Banc of California to terminate soccer stadium agreement
Banc of California in Santa Ana is backing out of a stadium naming rights deal with the Los Angeles Football Club in a move that should reduce expenses in coming years.
The $7.7 billion-asset company said in a Tuesday regulatory filing that it will incur a $20.1 million termination fee tied to ending the deal with the Major League Soccer franchise. The decision should save Banc of California $6.7 million annually over the next few years.
"Restructuring the LAFC deal, the origins of which began long before the coronavirus pandemic, is one of the many steps we are taking — along with restructuring the balance sheet and improving our mix and cost of deposits — to create sustainable, long-term franchise value," Jared Wolff, Banc of California's president and CEO, said in an interview.
Analysts said they viewed the move as a positive step as the company deals with challenges stemming from the coronavirus pandemic.
The company lost $9.7 million in the first quarter after setting aside nearly $16 million to cover potential loan losses.
“We applaud the proactive decision” to discontinue “a grossly expensive” investment, Matthew Clark, an analyst at Piper Sandler, wrote in a note to clients, estimating that it will take about three years for the savings to offset the termination fee.
The decision to terminate the deal could create $26 million in second-quarter expenses, factoring in prepaid advertising costs, Gary Tenner, an analyst at D.A. Davidson, wrote in a client note. But the 15-year arrangement had been costing the company about 10 cents a share annually, he added.
The coronavirus crisis has upended the marketing plans of banks large and small. Many banks are sharply curtailing their spending, while others are planning to continue their marketing efforts amid a drop in the prices of digital ads.
Banc of California struck the $100 million sponsorship deal in 2016. It included naming rights for the soccer team’s $350 million stadium in downtown Los Angeles.
The naming rights deal raised eyebrows, given the cost and reports that the brother of Steven Sugarman, Banc of California's CEO at the time, was a minority investor in the team. Though Banc of California and Sugarman, who resigned as CEO in January 2017, were criticized by some investors for third-party transactions, the Securities and Exchange Commission decided not to take any action.
Banc of California said in a Tuesday press release that the deal officially terminates at the end of this year. The company will remain the team’s official bank.