Sunday, July 5, 2009

Selling naming rights on public assets

The New York Metropolitan Transport Authority (MTA) has announced that European banking major, Barclays, has agreed to pay $4 million for adding its name to three subway stations stops at Atlantic Avenue, Pacific Street and Flatbush Avenue in Downtown Brooklyn. Selling the names of stations and other public spaces brings revenues for cash-strapped public authrities and provides vantage advertisement space for the buyers.

The problem with such deals is the difficulty in finding buyers and the price discovery mechanism. The MTA itself had been hawking this for nearly five years before Barclays turned up. Arriving at the price is very difficult, for both the seller and the buyer. The buyer's danger is "winner's curse" - of having overpaid for the advertisement right. The seller risks facing the much more considerable "seller's curse" (of having sold out a part of its own identity permanently for a far too low price in an immature market).

This approach has much greater chance of success in naming streets, public parks, community halls, and even city junctions. A few Indian cities have such schemes which offers to name streets after donors who contribute the cost of laying cement concrete road in the street or the cost of construction of the community hall or development and maintenance of the park. Such arrangements are convenient to administer, easier to price, arouse less political opposition, and mutually beneficial. The cost of development or construction of the asset can become an easy pricing benchmark. It expedites the development of roads and other civic assets in areas requiring them and supplements the meager resources available with urban local bodies.

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