HP Negotiating Early End to San Jose Arena Naming Rights Deal
Hewlett-Packard, the world’s largest technology company by revenue, is in advanced negotiations to prematurely end its naming rights deal on the San Jose, Calif., sports arena currently known as the HP Pavilion, the home of the National Hockey League’s San Jose Sharks.
Sources familiar with the negotiations tell AllThingsD that HP CEO Meg Whitman wants out of the $47 million, 15-year naming rights deal, which is scheduled to end in 2016. The move is part of a global reevaluation by HP of its marketing efforts and sponsorships. The change could be announced as early as this summer, in time for the 2013-14 hockey season.
Software giant SAP is said to be interested in taking over the naming rights. Its founder, former co-CEO and chairman of its supervisory board, Hasso Plattner, is the majority owner of the Sharks. Plattner, who ranks at No. 122 on the Forbes magazine list of global billionaires, with a net worth of $8.9 billion, recently bought out two other co-owners, the longtime Kleiner Perkins venture capitalist Kevin Compton, and former VeriSign CEO Stratton Sclavos. Following that deal, Plattner’s stake in the team is said to be in the neighborhood of 90 percent.
HP spokesman Michael Thacker declined to comment, as did SAP spokesman James Dever.
A change in the arena’s naming rights would have to be approved by the San Jose city council. Michelle McGurk, a spokeswoman for San Jose Mayor Chuck Reed, had no immediate comment. Update, 4:50 PM PDT: I just received a statement from McGurk. See it below.
Scott Emmert, a spokesman for the San Jose Sharks, didn’t immediately return messages seeking a comment.
According to people familiar with the discussions, Plattner raised the issue of HP’s naming rights with Whitman directly during a routine meeting. HP is a significant SAP customer. Asked if HP intended to hold on to its naming rights through 2016 as the current agreement states, Whitman said, “Frankly, I’d like to get out of it.”
HP inherited the naming rights from Compaq, the computer company it acquired in 2002 for $25 billion. At the time, San Jose’s arena was known as The Compaq Center at San Jose. It has been known as the HP Pavilion at San Jose since late 2002. The rights are said to cost HP about $3.1 million a year.
As annual expenditures go, $3.1 million is pocket change for HP. While it doesn’t disclose marketing expenditures directly, those expenses fall under the “selling, general and administrative” (SG&A) line item on HP’s income statement, which in fiscal 2012 was $13.5 billion.
Still, since Whitman took over as CEO in 2011, marketing functions that had previously been run by HP’s disparate business units — the PC unit, the printer unit and so on — have been centralized under Chief Marketing Officer Marty Homlish.
Over the years, HP has become involved with hundreds, if not thousands, of events and programs that it sponsors as a way of raising the visibility of the HP brand. Those programs and sponsorships are now in the process of being systematically reevaluated, and many are being canceled outright.
The HP Pavilion name was given to the arena to align with the company’s main PC brand, known as Pavilion. But with personal computer sales in rapid decline, attaching the brand name to a sporting facility is no longer seen as an effective use of marketing dollars, people familiar with HP’s thinking say. Money saved from canceled marketing efforts is being redirected into either new marketing efforts or into HP’s research and development budget.
HP will still have access to the arena and to San Jose Sharks games. Sources say the company intends to hold on to a single luxury box it owns to entertain customers. Oddly enough, the naming rights for the luxury suites belong to another tech company: They’re currently known as Citrix Suites.
Informally known as the Shark Tank, the arena seats 17,562 for hockey games, and more than 19,000 for concerts. It hosts as many as 190 events a year, including the SAP Open, a men’s tennis tournament. It was briefly the home court of the NBA’s Golden State Warriors during a period when the Oakland Coliseum was under reconstruction.
Update: Here’s the statement I just got from Michelle McGurk, a spokeswoman for San Jose Mayor Chuck Reed:
“We’ve enjoyed a long and productive partnership with both the Sharks and HP, and we greatly appreciate their long-standing and valuable commitment to our community.
“The current agreement is scheduled to end in 2016, so we would be starting a process in the coming year or so to explore contract alternatives in the normal course of business.
“Because the Arena is an outstanding facility and Silicon Valley a unique location, we’re optimistic that we will be able to end up in position of mutual benefit for everyone, without speculating on any specific outcome.”