Monday, January 12, 2009

Sports Business Suffers Like Everyone Else - Almost

Sports is big business – but until now, when big business suffered, the sports industry was somewhat immune. Not anymore.

The spending sprees of the New York Yankees and the Abu Dhabi consortium that bought Manchester City and forked out $58 million for Brazilian superstar Robinho notwithstanding, the downturn in the global economy and the subsequent reduction in corporate sponsorships are affecting the games that we love to see.

When times get tough, the first thing to go in almost any business is the budget for public relations and marketing, and the cuts in these items are already being felt in those sports where corporate sponsorships play an extraordinary role and are a significant part of the operating costs.

Golf, motorsports (Formula 1, NASCAR), European football (soccer) and tennis are already feeling the pinch, including in some cases cancellation of major events or reductions in sponsorships and money prizes. But other sports that can rely more on season ticket holders and television revenue – that would include the "big 3" in America (football, baseball and basketball) – are also beginning to suffer from a reduction in income from corporate sponsors in terms of advertising and for corporate luxury items like front row seats and stadium suites.

When economies go into a downward spiral, the sports industry has generally NOT suffered nearly as much. In fact, sports have been surprisingly resilient: a recent report by a Baltimore-based investment banking firm, Moag & Co., found that between 1970 – 2008, during periods of bear markets or great uncertainty, professional sports consistently and significantly outperformed the broader markets.

But this time things seem to be a little different. Fortunately, the demand for sports, in the terminology of economists, is highly inelastic. Psychologically, people are loathe to give up on sports and their favorite teams. Even President-elect Obama has chimed in now several times on the need for a college football playoff.

The demand for tickets – especially for championship events - remains high. Scalpers/touters and their friends in the "secondary market" remain extremely active, though we are seeing some consolidation and increasing cooperation in the field as well as a decreasing demand for top-price seats at sporting events as well as concerts.

There does seem to be a decrease in ticket prices for less than top events - for example the recent announcement by the English Football Association that they are reducing prices for some national team games, including less attractive games against Slovakia, Ukraine and Andorra.

No comments: