Evolution Shift
A Future Look at Today
March 26th, 2009

A Correct Forecast about the Financial Side of Sports

Back in early December I wrote a column entitled “The Financial Golden Age of Sports: 1996-2008″.  In it I predicted that professional sports were going to go into a financial decline that would last for years.  I don’t make forecasts unless I have a very strong sense of them being correct.  Well, this forecast has unfolded so quickly and so correctly that even I am a bit surprised.

In that column I wrote:

“going forward, the economics around sports in general will decline, at least for the next 5-8 years if not longer.” And

“Corporations, after firing thousands of people, will not want to display corporate indulgence with skyboxes and named stadiums.  In households across America and around the world, thrift has become both a necessity and cool.  This is going to be the wall that sports franchises will run into when they try to continue their always upward pricing on season’s tickets and even individual tickets”

And finally:

“There will be lay-offs at the league and team levels. There will be discount pricing of tickets the day of a game in most sports.  The credit crunch and severe recession will keep stadiums from being built.  Newspapers, whose sports pages had a symbiotic, promotional relationship with local sports teams, will be going out of business weekly.”

Since I wrote that column:

-the NFL has cut 169 jobs

-the NBA cut 10 percent of its staff

– the USOC laid off 54 workers to cut millions from its budget

-NASCAR teams have laid off hundreds of employees and even the great Richard Petty   had to merge his team with another just to stay in business

-NASCAR had events where there were tens of thousands of unsold seats

-both the PGA and the LPGA each lost three title sponsors for events

-the WNBA rosters will be cut by two players from 13 to 11

-the Washington Redskins, the Denver Broncos and the Cleveland Browns have laid off employees

-the Arena Football League canceled its 2009 season

-in tennis, the WTA Tour expects revenue will decline by as much as 20% this year

-GM killed the Pontiac brand, leaving Tiger Woods without a car sponsor

-and of course, most tragically, great newspapers have closed their doors

So the twelve year period of 1996-2008 can already be seen as the golden financial age of sport that is no longer. The carnage is every where. What will be very interesting is the 2009 MLB season.  I predict that total attendance will be down unless ticket prices come down.  Sky box sales will most definitely decline as companies do not want to seem profligate with shareholder money.

The long term consequences will begin to become clear when league rights fees come up for renewal. I think that all leagues will accept contract extensions for media rights fees as it will be clear that the open market will not get them more, but less money.   A key ingredient is the huge advertising recession.  Networks such as ESPN, NBC and others have paid for ever increasing league rights’ fees by passing these charges on to advertisers.  These advertisers will not pay them, at least during the next few years.  GM, one of the biggest sports advertisers is already out of the market.  Major financial service organizations, long time sports advertisers are seeking to become as low profile as possible.

When the inevitable happens, and rights fees decline, owners of sport franchises will have to face their own profligate spending on players and cut payroll.  TV money will decline.  Fans won’t pay higher prices for tickets and corporations won’t pay higher prices for sky boxes. Sports franchises will actually start to decline in value.

The age of overpaying for professional athletes will end.  As I wrote in the prior column, there will most likely be a two tiered payroll with one or two super stars commanding big dollars but the rest of the team, be it baseball, football, basketball, hockey or soccer receiving much lower salaries.

This shake-out and contraction will occur over the next three years.  The golden financial age of sports 1996-2008 will seem like a fond time long ago and far away.

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