Business, Investments, Small business

Considerations When Valuing Naming Rights

Selling naming rights are very common these days, but many businesses aren’t too sure about their worth. 

Getting a better gauge requires a good understanding of accounting. Its important to know, these rights aren’t a physical asset so they’re considered an intangible assets.  This means placing a dollar amount on a naming right can be more challenging compared to physical items. As a result, estimations and investigations are often the best ways to determine the value.

So, sellers and purchasers should consider the following:

  • future cash flows
  • comparisons of similar transactions in the marketplace
  • adjustments for inflation

Also, they should stay aware of external factors that could impact the deal, such as the following that I came across in a report entitled “Valuation of Naming Rights,” by Greg C. Ashley and Michael O’Hara.

  • Does the community support the sale?
  • Does the name dominate a sector and has it already worn out its welcome?
  • Is the financial health of the buyer weak since this could result in a merger, takeover or bankruptcy, and could ultimately compromise the naming agreement?
  • Are there any miscalculations of the present and future state of the economy?
Photo Credit: Renjith Krishnan

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