The sports world has not been able to avoid the effects of the Covid-19 pandemic. Stadiums are now empty and things have come to a standstill. All areas of sport have been impacted by the crisis, from the athletes and players to the media who cover the games and of course the fans. This virus has reached all corners of the globe and has caused a health emergency with many fatalities and an economic downturn not seen for many decades.
The pandemic has also had a negative impact on the sports calendar as most professional groups have postponed or cancelled present and future activities in an effort to prevent the virus from spreading. The much looked forward to Summer Olympics which is broadcast all over the world will not be taking place this summer and has been deferred until next year.
It is a difficult time for everyone. Some fans, bored and fed up with being in isolation, have turned to watching old games and sporting events online and more are being streamed. It is great that these are available. As are other online options for entertainment, all kinds of video sporting games and options to join and maybe win a Springbok casino bonus, for those interested.
In 2018, the estimated value of the sports industry worldwide was around $471 billion which had increased by 45% since 2011. The prospects were looking good and a continuing upward direction was anticipated. Now, every aspect of the sporting world has been impacted by the health crisis. From the individual athletes, to teams and the different branches of the media associated with the games, all have been affected.
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The business model
The basic business model for sports clubs can be divided into three main income sources. Broadcasting – anything to do with the media. Commercial – advertising partnerships and sponsoring. Income from actual games – tickets and anything to do with hospitality.
Professional sports leagues mirror entertainment businesses. Each group or team in the club has its own pathway, which includes their own employees, fan bases and their individual unique identities. However, the big picture is overseen by the League itself which is in charge of the rules and scheduling of all the clubs’ activities. The more people see and love the game, the more profitable it is. Revenue from broadcasting is critical. In the last five years the value of world sports media rights rose to around $50 billion. However, 10 sports leagues accounted for 60% of that.
The League, having overall authority is in charge of distributing the income to the individual teams. Usually a minimum sum is fixed and then upped with bonuses for performance and or competitions. How each club or team decides to utilize the money is up to them. They can also go about bringing in their own revenue by, amongst other things, finding their own sponsorships and organizing their own tournaments. But whether a club is ultimately successful financially depends on its relationship with the main League.
These leagues are able to sell media rights for huge sums. This makes them incredibly powerful. For instance, the television agreement for the NBA is currently $24 billion over 9 years. Last year, the English Premier League signed an agreement with broadcasters for around $12 billion over a 3- year period and Major League Baseball has a current 7- year media deal in the region of $5 billion.
Owing to the rapid moves online, whether these deals can be sustained is debatable, owing to the increased use on online platforms. However, these deals do highlight how important the sports rights are as the key to keeping established television packages together.
So, with this in mind, the current situation may see the leagues being unable to fulfil their side of the agreement with broadcasters and therefore not able to funnel money back to the teams and clubs. It will have a knock- on effect. With no games happening there can be no television agreements and no income from matchday means no money and, ultimately, will lead to shutting down clubs. The impact on the sports industry would be devastating.
The industry’s response to the crisis
The industry is trying to take advantage of the increased use of the media with consumers unable to do much else. With the lack of live matches, they are introducing new content in an effort to attract audiences. Broadcasters like Fox Sports and ESPN are putting out a lot of archived material, a lot of documentaries and many old and loved games.
The smaller leagues are also doing this. The NFL is now streaming all games going back many years and have been offering this via direct access to their Game Pass channel. This has created a huge increase in service users. The Chief Operating Officer of the NBA, Mark Tatum recently said “We’re hosting live quarantine parties on social media with current and former players, and we’re showing classic games every night – all things to continue to engage our fans during this time.”
Making payment options easier and more flexible for those people looking for sports material is another strategy. Many of the leagues are cancelling their streaming subscriptions and offering them free of charge.
Sports associations and media networks are discussing ways to get around “force majeure” clauses that will be beneficial for both parties. Covering things like compensation for broadcasters, lengthening agreements and giving them extra rights, to name just a few. These issues will also be relevant for the smaller clubs. Some are already feeling the pinch. Premier League clubs are expecting a $60-150 million drop in income.
The importance of income derived through TV is what is driving leagues to be creative and to have develop ideas for games without audiences being present. All eyes will be on Asia to see how it pans out there. Asia was the area in which the crisis first occurred so they are a little ahead of the game. Teams in Japan continued playing baseball without audiences for weeks in the beginning of the shutdown.
China’s basketball league decided to postpone the date of the new season and in Korea they opted to cancel altogether. Another idea is to play games in areas where the impact of the virus is much less prevalent. Perhaps moving the teams and staff to a single location. This does have a precedent – teams have been moved in the past as a result of a natural disaster, like a hurricane, and the resulting damage.
Long term strategy
There is unlikely to be any major transformation of the basic business model. The leagues will continue to work in the same fashion. Basically, the teams will continue to play each other seasonally. But this crisis has clearly shown how reliant this business model is on having a live audience and on television for broadcasting those games.
The sports industry may see some of the following changes in the future.
The crisis has caused an enormous increase in media use. However, this doesn’t fit into the usual way in which broadcasts are structured, for instance, evening which is prime time. Therefore, it is likely that there will be an increased use of DC2 services to deliver sports material. These services have the advantage of having a flexible schedule and a large variety of material to keep audiences happy. Many people will try out these services during the shutdown and get hooked. Many will continue using them after the crisis is over causing a further drop in the use of regular cable TV.
This situation will impact the broadcasters’ ability to gain revenue via advertising and, therefore, make it more difficult them to buy sports rights. Leagues will be forced to sell material via their in-house services and may need to rely on other digital players to make deals, albeit smaller ones. Sports leagues need to research other possible income sources. This crisis has shown how relying on broadcasting and the income from advertising may not be sustainable. Possible sources could be from game monetization models.
With the lack of live sports, virtual technologies are likely to become more popular. Esports are being used by sports leagues to keep audiences interested during the shutdown. Esports have become incredibly popular in the last few years and can be a good source of income. They also allow fans to enjoy live games and not actually have to be present.
Sports has always been a way of bringing people closer together and so this crisis has affected the industry badly. However, with some clever thinking it can recover and remain just as popular.
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