Meeting_Body
EXECUTIVE MANAGEMENT COMMITTEE
NOVEMBER 21, 2024
Subject
SUBJECT: ADVERTISING POLICY REVISIONS
Action
ACTION: APPROVE RECOMMENDATION
Heading
RECOMMENDATION
Title
CONSIDER:
A. ADOPTING the amended System Advertising Policy (Attachment A); and
B. ADOPTING the amended Commercial Sponsorship and Adoption Policy (Attachment B).
Issue
ISSUE
To expand and expedite potential advertising and sponsorship revenues immediately, Metro can amend two policies governing advertising revenue programs: 1) the System Advertising Policy - focusing on content restrictions and 2) Commercial Sponsorship and Adoption Policy - focusing on duration restrictions. As the policies are solely managed by Metro, these revisions can be executed within three months from Board adoption and will afford immediate opportunities in increased advertising revenues.
Background
BACKGROUND
On March 29, 2024, a Special Board Budget Workshop was held to provide the Board a comprehensive analysis of the projected financial outlook and a detailed assessment of the economic conditions in LA County that would impact Metro’s operational program delivery. Staff presented cost growth drivers in Metro transit operations, infrastructure construction risks, capital program expansion, and other programs. Staff also presented alternatives to address increasing budget costs including opportunities in advertising, sponsorships, and beyond. Two potential policy revisions were identified that could generate additional revenues: the current System Advertising and Commercial Sponsorship and Adoption Policy.
Metro’s initial advertising policy was adopted in 2000, and at that time its scope was limited to Metro’s bus fleet. The policy was revised several times thereafter to include additional assets:
2005 - Include rapid transit bus vehicles
2008 - Include trains and stations
2017 - Include Orange Line bus vehicles
As a result of those revisions, Metro’s advertising policy covers all Metro systemwide assets. The policy was also revised multiple times regarding advertising content:
2013 - Prohibited messages injurious to Metro’s interests, ads from personal injury law firms, many of which targeted Metro passengers involved in bus accidents.
2013 - Included the exception for non-profit organizations to partner with a governmental agency in submitting advertising that advances the joint purpose of the non-profit organization and the governmental agency.
2017 - Prohibit e-cigarettes and vaping products, while adding digital platforms and channels web, mobile, and social media.
2023 - Clarified non-commercial advertising and removed requirement of co-sponsorship with a government agency.
Metro’s Commercial Sponsorship and Adoption Policy was introduced and adopted in 2021 and has not seen any amendments or updates since then. The policy and program were introduced seeking to generate alternative long-term revenues recovering from post-pandemic Covid impact.
Discussion
DISCUSSION
At the Special Board Budget Workship, an overview of current and potential revenues governed by Metro policies & state laws, revenue potential, implementation timeline, and level of difficulty to achieve was presented. Four areas of focus were presented:
1) System Advertising Policy,
2) Commercial Sponsorship and Adoption Policy,
3) Expansion of current practice, and
4) CA Business & Professional Code §5405.6.
Changes in policies, state law, and expansion of practice may potentially earn Metro additional $70M annually ($2.1M from System Advertising Policy, $11M from Commercial Sponsorship and Adoption Policy, $20.5M from expansion of current practice, and $35.5M from CA Business & Professional Code §5405.6), however, each area requires action in unique scope of work, internal and external coordination, state legislature, and additional contracts.
Expanding commercial system practices such as installing bank ATMs, providing merchandise vending machines, and activating temporary and event-based retails kiosks pose infrastructure challenges requiring station retrofitting, additional power & data, and more safety & security resources. Addressing the California Business & Professional Code §5405.6 -- which prohibit Metro from constructing outdoor advertising displays greater than 10 feet in width and length on agency property and right-of-way -- require amendment in state legislature, however, the Board has authority over the System Advertising and Commercial Sponsorship Policy.
Metro’s Advertising and Sponsorship policies are limited by restrictions (detailed below) on advertising content, campaign duration, and approval process. These restrictions prevent the agency from realizing full earning potential and maximizing pre-World Cup, Super Bowl, Olympic and Paralympic Games, and long-term un-earmarked revenues. Addressing these two policies could increase annual advertising and sponsorship revenues by $13.1M.
System Advertising Policy
Metro’s current revenue advertising policy restricts advertising content, and campaign duration (dictated by sponsorship policy), amending the policy to ease restrictions could generate an additional $2.1M annually. The key policy amendment is allowing Public Service Announcements (PSA) from Non-Profit organizations. Attachment C - Policy Change Comparison, provides a side-by-side comparison of current to recommended language. Along with advertising contractors, staff conducted a survey of other transit agencies and jurisdictions who currently allow the categories discussed in this report, and all transit agencies permit PSAs advertising content.
Currently, public education institutions are permitted under the government advertising category as they receive public funding -- this allowance does not extend to charter and private education institutions. The purpose of this added language is to clearly state charter and private education institutions such as K-12 charter schools, for-profit and private education institutions are permissible in the new policy. Clarifying this category may generate an additional $100,000 in annual ad revenues. The current policy does not include the category of public service announcements and non-profits. Legal Counsel has advised the allowance of this category with clear restrictions only permitting advertising content for services to treat or prevent illness; education and training services; services for low income, senior citizens, or people with disabilities; and museums with free admission. Examples of content in this category includes community events and services by United Way, City of Hope Blood Drive, and food banks; fundraising efforts by Susan G. Komen, AIDS Walk, Wounded Warrior Project, Mothers Against Drunk Driving, to name a few. Allowing PSA ads may generate an additional $1,500,000 on bus and $500,000 on rail for total of $2,000,000 annual ad revenue. The new policy language is below:
• Public Service Announcements From Non-Profits - Metro will accept paid promotional advertising by a nonprofit organization that is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code the sole expressed purpose of which relates directly to: (1) the availability of services to prevent or treat illnesses; (2) the availability of education or training services; (3) the availability of services or programs that provide support to low income citizens, senior citizens or people with disabilities; or (4) patronage of museums that offer free admission to the public.
Commercial Sponsorship and Adoption Policy
Metro’s current commercial sponsorship policy restricts campaign and sponsorship duration and is stymied by administrative and approval processes. Metro could generate an additional $11M annual sponsorship revenues by amending the policy to streamline and expedite sponsorship business process. All Metro assets and services are eligible for commercial sponsorship including bus and rail lines, stations and transit centers, programs, and events.
The current sponsorship policy requires board action for all sponsorship activities. To expedite business, staff recommends delegating some approval authority to CEO. The recommended policy amendments are 1) for the Board to retain approval authority for title sponsorships (naming rights); 2) to delegate authority to the CEO for all other sponsorships such as non-title sponsorships (Door Dash for Bike Share), short-term sponsorships, and long-term advertising campaigns lasting no longer than 18 months (Max/HBO at Culver City); 3) extend maximum sponsorship durations from ten to twenty years to secures larger revenue streams, place less impact to system changes & customer experience, and reduce administrative support; 4) and revise Compliance and Evaluation Panel to cabinet chiefs rather than cabinet staff (Attachment B - Commercial Sponsorship and Adoption Policy 2025).
Attachment C - Policy Change Comparison, provides a side-by-side comparison of current to recommended language. Key policy points are embedded into the policy language below:
Currently, temporary advertising or sponsorship activity is defined as 90 days -- the language amends the definition of temporary from 90 days to 18 months; additionally, the language amends approval authority from board action (requiring 3-month process) to CEO approval authority (requiring 1-month process). The revised policy language below:
• Temporary is defined as any Sponsorship/Adoption/Advertising activity lasting up to eighteen months. All temporary commercial activity is within CEO’s approval authority. However, any temporary activity affecting facility/station/service names and any short-term renaming/co-naming requires Board notification via board box memo.
Currently, long-term advertising or sponsorship is defined as any activity beyond
90-days -- the language amends the definition of long-term from 90-days to 19-months and amends the maximum length of sponsorships from 10-years to 15-years. There is no change in approval authority, the board will retain approval on all long-term commercial activities. The revised policy language below:
• Long-term is defined as any Sponsorship/Adoption/Advertising activity lasting greater than nineteen months with a maximum length of fifteen years. All long-term commercial activity require Board action.
Currently, station renaming is only defined as directly renaming a facility requiring official and operational name change (for example, renaming Pico Station to Kobe Bryant Station) - the additional language adds other techniques that do not change the official or operating name, but uses an additive technique (for example, Pico Station, Home of Kobe Bryant). The maximum duration for sponsorship renaming is again stated minimum 5-years to maximum 15-years. The revised policy language below:
• Station Renaming is defined as any Sponsorship/Adoption/Advertising activity that requires the renaming of a facility or station as part of its sponsorship plan; in addition, the renaming activity will impact the facility’s official and operational name. Additive naming techniques such as ‘Home of’ or ‘Presented by’ that do not impact official and operational name, but may impact façade presentation, are also acceptable. Long-term station renaming requires a minimum five-year commitment to a maximum length of twenty years.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
There is no safety impact by adopting this policy. Staff will manage the advertising and sponsorship program and ensure contractors work in compliance with Metro Safety policies and certifications.
Financial_Impact
FINANCIAL IMPACT
There is no negative financial nor budgetary impact by adopting these policy revisions. The policy revisions could allow Metro to generate additional operating-eligible revenues in the future.
Equity_Platform
EQUITY PLATFORM
Advertising and sponsorship revenues are an important supplemental revenue source supporting Metro’s transportation operations. Additionally, the advertising program accepts multi-cultural and multi-language advertisements that provide alignment and inclusion of Metro’s diverse communities.
Expansion of advertising content and permitting PSAs from non-profits may promote health awareness and treatment, education and training, and other services benefitting low-income riders, senior citizens, or people with disabilities. Advertising from museums and institutions with free admission will provide low-income, fixed income, and all transit riders with free and affordable leisure destinations accessible by transit.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
This Board action supports Strategic Goal 5: Provide responsive, accountable, and trustworthy governance within the L.A. Metro organization. Current policies provide structure to responsibly manage the commercial advertising and sponsorship program, generating revenues that provide long-term supplemental revenue to support Metro’s transportation operations.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The Board may choose not to adopt the amended policies; however, this is not recommended. While there are some reputational and content control risks associated with expanding the range of acceptable advertisers, the financial upside provides significant opportunities for the agency. With the right safeguards in place-such as clear advertising content policies and approval processes-these risks can be managed while still achieving the financial benefits needed to support the agency’s long-term goals.
The current policy does not include the category of beer and wine. Staff considered the allowance of this category with clear restrictions surrounding imagery (i.e. no imagery of open containers and consumption of beverages); only permissible at high transit-traffic stations and hubs; maximum occupancy on bus and rail fleet at any time; not permissible on Metro Bike Share assets; and to include warning language included in each advertising that must occupy at least 3% of the area of the advertisement, that:
“The legal age to purchase and consume alcohol in California is 21 years old. According to the Surgeon General, women should not drink alcoholic beverages during pregnancy because of the risk of birth defects. Consumption of alcoholic beverages impairs your ability to drive a car or operate machinery and may cause health problems.”
Examples of content in this category include product advertising from alcoholic companies Anheuser-Busch Inc (Budweiser, Stella Artois), Molson Coors (Coors, Miller), Sutter Home Wineries, Barefoot Wineries, White Claw (Hard Seltzer), and Twisted Tea Brewing Company; food service retailers serving alcohol such as BJ’s Restaurants & Brewhouse and The Redwood Bar & Grill, breweries such as Angel City Brewery and Duff Brewery and Beer Garden; and wineries such as San Antonio Wineries and Angeleno Wine Company. Further, other transit agencies across the country allow for the advertisement of beer and wine.
Allowing beer, wine, and adjacent business (bar & grill, breweries, and wineries) advertising may generate an additional $2,000,000 on bus and $750,000 on rail for total of $2,750,000 annual ad revenue. However, staff does not recommend inclusion of the category for beer and wine because 80% of Metro trips are in EFCs and this type of advertising increases exposure to unhealthy influences and promotes drinking in communities where access to alcohol is already high, often more accessible than healthy food options. These ad spaces could instead support positive community messages, school, medical care, job training, and community events, the $2.7 million in added revenue is not worth the negative social impact on vulnerable communities and youth.
Next_Steps
NEXT STEPS
Upon Board approval, staff will update related internal processes and procedures.
Revised Policies will be distributed to advertising and sponsorship vendors and made publicly available for advertisers on Metro’s website.
Attachments
ATTACHMENTS
Attachment A - System Advertising Policy 2025
Attachment B - Commercial Sponsorship and Adoption Policy 2025
Attachment C - Policy Change Comparison
Prepared_By
Prepared by: Lan-Chi Lam, Director of Communications, (213) 922-2349
Michelle Navarro, Senior Executive Officer, Finance, (213) 922-3056
Monica Bouldin, Deputy Chief Customer Experience Officer, (213) 922-4081
Reviewed_By
Reviewed by: Jennifer Vides, Chief Customer Experience Officer, (213) 922- 4060
