Abstract
The COVID-19 pandemic in 2020 has impacted many industries such as the professional sports business. Almost all professional sports leagues, events, and championships have been either postponed or canceled. This chapter investigates the challenges of reduced revenue streams due to empty venues and canceled broadcasts on TV and on the internet. Also, the effects on the related merchandising business are addressed. Based on a theoretical analysis and an empirical study, the chapter highlights these direct impacts and sheds light on the indirect effects as well. As the pandemic disconnects sports enthusiasts to a certain extent from the team and/or athletes of their choice, certain behavioral aspects could appear. The results of the study underline that the financial effects in the short-term could almost be balanced; the medium- to long-term effects, however, will decrease the market value and threaten the business model of professional sports.
TopBackground
The sports industry has been one of the fastest growing markets in recent years. Shortly before the Corona outbreak the Business Research Company released a research paper stating a 4.3% CAGR of the sports industry from 2014 to (Torrens University Australia, 2020) and a further growth outlook until 2024 (Statista, 2020a). The overall yearly revenue of professional sports was identified at approximately 500 billion USD of which the majority was attributed to Soccer (43%) followed by American Football (13%), Baseball (12%), Formula 1 (7%) and Basketball (7%) (Statista, 2020a). Some of the most valuable teams are the Dallas Cowboys with a revenue of 5,5 billion USD followed by the New York Yankees (5 billion USD), Real Madrid (4,2 billion USD), FC Barcelona / 4,0 billion USD) and Manchester United (3,8 billion USD) (Badenhausen, 2020). However, the COVID-19 pandemic has changed everything. The revenue level of 498 bill. USD in 2019 (Statista, 2020a) will surely not be reached in 2020 as spectators were kept out of live events since March in most professional sports. Cancelations, early terminations of leagues or postponing of major events such as the Olympics or the European Soccer Championships have wiped out broadcasting, advertising, ticket sale and merchandising revenues in some areas completely – a least for the year 2020. If they will be back to regular levels in 2021 or in the years to come is unknown from today’s perspective. In addition to not recoverable revenues from the pandemic situation, another aspect plays an important role: how will the attitudes towards professional sports change in an after Corona world? There are behavioral and psychological effects. Behavior-wise many sports fans and frequent visitors to league games, sport events and live broadcasts had to re-shuffle their time budget during the COVID-19 pandemic constraints. Some former passive sports enthusiasts might have found a re-entry into active sports for themselves, others have rediscovered the importance of family time or forgotten hobbies while others have adapted new ways of dealing with free time and spend time outside. A study published by Statista (2020b) under reference to Yougov.de regarding the interest in sports events on TV indicated that people may rather spend time with the family or enjoy the weather outside. Psychologically, in particular sports fans with a great emotional affection to a particular club, player or racing team might experience a certain loosening of this relationship. They may feel emotionally left alone and abandoned by their favorite sports team due to cancelation of the leagues, although the team is not the reason. However, strongly emotionally driven sports fans might turn their psychological attention to something or somebody else and will probably never be this close fan of the professional sports team or player any more. This could have serious consequences for the business model of professional sports. A study by PWC (2020) among 698 experts in the sports industry from 50 countries revealed that 43,4% expect a full recovery to the pre-Corona levels by 2022, while another 27,1% expect that to happen by 2023, and 10,9% project that scenario for 2024.
Key Terms in this Chapter
Professional Sports Revenues: Revenues which are generated by a sports business organization attending competitions (team and/ or athlete) through broadcasting and/ or internet streaming rights, selling of related merchandising, sponsorships, and ticket sales.
Ticket Sales: Revenues generated through ticket sales refer to ticket prices per category multiplied with the volume of ticket for a specific category within the sports venue. If retail and/ or wholesale partners are involved the respective margins have to be deduced. Ticket prices need to be treated before VAT, which is to be contributed by the visitor.
Broadcasting Rights: Assigning exclusive rights to broadcast professional sport events on TV. These rights are generally compensated on a contractual basis and can refer to an individual event, a tournament or a league.
Internet Streaming Rights: Assigning exclusive rights to stream professional sport events on the internet. These rights are generally compensated on a contractual basis and can refer to an individual event, a tournament, or a league.
Extra Charges (Also Referred to as Extra Premiums): A pricing strategy by professional sports event organizers by adding a price premium on top of a regular ticket prices due to an above-average demand to attend specific events. This strategy is applied often when top athletes or teams contest again average or below average athletes o teams.
Merchandising: Revenues generated through merchandising refer to team/ athlete-specific sports-wear, sports apparel, fan and souvenir articles and memorabilia.
Sports Venue Capacity Management: Refers to the management of restricted capacity due to regulations such as the COVID-19 restrictions.