A drastic restructuring that could upend the status quo
Harsh times could await some Bay Area franchises
Could things have gone any worse for the Golden State Warriors in recent months?
The team financed the brand new $1.4 billion Chase Center, saw its dynasty collapse in the arena’s debut season and now — because of the coronavirus pandemic — has seen virtually all revenue streams dry up. The final seven regularseason home games at Chase vanished, as did nine weeks and counting
of concerts and other events that were expected to keep money flowing in. In March, the organization accounted for the largest job cuts at a single Bay Area location, laying off 1,720 parttime workers.
The Warriors aren’t alone, of course. No sports team will be spared the economic consequences of this crisis. As the economy contracts and consumers choose necessities over the luxury of sports, much harsher times might be ahead.
“There could be a radical restructuring of what sports will look like,” said Roger Noll, a Stanford professor emeritus who specializes in the economics of sports.
Sports ownership is, almost exclusively, the dalliance of the extremely wealthy. To that end, most owners likely can ride out shortterm losses. But if the entire 2020 calendar year is lost, if there is no vaccine or herd immunity in 2021 and the crisis stretches longer, the fallout could be alarming.
No one is particularly worried about the behemoth of the NFL surviving, even in a prolonged downturn. But not all sports are as well positioned to ride out rough times.
“And at the other end of the spectrum is the NHL and MLS,” Noll said. “It’s unlikely many of those teams could survive the loss of two seasons.”
The NBA is eager to find a way to hold its playoffs. The league makes the majority of its money in the postseason: The NBA Finals have generated roughly between $250 million$350 million annually in recent years. Because the NBA is a revenuesharing league, that money is imperative to keep even the entire league solvent. And because leagues with salary caps, like the NBA, look backward to determine how much they can spend, players’ future salaries will be determined by a down year. Or two.
Though the pandemic will cause economic hardship, the Warriors will survive. The Warriors’ ownership has made a tremendous profit over the past decade; the team that was bought for $450 million in 2010 is now worth, according to Forbes, $4.3 billion.
And at least the Warriors, unlike their counterparts in Los Angeles, were already officially eliminated from playoff contention at the time of the league shutdown.
“I guess we picked a really good year to suck,” Warriors President Rick Welts said, his tongue firmly in his cheek.
Major League Baseball is concocting a plan to reopen and will attempt to play at least half a season, likely without fans, with games restricted by region in order to cut down on travel. The economic fallout will be severe. Baseball does not have the type of lucrative national television contract that football receives; instead teams’ national broadcast revenue is supplemented by less profitable regional broadcast deals.
Because of the television structure and the number of games, baseball is highly dependent on gate revenues: Ticket sales, parking and concessions account for anywhere from 40%60% of total revenue. Some teams that draw particularly well, like the Giants, have counted on 60% of their revenue generated by fans coming to the ballpark. That money could completely disappear in 2020 and might be halved next season if socialdistancing restrictions are put in place.
Though baseball does not have a salary cap, owners are already trying to determine how to slash salaries and have proposed 5050 revenue sharing. But the players’ association initially has balked, arguing that the such a plan is a de facto salary cap and that players already have agreed to a prorated portion of their salaries based on games played this season.
Many of the contracts governing sports may be forced to trigger “force majeure” clauses.
“Contracts often have a clause as to what happens if there is an unanticipated catastrophe,” Noll said. “They have a rough outline of what to do in case of disaster, though the clauses differ enormously in what the responsibilities of the parties are.”
Although the Giants are dependent on ballpark attendance, the team also has the luxury of having paid off privately financed Oracle Park. In addition, its ownership structure of 35 investors, which at times has seemed unwieldy, might be a bonus in times of catastrophe. The burden of the economic loss is dispersed.
That is not the case with the A’s, solely owned by John Fisher, whose net worth is estimated by Forbes to be $2 billion. But the source of much of Fisher’s wealth, The Gap, is among the retail companies suffering most during the shutdown, with its stock cratering in recent weeks.
Though it’s a wellworn joke that the A’s are accustomed to playing without fans, the team is still dependent on ticket revenue. In addition, its future home is uncertain. The plans for a privately financed ballpark at Howard Terminal raised skepticism even before the pandemic. But Noll actually thinks the A’s could have an interesting opportunity, creating a model for the future.
“Though they are one of the weakest teams financially, they don’t have a huge payroll or play in a huge new stadium,” Noll said. “If what is coming is a new world, they’re in a position to do something no other team has done. They could be the first.”
That would mean building, likely on their current Coliseum site, a stadium for the future, with socialdistancing opportunities and reduced capacity.
Noll has long been a skeptic of public financing for stadiums and is adept at poking holes in the myths of the benefits such buildings bring to communities. He’s curious to see what happens with the Las Vegas Raiders’ $2 billion Allegiant Stadium, scheduled to open this fall. The stadium is partially financed by $750 million in public money and is situated in a place more dependent on tourist revenue than, in Noll’s words, “any place on the planet.” A lost season, or seasons with far fewer fans, could be a financial disaster, particularly for the state of Nevada.
The Rams and Chargers also have a stadium scheduled to open this fall (both new stadiums could be delayed because of construction shutdowns). SoFi Stadium will seat more than 70,000 and comes with a price tag of almost $5 billion. Noll wonders what will happen if the way games are attended in the future is fundamentally changed: “Will these goldplated venues become white elephants?”
The 49ers play in a stadium that was partially financed in public money, which has triggered lawsuits between the team and the city of Santa Clara, and that has had its share of empty seats over its first six years of existence.
But the 49ers, like most of the NFL (Raiders owner Mark Davis is a rare exception), are deeppocketed enough to weather a downturn. The NFL’s primary revenue driver is its lucrative television contract, which brings in $5 billion annually. That means the NFL is far less dependent on having fans in attendance; in the minds of many observers, the league is positioned well because it is a madefortelevision product even without a pandemic.
The financial impact on college sports is also potentially revolutionary. Division I schools already have lost the income from the NCAA basketball tournament, which generated more than $1 billion in revenue in 2019; as a consequence, the NCAA reduced its payouts to member schools by twothirds.
Losing any or all of the college football season would cause even harsher consequences. Though many Division I schools lose money on football (a 2014 NCAA study found that only 20, or 16%, of the toptier football teams turn a profit), the powerhouse programs fuel funding for most other sports and athleticdepartment budgets at their schools.
“Football revenue drives the train and a lot of it is TV revenue,” said former Stanford athletic director Ted Leland. But not all television revenue is created equal. For example, the Pac12 Network does not have the broadcast partnerships or reach that its counterparts in the Big Ten and the SEC have.
The NCAA has less say over football than it does over the basketball tournament. League commissioners are the primary decisionmakers, and the SEC already has announced it plans to play in the fall. But will schedules include nonconference games? Many of the secondtier programs depend on those “bodybag” games against Power Five opponents for a huge windfall, through guaranteed pay days. And how much travel? Gov. Gavin Newsom already has cast doubt on any large fall gatherings, which might mean California schools will not be able to play at all or will be forced to play out of state.
Even before the coronavirus, college sports were facing major changes and this crisis could be an accelerator. The Power Five conferences could consolidate and smaller programs might be forced to abandon football or drop to Division III, because they don’t have the finances required to maintain the number of sports required for a Division I program, meaning players would no longer get scholarships.
“Schools could reduce costs to virtually zero by sacrificing students,” Noll said. “They could just stop giving athletic scholarships on a moment’s notice.”
Any harsh changes in college sports also could mean funds from donors — who hold football particularly precious — could dry up.
Staffing cuts have been the first economic consequence of the pandemic for teams, starting with event workers. Players’ salaries will take a hit. Rich people and the prestige of owning a majorleague team will remain, but a few owners might be forced to sell.
Lesser leagues may experience contraction or be wiped out. Some college athletic departments already have begun cutting sports: Cincinnati men’s soccer and Old Dominion’s wrestling programs were among the first victims.
In their most futuristic view, some experts can envision a sports world created mainly for the media consumer, through mainstream broadcast and streaming services, with arenas turned into basically elaborate television stages. With radically reduced seating because of socialdistancing measures, the ingame experience could become exclusively for the highrollers, who would have the space and resources to protect themselves.
“Professional sports could become something for a very small number of people with extremely high prices,” Noll said.
But sports executives are holding out hope that, despite the upheaval, normalcy is somewhere in the future.
“Sports is going to continue,” Welts said. “I don’t think it will be less important. I think it will be more important. But it may be different.”
“If what is coming is a new world, they’re in a position to do something no other team has done. They could be the first.”
Roger Noll, Stanford professor emeritus, on the A’s opportunity to build the stadium for the new future