value?

 

It’s worth what?

Joe Hull knows naming rights deals. During his tenure at the University of Maryland, Hull was active in securing two major agreements: Comcast Center, the Terrapin’s basketball arena, and Capital One Field at the University’s Byrd Stadium.

“I was the lead person on the project to do the Comcast Center,” Hull recalls, “one of the largest naming agreements in college athletics still to this day: $25 million over a 25 year period.”

The Capital One deal, for the football stadium, was nearly as large: $20 million.

As the College began the negotiations with TD Bank, Joe Hull, the College’s Athletics Director, commissioned a $14,000 report from a company that provides guidance on arena valuations.

“I had some relationships that I knew I could get somebody to give us a good look at what the reasonable value in Charleston, of this facility, of this size campus, in this size market, would be,” Hull said.

The team used the report to guide negotiations with TD Bank. The report, which is proprietary, was provided to the George Street Observer for review, but the name of the firm was withheld and copies were not provided to the paper.

In discussing the valuation, Hull explained that an arena’s valuation is based on a combination of factors, including the size of the media market, the size of the campus, and the number of seats in the area.

In addition, part of the valuation is based on what “inventories” are provided to a sponsor. “Inventory” is the industry term for benefits such as game tickets, parking spaces, and the physical name on the building.

The report came to the following conclusion about the College’s arena:

“Based on our thorough review of the specific factors that come into the naming rights equation, we have concluded that College of Charleston could take the naming rights to Carolina First Arena out to market and command a partnership in the range of $250,000 to $325,000 on an annual basis.”

It continued:

“Given the extremely limited amount of inventory that Carolina First previously received, we do feel there is an incredible amount of added value inventory that will push a new agreement further.”

The inventories between the original agreement and the new agreement did not change, and the dollar figure remained largely the same.

So, did the College’s agreement with TD Bank meet the conclusions of the valuation report? It depends on how one does the math.

The agreement itself says TD would pay $600,000 to the College, or just over $85,000 per year for seven years, but, Hull, Watt, and Osborne see it differently.

Osborne said the team felt the agreement was within the range of the report’s conclusions, but did not elaborate on how the team viewed the TD arrangement.

“If you look at the arrangement with TD the way George [Watt] described it, you could look at that as $200,000 a year over 10 years, for the $2 million,” Hull said.

Considering the agreement at $2 million, however, requires including $1 million that is expressly prohibited from being used for naming rights, at the donor’s request.

The $600,000 for seven years arrangement significantly falls outside of the report’s valuation, and outside of agreements at comparable schools identified by the report’s authors.

The report said the school that is “best comparable” to the College is the University at Albany in New York. Their arena is slightly smaller in capacity to the College’s, but the school is in a larger media market. Their financial industry partner agreed to a $275,000-per-year agreement over 10 years.

The $600,000 arrangement with TD Bank includes an inventory that is less that the report’s recommendation, but the report does not itemize the value of inventory items. The report does however definitively state that the “best piece of inventory for any naming partner is the court top identification.” TD Bank’s logo adorns the floor of the arena.

Osborne said the primary place to look in reaching the dollar amount for the new agreement wasn’t in the inventory, but rather at what was owed on the previous relationship: just under $600,000.

Watt said that the $600,000 figure came after looking at the entire relationship TD Bank has with the College, a relationship that resides mostly with the Foundation.

“We said we looked at TD writ large, and we see $2 million,” Watt said. “One of the things that was important to [TD Bank] was that we all go back to the original intent. The intent was a $2 million arrangement.”

The TD Bank agreement, which was not presented as a modification of the original Carolina First deal, effectively continues the previous relationship from a financial standpoint, even though the College could have negotiated for a higher figure.

Maintaining a relationship with TD was perhaps why the College didn’t ask for more.

“We didn’t get greedy,” Watt said. “It wasn’t worth breaking a relationship over it, in our opinion. From the get-go, I said, why would we stick a finger in the eye of one of the largest North American financial services companies coming in here, and totally ignore this opportunity.”

“I was the advocate for the importance of relationship. Did we give them credit for goodwill? Yeah.”

 

Taking it out to market

The President’s letter said the College would seek new naming opportunities, but the College did not take the naming rights out to market.

The College did offer “informal feelers” to executives at two companies already doing business with the College. Watt, who issued the feelers, declined to say which companies were approached, citing professional courtesy.

Dr. Brian McGee, the President’s Chief of Staff, who was present for the interview, said the conversations were face-to-face, and were not formal letters or proposals that could, for instance, be requested through a Freedom of Information Act request.

Watt did tell The George Street Observer that the executives at the two firms both responded that neither company was interested in naming rights. TD Bank, Watt said, had the high ground.

“We told TD we would work with them first, and if we could not come to any agreement, then we were going to take this into the marketplace. We came to an agreement, and we didn’t have to take it out to the marketplace,” he said.

Taking it out to market has tremendous benefits, as the report suggested, but also drawbacks.

“Ultimately the naming rights are worth what the market will sustain at the time of the sale,” the report warns. The report did say they believed their $250,000 to $325,000 valuation “would be achievable.”

Greg Padgett, Chairman of the College’s Board of Trustees, says that is an important clarification in these economic conditions.

“Hopefully the economy will be in better shape when this expires. When you look at it from the current standpoint, it’s a tough economy out there. Having an established relationship is a good situation,” Padgett said.

On Aug. 8, when it came time for the Board of Trustees Executive Committee to approve entering into an agreement with TD Bank, Padgett said the Board felt comfortable.

“The administration has done their due diligence. I think everyone on the [Board of Trustees Executive Committee] feels comfortable with the work that’s been done, and what was presented to us, and what the recommendation was,” Padgett said.

 

America’s Most Convenient Bank®

Comfortable as the College may be in the deal, it is still significantly less than the arena’s value, almost $240,000 less per year based on the study commissioned by Hull.

That $240,000 a year, based on the upper end of the report’s valuation, would have translated to as much as $1.6 million over the seven-year span of the contract.

A new naming partner, for example, signing at the report’s recommended $325,000 per year for ten years, would bring $3.25 million to the College. The TD agreement brings in just $85,000 per year for seven years. In total, only $600,000.

The College had several objectives for their negotiations for a new naming rights agreement. The underlying objective was getting a deal done quickly.

“There was a bird in the hand. We were able to go through continuity, we never broke, we’re going right into the season with a name on our tickets, and on our programs, and our our building, so all that meant something to us,” Watt said.

Joe Hull felt the same.

“From my perspective we moved into this about as seamlessly and,” he pauses. “easily as you can.”

Put another way? America’s Most Convenient Bank.

 

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