Sports face weak corporate spending

CHICAGO Tue Oct 21, 2008 9:15am EDT

1 of 3. Smaller crowds are only the first domino to fall for U.S. sports leagues, which could see lower corporate spending, flat or declining revenue and stagnant team values in a global recession, analysts said.

Credit: Reuters/Graphic

Related Topics

CHICAGO (Reuters) - Smaller crowds are only the first domino to fall for U.S. sports leagues, which could see lower corporate spending, flat or declining revenue and stagnant team values in a global recession, analysts said.

To cope with these problems, league executives have begun offering deals on tickets, cutting jobs and in the case of the National Football League, reopening its labor deal with players to reduce costs.

While revenue remains strong in many sports, officials no longer see the sector as recession proof.

"We've taken an incredible leap with the pricing of tickets that is going to come back to haunt the major sports," said Michael Cramer, professor of sports management at New York University.

"It's not just the people at the bottom end," added Cramer, who is former president of Southwest Sports Group, which owns the Texas Rangers baseball and Dallas Stars hockey teams. "It's the people at the top end that don't have the money."

Signs of a slowdown abound, including a decline in regular-season attendance for Major League Baseball, soft season-ticket sales for the National Basketball Association and an NFL memo citing revenue pressures.

Throw in cutbacks by sponsors in such struggling industries as financial services and automotive, and the U.S. sports industry is facing more trouble.

"We'll cross our fingers like everyone else and hope that there's some type of economic recovery and any negative impact on our business will be a minimal one," National Hockey League Deputy Commissioner Bill Daly told Reuters this month.

Nevertheless, Daly said early signs were promising, as season ticket sales were up 4 percent and the league expected record revenue topping $2.7 billion.

Baseball also remains on track to report record revenue of $6.5 billion, but per-game attendance during the regular season slipped almost 1 percent. Commissioner Bud Selig warned teams this month not to overprice next year's tickets.

Fan frustration is rising along with ticket prices.

Brad Beam, a national sales manager for a technology company, used to attend 10 professional games a year in such sports as football, baseball and hockey, but he cut those due to the weak economy and high ticket prices.

"I'd rather spend $30 at happy hour, drinking three or four beers and eating appetizers with my buddies and watch it on TV," the 41-year-old St. Louis Park, Minnesota, resident said of a Minnesota Vikings NFL game.

SPORTS STRIKES?

Things could get worse for fans if a recession leads sports leagues to seek lower-cost deals with players, resulting in strikes, said Neal Pilson, head of his own New York sports consulting firm and former president of CBS Sports.

In May, the NFL opted to reopen its deal with the players' union early.

NBA Commissioner David Stern, attending a pre-season game in London last week, said the league had cut 9 percent of its work force in a "belt-tightening" move due to the weak economy and later added that it may need to consider cutting ticket prices.

NBA executives said season ticket sales were trailing last year's pace, but they hoped to make up the difference during the season. Despite the turmoil, however, the league is pushing ahead with plans to build at least 12 arenas in China.

Corporate sponsors also are tightening their belts.

U.S. automaker General Motors Corp (GM.N), struggling to hoard cash amid weak sales, said last month it would not run TV ads during the NFL's 2009 Super Bowl championship game after shelling out almost $46 million over the previous four years according to TNS Media Intelligence.

That move came two months after GM said it would cut sponsorship spending in motorsports, including for the National Association for Stock Car Auto Racing.

NASCAR could also prove vulnerable next year as many of this season's tickets were purchased before the recent turmoil, said Michael Pitts, associate professor of strategic management at Virginia Commonwealth University.

"How many people are going to have NASCAR tickets as Christmas presents? They're probably more likely to have gas cards," he said. "We might look back (on 2008) and say these were the good ol' days."

Lower sponsorship spending is the likely result of mergers in the financial sector brought on by bad mortgages and tighter credit, analysts said. Advertising budgets also will suffer.

Merrill Lynch & Co Inc MER.N and Wachovia Corp WB.N have numerous sports sponsorships, but their new owners also have deals and may not want additional relationships. The U.S. government took an 80 percent stake in insurer American International Group Inc (AIG.N), another big sports backer.

"Some of these companies are trying to stay afloat and they've got much bigger concerns than whether they will continue to sponsor this pro sports team," said William Chipps, senior editor with IEG Sponsorship Report.

In January, IEG estimated North American-based companies would spend $11.6 billion on sports sponsorships this year, up almost 17 percent from 2007. However, Chipps said the final number will likely be lower given the weak economy.

NO LOSS

Concern should be high in sports like golf, where corporate partners spend $5 million to $10 million a tournament, analysts said.

Despite no loss of corporate sponsors and deals through 2010 and beyond, golf has seen its TV ratings dip this year as its most popular player, Tiger Woods, shut down his season in mid-June to have knee surgery.

"We're hoping like hell for a turnaround because I don't think a prolonged terrible economy leaves anybody untouched," said Tom Wade, chief marketing officer for the PGA Tour, which has 15 of its 47 events this year supported by financial services companies.

Companies also are likely to cut spending on expensive seats and stadium naming rights deals that run as high as $20 million a year in the case of Citigroup Inc's (C.N) tie-up with the New York Mets baseball team, analysts said.

The timing is particularly poor for the Dallas Cowboys, and New York Jets and Giants, which will share a stadium, as the NFL teams hope to sign lucrative naming rights deals for stadiums opening over the next two years.

Even franchise values could suffer. The bidding for the iconic Chicago Cubs baseball team and related assets, which analysts had estimated could top $1 billion, has been delayed and potential buyers have said the economy could hurt bids.

"Ninety-nine percent of the world's assets declined 20 to 25 percent in a month and the only asset that's immune is the Chicago Cubs? I don't think so," said one person familiar with the sales process who asked not to be identified. "Nothing's immune."

(Additional reporting by Michael Szabo and editing by Jon Bramley in London)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Track China's Leaders