Humans have a strong need to be connected or to be associated with something greater, to be more than just an individual. Psychology has shown that sports offers us an escape from our daily problems and grinds of life, bolster our self-esteem and gives us a sense of pride. Just the raw emotion and sense of adrenaline rush it brings to our lives, we begin to associate the success of our favourite sports team as our own. That is the passion sports brings in our lives. It’s real time entertainment. So how has the pandemic affected sports events and its business ?
The times we currently live in, there are no scores to check, no pre- or post-match anxiety and analysis. Coronavirus has created havoc all around the world and the sporting calendar has not remained immune to it. As result, sporting events have been suspended, cancelled or postponed indefinitely.
For an industry that was growing at 4.3% per annum since 2014, the dent in the 2020 calendar will have huge implications from all aspects on the business of sports.
The Revenue Stream
There are 3 main sources of revenue for any sporting team or franchise: 1. Broadcasting (sale of media rights), 2. Commercial Sponsorship and Ticketing, and 3. Hospitality and Logistics Revenue. Of these, the highest source of revenue for any sporting event is broadcasting, estimated to be at around $50 Billion.
What’s more intriguing is that more than about 60% of all broadcasting revenue comes for top 10 major leagues of the world. For instance, NBA (National Basketball Association) League: $2.66 Billion per year; EPL (English Premier League): $4 Billion per year; La Liga (Spanish Football League): around $1.24 Billion per year; MLB (Major League Baseball): $1.4 Billion per year; IPL (Indian Premier League): $500 Million per year.
Let’s look at IPL, for example, which has been growing steadily for the past few years. IPL contributed more than Rs.200 crore to government exchequer in the form of direct and indirect taxes along with about Rs.1,200 crore to Indian GDP. This just highlights the economic implication of postponing the IPL on the Indian economy.
Similarly, EPL contributes more than GBP 3.3 billion in tax and more than GBP 7.6 billion to UK’s GDP. Furthermore, these football clubs alone support more than 100,000 jobs thereby indirectly contributing to the economy.
The Loss Incurred
There is no doubt that the impact of delaying/cancelling leagues would be dramatic on the sports industry and the world economy. No games mean no TV deals and no match day income; And, no income means no clubs/teams.
Probably for the first time ever, the Tokyo Summer Olympics 2020 have been postponed. The postponement of this holy grail of an event would cost $6 Billion to the GDP of Japan.
Business of sports is largely dependant on its marketing communications. It earns majorly through advertising, broadcasting, events and sponsorships. These are sources of revenues for the leagues, clubs or teams, and even players. Not only this, the advertisers rely heavily on sports with their biggest advertising spends focussed during these events. Example, NBA records one of the highest on-air advertising fees by broadcasting channels.
The reliance of sports leagues on broadcasters, and of broadcasters on advertising revenue, is laid bare by the coronavirus crises. Due to this widespread pandemic, many jobs are at stake not only of sports professionals but also of allied servicing like retail, hospitality, travel, tourism, broadcasting, events which are connected with these sporting leagues. Additionally, many upcoming talents may lose sponsorship as previously agreed and might impact their further growth and development in the respective sport.
What does the future look like ?
With Countries opening up and easing restrictions on lockdown, sports events have resumed slowly and cautiously. With the first good news coming from Germany about Bundesliga resuming, other leagues around Italy, Spain and England are soon expected to follow too. These updates are a few breathers in the hope of a revival in the business of sports.
But there will be a new normal when things reopen. All players and supporting staff will be tested multiple times before resuming training, will be asked to maintain minimal contact. These restrictions go to the extent that no hugging and spitting during the matches will be allowed. All matches will be played in closed doors with only bare minimum staff allowed around the stadia. This means no match day revenue and no match ticket sales.
It underlines the need to explore more diverse income streams. An upgrade in the operation of sporting events and its business. These could include live monetisation models, such as gamified viewership (e.g. live payments for digital items, new camera angles, fan commentary and statistical analysis) and gambling. Leagues could now look at using immersive technology to enable fans to experience the thrill of watching games live without being physically present. An idea which seemed idiotic before, but now seems logical.
In these difficult times, the ability of sports to bring people together is missed more than ever. The industry itself may be in an entirely new territory, but with the right outlook and approach it can emerge stronger and more popular than before.