Social distancing measures have slowed the spread of COVID-19, but how much has it affected the way we enjoy sports? Not surprisingly, the pandemic has also led to a cancelling of the sporting calendar for 2020, with all professional leagues having halted events to prevent spreading the virus.
Global sports grew in value by 45% between 2011 and 2018, and the last estimates before the pandemic were in the range of $500 billion. This growth trajectory has been completely thwarted by coronavirus because the pandemic has had an effect on every single segment of the sporting chain.
How Sports Teams Make Money
In the most basic way, sporting teams earn their money in three main ways:
- Sponsorships (commercial advertising)
- Media rights (broadcasting sporting events), and
- Sale of tickets and hospitality (match day revenue)
If coronavirus has showed us anything, it’s that professional sports exists in a world with highly interdependent relationships, and when one unravels, the whole thing becomes unsustainable. You can think of professional sports teams as entertainment companies, in the sense that individual teams operate like a TV channel with their own identity and fan base. However, the fixture list, similar to ‘programming schedule’ is set by the seniors in the league; and the reality is that just like a streaming network, sports is entertainment that is fueled by how many eyeballs the product attracts.
NFL commands the highest revenue in major sport leagues in the U.S., and while the total broadcasting revenue in the U.S. is $50 billion, most of that money goes to just 10 sports leagues. Whether it’s baseball or basketball, every sport has its own way of monetizing its league, but the general principle is the same: money is distributed in the clubs through payments based on performance and/or competitions bonuses. Clubs have their own process of making money though endorsements, competing in lucrative tournaments, and setting up direct-to-consumer subscriptions.
Successful play is a sure way for teams to make money, but generally speaking, success for any team is determined by its alliance with a parent league. When these big sports leagues wield their power on media rights, they can generate billions of dollars a year. The NBA for example, it set to make $24 billion in TV broadcasting over nine years. Similarly, Major League Baseball signed a 5-year broadcasting deal worth at least $5 billion.
How Coronavirus Has Changed Major League Sport
A lot of industry insiders and websites such as lines.com have raised concern over the sustainability of these billion-dollar deals between sports leagues and media; and also the entire structure of pro-sports which may be severely altered (at least in the short term) by coronavirus. Sports experts and the media have some sort of understanding that is based in the idea that broadcasting rights serve as a “linchpin” to traditional television, holding it together for the benefit of both parties.
The shutdown forced by COVID-19 could cause major leagues to break their contracts and become unable to fulfill many of their commitments to broadcasters, which in turn will make it impossible for sports teams to cover their commitments to players and non-playing staff. Though it’s unlikely that this will happen, a lack of sports could mean that clubs don’t have TV deals, and no ticket revenue – and without income, that would be the end of competitive sports as we know it.
So,with so many issues having been put under the spotlight in the wake of covid-19, the industry is rushing to adopt policies and strategies that will prevent disruption to major league sport. One way this is happening is by club owners investing more money in digital products, and basically growing their online fan base. The NBA has signed a deal to improve access to their League Pass, which basically involves providing archived content to subscribers for free, as a way to keep fans engaged when games are cancelled. The baseball league is doing the same thing, and in the U.K, the Premier League had planned to set up a similar service by 2022.
What Does All This Mean?
The biggest sports leagues in the world are right now involved in discussions with broadcasters and their sponsors to establish solutions that could be used as contingency for future sports disruption. At the moment, teams are ready to play live without audiences to keep some revenue coming in, but this has its own problems as it eliminates match-day-revenue, and can in fact lead to some fans losing interest in their sport.
In the long term, the current model for sports will look pretty much the same as it did before the pandemic, but there’s a good chance that teams will try not to be so dependent on TV revenue instead preferring to cultivate their own audiences online. The direct-to-consumer model was already a growing service in sport, but it’s likely to be more serious now. Sports leagues could also look for alternative income streams which may include gambling, digital products, live payments, gaming competitions, fan commentary, analysis, and more. Virtual sports are going to experience massive growth in the coming years.