United States: Naming Rights, Sponsorships, Advertising And Other Private Business Use Relating To Texas Public High School Stadiums And Other District Facilities

In addition to building some of the nation's largest high school football stadiums, Texas public school districts are following a national trend – the sale of naming rights to football stadiums and other district facilities. Several Texas school districts have been approached by local businesses regarding the purchase of naming rights to their football stadiums. Because at least large portions of these stadiums are, or will be, financed with proceeds of tax-exempt bonds, it is important to understand the effect the sale of naming rights and the revenues generated from such sales may have on the tax-exempt status of bonds issued to finance these stadiums.

The Internal Revenue Service (the "IRS") has taken the position, in some situations, that private business use of a bond financed facility may arise without any possessory rights to the use of such facility. Naming rights to a specific high profile athletic facility is an example of these non-possessory rights that may result in private business use. In a private letter ruling, the IRS determined that the sale of naming rights to a tax-exempt bond financed sports facility resulted in private business use by the commercial entity purchasing those rights. In the ruling, the IRS noted that the commercial entity making the purchase also secured a variety of related rights that enhanced the commercial and marketing value of the naming rights, such as the use of the chosen name on all contracts, signage, advertising space, event programs, newsletters, pocket schedules, employee uniforms, paper products, trash cans, and stationery related to the facilities (some or all of which are referred to as "Bundled Rights"). As sports facilities seem to be of particular concern to the IRS, perhaps because of a perception that such facilities provide unique commercial value, naming opportunities provided for such venues are most susceptible to IRS scrutiny. If your district is contemplating the sale of naming rights to its football stadium(s) or other district facilities such as performing arts centers, basketball arenas, or soccer fields, for example, federal tax counsel should be consulted prior to the consummation of such agreements to determine whether the arrangement may give rise to private business use.


Naming opportunities may take several forms, and depending on the form taken, different results may occur.

Individuals. Individuals, including their families, are not business entities; thus, generally putting the name of an individual person or a family on, or in, any bond-financed building does not result in private business use of the building. It should be noted, however, that in some cases, an individual's name will be synonymous with a business entity's name in which case the business entity may be treated as a private business user of the named facility.

General Donor Recognition. As part of general fundraising efforts, a school district may recognize a donor (either an individual or a business entity) for their generosity and support by unilaterally deciding to place the donor's name on a campus facility. The important point is that the donor must have no legal right or entitlement to the naming and is not given any of the Bundled Rights.

Naming Opportunity of Exterior of Traditional Educational Buildings. Without any particular right to control or use the named facility, e.g., an administrative, academic or similar building, the name of a business entity on the exterior of a building will not, in most circumstances, result in private business use of the building.

Naming Opportunity of Special Purpose Buildings - Athletic or Performing Arts. As previously mentioned, these types of facilities are more susceptible to IRS scrutiny. Often, due to their location or use, particular types of buildings or assets may have potentially more commercial value than administrative or educational buildings. The most common example of this is an athletic facility, such as an arena or stadium. The IRS has released private letter rulings that address, at least in part, naming rights of an arena or stadium. Although the rulings are fact-specific, and although the main ruling presents the naming rights as part of a broader bundle of rights sold to the business entity (i.e., Bundled Rights), the sale of naming rights with respect to athletic or performing arts facilities typically is treated as causing private business use. In general, treatment as private business use is limited to circumstances in which the naming opportunity is the right to name the entire facility or a particularly prominent portion of the facility.

Naming Opportunities in Buildings' Interior Space. Absent any right to control or physically use the named facility, the naming of any interior space for a business entity generally will not result in private business use of the space. As noted above, however, the right to name a particularly prominent portion of an athletic or performing arts facility can result in private business use of the space.


Concession, Pouring and Merchandise Rights. An arrangement with a beverage provider to give the provider the exclusive right to serve and sell its products either district-wide or for select events is generally not considered private business use. Note that any physical space, such as storage, will be considered private business use depending on the length and other terms of the contract. However, the combination of pouring rights and naming rights should be examined more closely, as the pouring rights may be viewed as providing Bundled Rights.

Telecommunication and Broadcasting Rights. These rights generally only affect athletic facilities. A contract for the broadcast of events taking place on campus is usually not considered private business use, other than any use of physical space (e.g., for cameras, satellites, storage).

Marketing Arrangements. An arrangement to market the District, a separate District campus, its teams or performing arts groups or events taking place on campus generally is not considered private business use.

Right to Control Pricing. In connection with athletic venues or other venues that can host community events, any right by an outside party to control pricing (or other operational matters) of an otherwise non-private business use facility (for example, parking) will be considered private business use depending on the length and other terms of the contract.

Special Access Arrangements. The specific terms of arrangements that provide business sponsors with special membership rights, tickets or other pricing benefits will be considered private business use depending on the length and other terms of the contract.


Commercial sponsorships or advertising can result in private business use of the physical space holding the advertisement, perhaps limited by the duration when the advertisement is visible. More pervasive sponsorships or advertising may create private business use that is more difficult to measure or isolate. Advertising on scoreboards or video boards often creates private business use, and most often entities choose to finance those assets using taxable financing to maximize advertising revenue opportunities.


1. Contracts for these types of commercial arrangements that may create private busimess use may be ignored if the term of the contract is limited to 50 days (and in some cases 100 days).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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