Facility Naming Rights Trump Zoning Restrictions

In this age of limited revenue, school districts are increasingly considering whether to sell naming rights to their athletic facilities in order to generate revenue.  We addressed several concerns with permitting such naming rights in the Summer 2008 edition of Education News.  The focus of this article is to consider the regulatory impact of municipal zoning ordinances on such naming rights. 

In an Opinion filed on July 20, 2010, the Third Circuit Court of Appeals held in Melrose, Inc. v. The City of Pittsburgh that bona fide “naming rights” signs are permissible even where a zoning ordinance prohibits advertising billboards.  The Court applied a three-part test to determine whether a naming rights sign on a public destination facility (such as a school stadium) was either an impermissible advertising sign or a permissible building name sign:

  1. Is a major purpose or result of the identification sign to establish name recognition by the public for a specific destination point at a set geographical location?
  2. Is the sign temporary or transitory like a commercial billboard?  To be permissible, it must be in place for a substantial time to connect the name with the facility.  However, it need not be immune from unexpected, unforeseen or unwelcome circumstances that might result in termination of the naming rights.
  3. Does the facility owner, in this case the School District, remain in control and not assign its rights to an advertising agency?  Ultimately, the School District must remain responsible for any other zoning compliance.

When a sign has both an advertising and an identification component, the identification purpose must be genuine and not merely an effort to utilize a location as an advertising vehicle.  By applying the three-part test articulated by the Court, naming right signs will have a better likelihood to survive a zoning challenge.