Games will return. Will money flow back quickly?
Experts believes marketing, advertising budgets shrinking
Spring is the money season for NFL players. Free agents get new contracts, collegians get drafted and new endorsement deals are struck. Most years, the NFL Players Association holds sessions for rookies to teach the value of building their brands and making themselves more marketable. The union typically will host a meetup that connects firstyear players with business and marketing partners.
Like it has so many things, the global coronavirus pandemic has severely impacted the NFLPA’s rookie agenda. And it will have an even larger impact on the marketing landscape awaiting athletes in all sports as the country emerges from the shutdown.
Instead of brand recognition, the NFLPA put together a series of webinars focused on helping players survive a crashed economy.
“Most non-football revenue streams are on pause,” NFLPA communications manager Brandon Parker said. “Instead of having guys trying to look outward in a normal set of circumstances, we’re using this time to remind them how to save the money they actually have and make those resources go longer than they maybe normally would have.”
As professional leagues, athletes and individual businesses adjust to an uncertain fiscal future, the numbers are harrowing. Americans have filed more than 40 million claims for jobless benefits in the past 10 weeks, according to Labor Department data. As the country falls into a recession, corporate balance sheets will reflect tighter marketing budgets. In January, one marketing firm projected sports sponsorship to total $48.4 billion in 2020, including nearly $6 billion alone from this summer’s Tokyo Olympics. Now, the Olympics – and all bets – are off. “We’re going to see in this quarter and the next quarter and probably for the total of the year, a massive reduction in spending on advertising, generally,” said Marc Ganis of Sportscorp Ltd., a Chicago-based sports business advisory firm. “Massive reduction. We’re talking about more than the 2008-2009 financial crisis. Massive reduction in advertising and marketing spending . . . . However, sports will be one exception. When sports is back, in whatever capacity, advertisers are going to be clamoring to be a part of it.”
--Marketing and advertising partnerships are a valuable source of supplemental income for athletes across the board. Those with enormous deals like LeBron James, Roger Federer and Tom Brady make up only a small percentage of those signed, however. Things aren’t as simple for others.
“A lot of the marketing opportunities we did have for our rookie receiver fell by the wayside,” said Luke Inveiss, partner at The Institute For Athletes sports agency. “Those guys don’t have any money. They’re just coming from college. They have absolutely no money right now. So that’s significantly affecting them and their cash flow and what they’d be earning right away because also they’re not even guaranteed to make the roster.”
NFL rookies are in limbo, but the collective bargaining agreement dictates that signed contracts are paid. Major League Baseball is at odds over pay after it originally reached an agreement in March to pay players a prorated figure based on games played. NBA players took a 25 percent pay cut. Other leagues are still wrangling with the issue.
One thing is certain: As leagues remain dark and first-quarter earning reports come out, the robust marketing deals athletes could have expected before the pandemic are no more.
Baltimore-based Under Armour, for example, released its first quarter results in May and noted a 23 percent loss of revenue and an expected reduction in operating expenses of $325 million. The sports apparel giant plans “actions to limit broader marketing activations until we have greater visibility into the magnitude of virus impact on consumer demand and behavior.”
Often, athletes sign smaller deals with local companies. Those also have disappeared, according to Ira Turner of Agency 1 Sports Group. Local car companies and restaurants are just trying to stay afloat. Athletes receive appearance fees at summer camps, but most of those are already canceled.
“Pretty much everything’s put on hold,” said Turner. “Companies basically want to assess where they come out on the other side of this to determine how they want to move forward . . . . So all the disposable income they had or for marketing and to give to players, pretty much all kind of dried up.”
- - The pandemic has forced leagues, teams and individual athletes to adjust on the fly. The NFL and WNBA pushed forward with their drafts, both of which went virtual.
The WNBA in particular was adamant about holding its draft, in part, so players could get exposure after concerns surfaced about endorsement deals disappearing. Nike immediately announced a deal with No. 1 pick Sabrina Ionescu, the most well-known player in the 2020 draft, but deals for other players have been sparse. In an attempt to help individual teams, the league has collected financial data and is collaborating with owners who have seen their primary business take financial hits.
Sponsorship was already a major focus for WNBA Commissioner Cathy Engelbert.
“There are certainly challenges with companies,” Engelbert said. “Sponsorships are really a discretionary spend . . . . We have a unique narrative around why people would invest in us. It wasn’t just for the traditional media metrics and those kinds of things. ... I’m pretty confident from the discussions I’ve had that maybe some of them are on hold or slower than we’d like, but I think when we come out of this and the economy starts to recover, we’ll be back where we were.”
Social media and streaming platforms have grown in importance for players and leagues to stay in front of consumers. Athletes have taken the opportunity to promote themselves and their brands through video game tournaments and Instagram live sessions. Former NBA MVP Stephen Curry and Nationals star Ryan Zimmerman both did online interviews with infectious-disease expert Anthony S. Fauci.
The NFL was particularly in tune to its brand partnerships leading into its virtual draft. Many of the draft entrants streamed live on ESPN from their homes or other locations and conducted interviews after being selected. Without having the same control of the physical environment as previous years, the league sent a memo to those players detailing what they could wear and what could be displayed in the rooms. Apparel logos were limited to NFL officially licensed partners.
While travel, restaurants and car markets have taken significant hits, many direct-to-consumer companies have thrived. Grocery, prepared food and other goods delivery services, for example, have done well as the crisis shifted consumer habits.
“I’m talking to leagues that are like this sponsor just dropped out and this sponsor claimed force majeure,” said Andrew Kline, managing director of sports-focused investment bank Park Lane. “But then they’re getting [other sponsors] that are like, ‘Hey, we’re on fire right now. We need to get the message out there. How can we do that?’ The problem is, for sport, they don’t have the medium that they normally have.”
- - Sports often serves as a healing moment for the country to come together and return to normalcy after a tragedy. Images such as George W. Bush throwing out the first pitch at Yankee Stadium after the 9/11 terrorist attacks, the New Orleans Saints returning to the Superdome after Hurricane Katrina, or David Ortiz taking the microphone at Fenway Park following the Boston Marathon bombings linger in the public consciousness.
Those types of moments, whenever they come, will provide those companies still standing the opportunity to align themselves with organizations and athletes that represent an end to a worldwide pandemic.
“I always say that, marketing is the last thing that you want to cut out of your budget because you still have to position yourself in the marketplace,” said Lee McGinnis, professor of marketing at Stonehill College (Mass.). “Sports does signify [we’re] coming back . . . . Sports sponsorships are not going anywhere. There might be a small lull, but they’ll bounce back because the value of sports and everything else that goes along with it is too powerful.”
The comeback won’t be simple or seamless, though. The big four – NBA, NFL, MLB, NHL – have deeper pockets and robust corporate partnerships to better withstand a recession. Smaller leagues and organizations will have different challenges. Minor league baseball teams, for example, are feeling the effects as they operate on a much smaller, community scale and are much more reliant on concessions and ticket sales. Their partners are often local businesses without the war chest bigger conglomerates have so their experiences during the pandemic have been different.
The Frederick Keys, the Class A affiliate of the Baltimore Orioles, have had to issue refunds to some partners as the marketing budget has been frozen. Minor league baseball games typically include some kind of carefully-planned promotion, and those have been adjusted, and that affects ordering the featured items. The Keys have tried to reschedule first, push back to 2021 second or, finally, cancel all together.
The ballclub wants to preserve long-established relationships, but knows the future will look different.
“It’s hard for anybody to fork out money and not knowing that you’re going to get a return,” Keys director of marketing Maci Hill said. “I certainly think that from a marketing standpoint, there will be things that will never go back to the before. I don’t necessarily think it’s even a bad thing either. I think you just have to look at money in a different way. . . . A more case-by-case way. Is this something that’s going to guarantee me a return?”
Engelbert noted, “A really important angle is to make sure that our sponsors and partners see opportunity here in a time when it’s tough because companies are cutting certain expenses out of their budgets.”
The situation bears some similarities to the recession of 2008 with businesses closing and the economy in the tank, but there was more unknown with that event. The coronavirus has been a physical shutdown of the country with the belief that it will eventually be safe for everyone to return to work. How long that will take - and what the marketplace may look like on the other side - is open for debate. Sports, however, have proven to have staying power.
“After the Great Recession that we had, what was learned is that sports is recession resistant,” Ganis said, “So people kept buying tickets, values of teams were stable or going up. Broadcasting audiences were going up.
“Sports is going to lead us back to a feeling of normalcy again.”