Sport cancellations disruptive to financial core
Teams, broadcasters, arenas feeling hit as seasons suspended on virus fears
The multibillion-dollar professional sports industry has been dealt a massive blow by the COVID-19 pandemic, leaving the owners of the Raptors, Maple Leafs and Blue Jays scrambling to minimize financial damage that could be “in the tens of millions,” according to one marketing expert.
Thursday, the NHL followed the NBA’s lead and suspended its season indefinitely to deal with the deadly outbreak.
Major League Baseball cancelled the rest of spring training and delayed the start of the season by two weeks. In the short term, that means lost revenue for teams, broadcasters, arenas and merchandise manufacturers and sellers, says David Carter, executive director of the Sports Business Institute at the University of Southern California.
“This is disrupting every part of the financial system for professional sports,” said Carter. The closest parallel for such a widespread disruption, Carter said, was the deadly 9/11 terrorist attacks in 2001. COVID-19, however, could have a much longer impact.
“9/11 was more acute. But as tragic as it was, after a few weeks, people got more comfortable as precautions were taken and people started travelling again,” said Carter. “This has no end in sight.”
As the initial shock from the suspension of the season wears off, teams and leagues are speaking to all of their business partners, including sponsors, broadcasters and players unions, Carter added.
“They’re trying to figure out how much of these losses they can claw back from insurers. They’re meeting with broadcasters. They’re meeting with sponsors,” said Carter. “They’re looking at force majeure clauses. So is everybody.”
A force majeure clause is essentially a legal escape clause, saying contractual obligations are null and void in the event of certain circumstances outside one of the parties’ controls.
A spokesperson for Maple Leaf Sports and Entertainment, which owns the Leafs, Raptors, MLS’s Toronto FC, AHL’s Marlies and CFL’s Toronto Argonauts, said a statement on the financial impact on the company likely wouldn’t be available for a few days. MLSE is owned by Rogers, BCE and Larry Tanenbaum. The Blue Jays are owned by Rogers alone.
Leagues including the NHL, which is heavily dependent on local revenues, especially ticket sales, are more at risk of shortterm financial hits than the NBA and NFL, which generate the bulk of their income from national TV contracts, says John Vrooman, an economist at Vanderbilt University.
Vrooman estimates just 20 per cent of revenue generated by NHL teams is from national sources, while 80 per cent is local.
In the NBA, it’s roughly 60 per cent local, 40 per cent national, while in Major League Baseball it’s 50-50. The NFL is roughly 40 per cent local, and 60 per cent national, Vrooman says.
“The $5 billion total revenue NHL is the most vulnerable, followed by the $9 billion revenue NBA, $11 billion revenue MLB, while the $15 billion total revenue NFL is the least vulnerable,” Vrooman said.
While some business partners — including broadcasters or sponsors — might not have signed a contract with a force majeure clause, it’s unlikely they’d still try to make teams and leagues fork over compensation, says David Kincaid, CEO and founder of Level5 Brand Ambassadors.
“It isn’t worth the long-term damage to your brand just to get some short-term compensation. These are massive brands, and they’ve gotten that way by people having positive perceptions of them. They’d be doing immense damage,” said Kincaid, a former senior marketing executive at Labatt Canada, who estimates the shortterm revenue hit to MLSE could be “in the tens of millions.”
During the NHL lockout in 2004-05 which wiped out the entire season, team executives worried about the long-term impact on sponsors, said Kincaid.
“People wondered ‘will the sponsors come back?’ Of course they did. Because those are still leagues and sports which are desirable properties.”
The International Olympic Committee, on the other hand, is risking damage to its own brand and that of sponsors by wavering on this summer’s Tokyo Olympics.
“The IOC is risking huge damage.
“This is a global pandemic. And the Olympics are the biggest global sporting event, aside from the World Cup. For them to be coming out as recently as this week saying that it’s going ahead is just incredibly shortsighted. And if I were one of their sponsors, I’d be concerned about the potential damage to my own brand,” Kincaid said.