The Future of Sports & Sports Business: Sports Economy

Posted on April 24th, 2009. Written by Emmett Jones.

Few things are as hard to read as the ever changing sports economy.  Remember when people used to think that sports were recession proof? How hilarious does that sound now, in the first half of 2009?  I wrote about sports not being recession proof in October of 2008; 6 months ago.  Since then?  The NBA has borrowed more than $175 million dollars to bail out poorly performing teams, Celine Dion is buying hockey teams off of people who can’t afford them, the Tampa Bay Lightning fired their mascot, and the Atlanta Falcons have closed physical stores due to too many online orders.  Clearly, not only are sports effected by the recession, the economy is having a significant impact on sports marketing, sports advertising, and fan retention.  It has now gone far beyond the casual sports fan choosing not to go to a baseball game due to a lack of disposable income; sports teams are in line waiting for hand-outs along with their fans.

What has caused this dramatic downturn in the sports economy?  Well, a few things.  Obviously, if you have an American economy that is consistently struggling, then at some point, due to trickle-down, the sports economy would be effected as well.  I personally think though, that some of the issues in the present sports economy are self-inflicted.  Everyone, including the league sports themselves, seemed to believe that they would be unaffected by a recession. Therefore, the sports world was not exactly running rampant with contingency plans.

Do the Yankees and the Mets plan billion dollar stadiums if they were prudently spending money and examining economic forecasts?

What about “Jerry Jones Stadium” and the surrounding shops and amenities that won’t be built before the stadium opens…Would the plan to create a $1.2 billion dollar “glory park” been scaled back if the Cowboys had consulted more than just engineers and subcontractors?

Economic decisions in sports always seem to be reactionary, in part because most sports executives have the same mindset as a majority of sports athletes; that air of invincibility and an almost utopian outlook on life.  It’s like Murphy’s Law (Whatever can go wrong, will go wrong)  in reverse. Lets call it “Steinbrenner’s Law”, shall we?

The other underlying concept in sports today, besides Steinbrenner’s Law, is the globalization of American sports.  That’s globalization not in terms of playing basketball in both American and Europe, but in terms of NBA basketball, with current NBA stars, being played in America and Europe.  See the sports economy paradox?

If American sports teams are laying people off and receiving bail-out loans why are you attempting to expand leagues to overseas markets, and seemingly spreading yourself too thin? To generate new streams of revenue because overseas markets are untapped and American teams are struggling and receiving bail-out loans.

I’m not quite sure how you reconcile the idea of moving a Super Bowl to London when you’ve frozen bonuses and laid off workers, and will lose revenue from your American fan base.  Or how you are working on creating basketball leagues in Europe when half of your teams needed to borrow $175 million dollars, some due to $15 million-plus operating losses.  I don’t think sports executives are completely able to reconcile that situation either.  But I do think they are looking into the future, which might look a little like this…

THE FUTURE OF THE SPORTS ECONOMY

If nothing else, the recession has taught sports leagues to take economic theory seriously.  Contrary to popular sports belief, simple economic concepts like supply and demand do apply to sports teams (ask the Yankees upper management about their empty $2,600 seats for more information about economic theory).  And while I’m sure  sports teams have some sort of economic consulting guru on staff, I foresee many teams increasing their spending in the economic forecasting department.  Its not enough to look at the prior year’s numbers to set this year’s ticket prices; national foreign policy, future oil prices, unemployment rates, etc. have to come into play too, in order for any team to maximize their profits.

And what of the dreaded “C-word”?  Is contraction in the future of sports?  Possibly.  Lets face it, there are currently a number of sports economies that are ill-equipped to handle sports teams.  You can’t continue to lose money hand-over-fist every year without some sort of change.  For those struggling sports economies, the answer is simple, contract or relocate.  And yes, those are the only two answers.  The Washington Nationals are not going to start pulling thousands of extra fans anytime soon.  And at some point, the numerous sports teams that relied or rely on new stadiums to generate enough revenue to keep them out of bankruptcy?  Well, every sports team can’t win that war, everytime.  Relocation or contraction is the only answer.

The time of the invincible sports team, or even the invincible sport, is over.  The future of the sports economy brings with it a hard look at league structure, and will force upper management to look at various issues such as contraction, relocation, or global expansion?  How do I maximize profits in a down economy, and do I lean more towards economic forecasting to look at ancillary factors that may effect my business?

You know what makes the sports-economy so great? All of the things discussed in this article could be so completely wrong, almost to the point of hilarity.  Baseball might be on the moon in 10 years, who knows?  Can’t beat the ever-changing sports economy, can you?

1 Responses »

1. 

   SportsCardGirl

   July 26, 2010 • 10:16 am

   If there would be a decrease for the players, it might have great impact on them and their performances is at stake. I hope that the passion would still be there.
   Regarding the declared lost, there might something wrong. But i still don’t want to judge. Lets just hope that this will be settled and hope that the life of NBA will still remain.

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