Farmers’ stadium deal in L.A.: Boon or boondoggle for insurance customers?

Farmers Insurance is taking a big marketing gamble on an estimated $600 million to $700 million naming rights deal for a proposed football stadium in Los Angeles, which still lacks an NFL team.

With the 30-year deal, Farmers is seeking to build brand awareness and, ultimately, add customers. But even though the insurance company is spending millions of dollars to plaster its name on the stadium, Farmers executives say the expenditure will have “no impact whatsoever” on insurance premiums.

The deal — which will brand the stadium as Farmers Field — will help “attract more customers and will allow Farmers Insurance to continue to offer great insurance protection at competitive prices,” says Mark Toohey, senior vice president of Farmers.

Farmers Insurance is paying $600 million to $700 million to have its name splashed on a proposed football stadium in Los Angeles.

Despite those high hopes from Farmers, Robert Hunter, director of insurance at the Consumer Federation of America, warns that the stadium deal could harm policyholders in the form of higher insurance rates.

“The question is how much of this will help their sales, and I’m assuming they think it will help their sales,” Hunter says. “But if it goes wrong, and they lose a lot of money, then obviously that will probably come out of the investment yields that would go into” setting rates.

Hunter adds: “When you spend a lot of money on something and it goes sour, you’re going to adversely impact rates.”

Los Angeles-based Farmers ranks third in size among providers of personal lines insurance in the United States (such as auto and home policies), but it ranks 11th for annual ad spending. The company thinks Farmers Field will boost brand awareness across the United States, not just in Southern California. That marketing target includes the East Coast, where Farmers is growing aggressively, Toohey says.

“Consumer-focused companies, including Farmers Insurance, use advertising and sponsorship dollars for several reasons, such as growing their business and enhancing their brand,” Toohey says.

Farmers Field deal represents the largest naming rights deal in U.S. sports history. It now beats CitiField in New York City, which had topped the list of naming rights deals at $400 million, according to SportsBusiness Journal.

Kevin Kelso, executive vice president and chief marketing officer of Farmers Insurance, says the deal “showcases the Farmers brand on a national stage.”

Rob Yowell, who has secured corporate naming rights for several sports stadiums, says Farmers’ $600 million to $700 million deal is “an excellent use of marketing dollars.”

For one thing, Farmers is reaping publicity already, despite the fact that Farmers hasn’t paid its first installment yet and not one shovel of dirt has been turned on the stadium project, says Yowell, president of Gemini Sports Group.

The L.A. neighbors of Farmers Field will include the Staples Center and the Nokia Theatre.

Moreover, entertainment powerhouse AEG is behind the $1 billion, 68,000-seat stadium, and “if they say they will build it, they will,” Yowell says.

On top of that, the deal gives Farmers a way to offer NFL incentives to customers, such as discounted Super Bowl tickets, according to Yowell.

“It’s going to be something that they (Farmers) believe will provide large returns on insurance and will secure and build corporate sponsorships,” Yowell says.

The 1.7-million-square-foot stadium, to be connected to the Los Angeles Convention Center, will host football games, soccer matches, concerts and other events. Developers say it will be financed privately. The naming rights deal doesn’t guarantee that L.A. will be able to lure an NFL team.

When the Farmers Field deal was announced Feb. 1, 2011, Farmers Insurance CEO Bob Woudstra said: “Farmers Insurance was founded in Los Angeles and has been headquartered here for more than 80 years. We have always sought to be net givers, not net takers, in the communities we serve, and we are excited to be a part of this lasting legacy.”

Yowell cautions that naming rights deals can fall through. The most infamous and extreme example is Enron, whose naming rights deal for a baseball stadium in Houston collapsed along with the troubled company itself.

Farmers emphasizes that its naming rights agreement will be spread over 30 years and that it can walk away from the deal if the Los Angeles stadium isn’t completed.

“While we have every confidence that this project will get done, if it does not materialize, Farmers Insurance will pay no money for the project,” Farmers’ Toohey says.

–Tina Sfondeles