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?