Posted by: hillad | February 6, 2009

Are Sports Recession-Proof?

Ummm…No. While the world of sports appears to be this huge juggernaut that keeps going in its own splendor and glory, it can be hurt in a myriad of ways. Lets take a look at some of the evidence…

  • So teams earn revenue. The primary way they earn their scratch is quite obvious, selling tickets to games. In the recent past, ticket prices for all of the major sports have climbed higher and higher. While inflation in the recent past can explain some of the increase, it doesn’t explain it all. And that’s simply because sports is more popular than ever before. Attendance figures are up across the board for all major sports. However, a number of teams, namely the Oakland A’s, Washington Nationals, and San Francisco Giants will be lowering ticket prices for some of their seats in the upcoming MLB season. This doesn’t surprise me for the A’s or Nats because they have had attendance issues in the past, but the Giants are a very popular team and get good attendance to their games. Quite a few teams are also keeping their seat prices the same in order to attract people to see a game. The price of tickets also leads into another point.
  • While people will still be able to attend games, other expenses will have to go by the wayside, namely concessions and merchandise. If people are willing to shell out $50 to see a game, are they as willing to spend $7 on a beer or $4 on a soda? That’s highway robbery and people were already grumbling about those prices before the crisis. So teams will have to either lower the price of concessions or be prepared to sell much less of them.

  • Another main money maker for the big sports teams is selling advertisements. This can be made in a number of ways, TV commercials with athletes, naming rights to a stadium, ads placed in stadiums and arenas, shirt sponsorship, etc. The recent downturn in the economy has really affected the profits from selling ads. Usually, when a team builds a new stadium, companies are clambering in order to put their name to the new stadium. And so, usually the price of doing this has become extremely high. The New York Giants, New York Jets, and Washington Nationals have all recently built new parks and they all are finding it difficult to find someone to give them money for the naming rights. Or at least enough money to satisfy them. Are they prepared to wait out the recession to get a deal they deem acceptable? We’ll see. The giant insurance company AIG had to be save by the US government to avoid a catastrophic bankruptcy. One interesting part of that is that AIG are the main sponsors on the jerseys of the most popular soccer team in the world, Manchester United. Both AIG and Manchester United have since agreed to end the contract at the end of the current season. Other contracts have been cancelled as well, especially those connected to the auto industry like that of Tiger Woods, perhaps the most recognizable current athlete, and General Motors. Even the Mecca of advertising, the Superbowl, found it hard to fill all the slots, with 2 spots unclaimed up until the final day before the game. If these advertisements start going away, teams and athletes will find it hard to find advertisers willing to pay the amounts before the recession.
  • In the current MLB offseason, many analysts are flabbergasted at the number of quality players still without a team. Players like Manny Ramirez, Adam Dunn, and Bobby Abreu would have been offered multi-year contracts for eight figures per year. Future Hall of Famers Ken Griffey Jr, Tom Glavine, Frank Thomas, and Ivan Rodriguez still haven’t been signed with a week left before spring training, even though they have stated they’d be willing to play for a discount. However, teams just aren’t willing to spend that kind of money on that level of player right now. People had originally questioned whether sports was recession-proof when the New York Yankees signed CC Sabathia and Mark Teixiera for 7 years $161 million and 8 years $180 million. The thing is, its the Yankees, their revenue streams dwarf other teams, add to the fact that the Yankees had a great deal of money coming off their payroll and so these were sensible deals to them. Most people, while checking their dwindling 401ks, saw these deals and were disgusted. But its the Yankees and the fact that they’re two of the best players in baseball. Still is a lot of money though, but for those players that aren’t in that upper eschelon, its been a much different story.
  • The auto companies have been particularly hard hit by the recession. This was also true for the many auto racing series. Honda has stunned everyone by pulling out of Formula One. Subaru and Suzuki have pulled out of the World Rally Championship. Audi, Chevrolet, and Porsche have followed suit and pulled out of the American LeMans Series. This among many others pulling out of their racing series due to budget constraints. The racing powerhouse NASCAR has also been in some pretty rough times considering the “Big Three” American automakers make up the majority of the field.
  • One direct effect of the current economy facing sports is that the major sports are having to lay off workers. The NFL has laid off 10% of their employees, the NBA has laid off 9% of theirs, and teams like the Arizona Diamondbacks have laid off about 10% of theirs as well. These are tough times for everyone.

The one saving grace for sports is that wonderful invention that we all so love, the television. People aren’t going to stop being fans of a team because it costs an arm and a leg to go see them. They are going to watch more games on TV instead. The Superbowl, the worlds most watched yearly sporting event, drew record numbers of watchers around the globe. So advertisers might see this and be willing to use a larger chunk of their advertising dollars on TV. But TV alone won’t make up for all the losses I’ve stated above. Sports are indeed hurt by the recession, just not to the point where teams and leagues are going bankrupt. If that happens, God help us all, because we won’t be in a recession, we’ll be in a full fledged depression.

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Responses

  1. I suppose it works if you qualify your statement about the Superbowl as being the world’s “most watched yearly sporting event”

    This article looks in particular at 2007, and shows how the Superbowl reigns as king in the odd years but not so in the even years, where either Olympic Games, World Cups or Champion Cups win out.

    For the most recent Superbowl, the average global live audience was 98.73 million people.

    And how come you didn’t discuss any impact on, say, the WNBA? What, does sports=men’s sports? Come on!

  2. Yeah the World Cup Finals, Olympics, and Euro competitions blow the Superbowl out of the water but they aren’t every year.

    The WNBA just isn’t that big of a league in terms of viewership but it was sad when the Houston Comets went bankrupt. Any team that won titles like they did in the early years of the WNBA should not have been in a financial position like they were. Tis a shame.


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