The Financial Golden Age of Sports 1996 – 2008
We are coming to an end of the greatest financial age of sports in history. The twelve years between 1996 and 2008 were years when the money around sports exploded beyond any precedent era. This also means that, going forward, the economics around sports in general will decline, at least for the next 5-8 years if not longer.
The bookends for these 12 years of explosive financial growth are the Atlanta Olympics in 1996 and the Beijing Olympics of 2008. The Atlanta Olympics were the first post-cold war Olympics and, being held in the U.S. created a huge marketing platform. The Beijing Olympics was the coming out party for the most populous country in the world and gave recognition to China as a major player on the world’s geopolitical and financial stages.
In 1996 cable television had become a dominant media force in the U.S. ESPN, and all of its networks, was beginning to take its’ place as the behemoth of sports television. Regional sports networks, TBS and TNT soon joined the party and it seemed that sports were everywhere on TV. The broadcast networks and all of these cable entities competed for the rights of all major sports. The fees paid to the NFL, MLB, the NBA, and the college football conferences exploded. This led to dramatically increased player salaries, advertising rates and, for the consumer, rapidly increasing cable bills. Of course it also led to much lower ratings as nothing was special any more. Even though Monday Night Football on ESPN/ABC is a consistent ratings winner this year the ratings are half what they were in 1996.
The professional sports leagues, conferences and governing agencies of sports had better start saving some of those huge rights fees for the rainy days ahead. Vast sums of money were paid by media outlets in recent years for multi-year contracts. Since those deals were done, there has been a uniform decline in ratings for most marquee events such as the World Series, the NBA play-offs, and most bowl games. These ratings decline come at a horrible time for the networks as the end of 2008, all of 2009 and perhaps 2010 will be years of recession in the advertising business. Here they are with huge fees and production costs to cover, yet they have less audience to sell to fewer advertisers willing to pay. Think back on all the big sporting events you have watched on TV and think of the advertisers who paid for exclusive sponsorships. Let’s see, car companies, beer companies, financial institutions and airlines. Anybody know what’s going on in those industries?
In the years ahead, the story about rights fees will be that for the first time in recent memory they will decline. If they can no longer be covered by advertising and cable subscription rates and the â€˜halo’ effect of marquee sporting events no longer exists, networks will ask for decreases or will walk away from the table. The leagues will come down in price, and the trickle down effect of lowered franchise values, lowered player salaries, shorter term contracts and on-going lowered ratings will occur.
Take a look at what has happened since the Beijing Olympics and you can see the direction this is going. NBC admits that even after producing hundreds, even thousands of hours of programming for the Olympics over multiple channels and the Internet they lost money. Certainly the appeal of Beijing is greater than Vancouver, London and that place with the funny name in Russia. The NBA cuts staff. Two of the most stories franchises in sports history, the NY Yankees and the Dallas Cowboys can’t sell naming rights to their stadiums, due primarily to vastly overpricing them.
Off the playing fields and networks the drumbeat of news points to a lower financial participation in sports at all levels. The global economy has collapsed. Millions more of Americans will lose their jobs. 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. Some boats will sail, but there is no longer a rising tide. When the cost of a big HD flat screen TV that will last for years is the same as taking a family of four to four games, the decision will become clear. There is deflation going on in the consumer sector so how can sports entities think they are immune?
Here are some short term predictions to confirm this trend. Outside the top four or five bowl games, tickets will be given away and stadiums will be half full. There will only be tight camera angles on the field and no blimp shots to show how empty the stands are. 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.
Longer term, over the course of the next 3-5 years, there will be developments unheard of for sports fans. The salaries of star players will come down dramatically. There may be a two tier salary structure where one or two superstars continue to get well paid, but the back up quarterback or the forward on the bench will make much less. Sports franchises will decline in value as rights fees and attendance decline. Ticket prices will no longer go up every year and, when the â€˜day of’ discounts are factored in, they will actually decline.
None of this is bad, just a directional change in the finance of sports. As excess has been drained from many industries through the disintermediating affect of the Internet, the ruthless scale economies of the global economy and the current economic collapse so will excess be drained from sports. Remember these years 1996-2008; they will be looked back upon as the golden financial days of Sport.