Economic Outlook of Professional Sports
This blog post will attempt to predict the short-term economic outlook of professional sports. Early indicators point to a rapid recovery, but this is to be expected as millions of people return to work, lockdowns are loosened, and the COVID-19 vaccine become available to more people. The difficult question to answer is what will the economy look like over the next three to five years as inflation fears worsen, the cost of commodities continues to rise, and more money is paid out as part of stimulus and unemployment insurance packages? Specifically, how will these impact professional sports which lost approximately $13 billion (MLB, NBA, NFL, NHL) in 2020 (Kochkodin, 2020)?
First, although a coming recession is not imminent, perhaps examining the impact of the last recession, due to the 2008 housing crisis, is a good starting point in predicting the future. Professional sports have a reputation for being recession-proof and the attendance data from 2008 – 2012 bears that out, to a point. Total attendance from 2008 to 2009 dropped by over five million fans, but this was largely due to decreases in MLB attendance. Attendance in the NBA, NFL, and NHL stayed relatively static. The decline in MLB attendance may be explained due to the nature of scheduling games consecutively, Villar and Guerrero (2009) found that attendance actually grows when game concentration is low.
Past data would indicate that professional teams can expect their attendance to rebound to post-coronavirus levels, but the collapse of the housing market and a worldwide pandemic are two very different scenarios. Are fans willing to return to stadiums and arenas, full or reduced capacity, knowing that COVID-19 is still a threat? A survey conducted by Seton Hall University collected data from November 13th to November 16th and found that two-thirds of the respondents said they would not attend an indoor sporting event without a vaccine and fifty-eight percent said the same for outdoor events (Murphy, 2020). As the United States COVID-19 vaccine rollout reaches one million citizens per day, the hope is that these fears begin to subside. The NFL was one of the first leagues to welcome fans into their stadiums playing host to one million fans in 2020. According to the league, there were no documented cases of superspreader events at NFL games (Traub, 2020).
Second, although teams have lost billions due to the pandemic, it has also opened up opportunities for new revenue streams. Progressive teams and leagues have an opportunity to offset some of their losses and rumors of multiple Monday Night Football games point to some big changes coming to pro sports. McCaffrey et al. (2021) provide four opportunities for teams in the near future:
- Advertising – “Pent-up demand in the summer and fall led to a recovery in goods spending, and the scarcity of live events in the spring and summer resulted in premium positions for sports advertisers later in 2020” (McCaffrey et al., 2021, p. 12). Teams that take advantage of technological trends such as digital engagement and streaming video will be in the best positions to prove their value to advertisers and, as a result, recover revenue (McCaffrey et al, 2021).
- New distribution opportunities – Adjustments to the rules and schedules of the four major pro sports leagues “brought about revised TV and digital programming schedules and opportunities to gain further rights compensation for content” (McCaffrey et al., 2021, p. 12). Progressive leagues could capitalize on these changes and broaden their schedules in order to make their product available to even more consumers. For example, the NFL could play multiple games on Thursday and Monday nights, thereby expanding their airtime and opportunities to additional advertising revenue. These kinds of radical changes, however, must be negotiated with each leagues’ players association so wholesale and quick changes should not be expected.
- Sports betting – As more and more states decide to allow legal sports gaming, this opens up sponsorship opportunities with sports gambling sites such as DraftKings, Fanduel, and BetMGM. In September 2020, the NFL’s Tennessee Titans announced that they had added BetMGM as a corporate sponsor. As a result of the partnership, BetMGM will receive advertising on the Titans digital platforms, video board replays, and during content aired throughout Tennessee, as well as naming rights for the Titans television studio (Stephenson, 2020). Sports betting can open up new advertising pathways with teams that bring in tens to hundreds of thousands of dollars every year.
- Virtual experiences – McCaffrey et al. (2021) provide two new virtual approaches that teams can take to help recover lost revenue – 1) providing fans with unique camera angles, VIP access, and enhanced audio access for a premium price. For example, a mic’up player during each game. 2) Allowing fans the opportunity to broadcast the game for a fee.
Finally, there is the concept of the price inelasticity of demand. Goods and services considered inelastic reflect a constant demand where the change in price does not impact the demand. This is why tickets prices can increase every year but attendance is not affected, similar to college tuition rates. “If a team prices tickets in the inelastic portion of its demand curve, then to increase its overall revenue, it can either increase ticket prices or it can generate offsetting revenue from the sales of concessions, souvenirs, parking, or other ancillary products” (Park et al., 2013, p. 15). This is probably the most reasonable strategy for professional teams as they don’t want to give their fans “sticker shock”, but they must find additional means of raising revenue. Fans should expect an increase in concessions, merchandise, and even their cable or satellite subscriptions as Regional Sports Networks and cable/satellite providers look to cover losses from 2020.
Overall, in my amateur opinion, I sense a pent-up demand from sports fans and I would expect pro teams to see a marginal increase in revenues as we begin to come out of this pandemic. My eyes are on late 2021 or early 2022 as a return to a state of “normal”. Let’s play ball!
Kochkodin, B. (2020, November 5). U.S. pro sports prove big enough to handle $13 billion sales hit. Bloomberg. https://www.bloomberg.com/news/articles/2020-11-05/u-s-sports-leagus-facing-nearly-13-billion-in-covid-losses.
McCaffrey, M., Fagot, A., Monday, C., Keenan, M., & Panson, S. (2021). (rep.). PwC 2021 sports outlook (pp. 1–23). San Jose, CA.
Murphy, D. (2020, November 18). Survey: Fans still say no to attending games without a COVID-19 vaccine. ESPN. https://www.espn.com/espn/story/_/id/30343024/fans-say-no-attending-games-covid-19-vaccine.
Stephenson, C. (2020, September 28). Tennessee Titans announce first-of-its-kind partnership with sports gambling platform BetMGM. The Tennessean. https://www.tennessean.com/story/sports/nfl/titans/2020/09/28/titans-announce-partnership-betmgm-sports-gambling-platform/3565721001/.
Traub, M. (2020, December 31). Sports and COVID-19: The impact on the sports-event Industry. Retrieved March 26, 2021, from https://www.sportstravelmagazine.com/sports-and-covid-19-what-happened-earlier-this-summer/.
Villar, J. G., & Guerrero, P. R. (2009). Sports attendance: A survey of the literature 1973-2007. Rivista di Diritto e di Economia dello Sport, 5(2), 112-151.
Brandon Podgorski is an Assistant Professor of Sport Management at Trine University and the Director of the Trine Center for Sports Studies.