Mar 062009
 

We all know that we are in a global recession right now and that this is likely to have a serious impact on a number of industries, including professional sports. We have seen several sports leagues and organizations cut back staff or cut ticket prices and we have all read about the speculation of how the recession will impact salary caps in leagues where the salary cap exists. No doubt the recession is going to have an economic impact in the short term, but what kind of effect will it have in the long term?

The last 20-30 years has no doubt been a boon for pro sports as players salaries and franchise valuations have skyrocketed. A big reason for this has been the role of sports media. In September, ESPN will celebrate its thirtieth anniversary as the first “all sports” television station and from it began a huge growth in sports coverage. Now there are several all sports stations including sport specific sports stations and dozens, if not hundred plus all sports radio stations. All of these television and radio stations have needed content which has driven up local and national broadcast rights revenue and all of the sports talk shows have really boosted the overall interest in sports. Then the internet and blogs came along and fans themselves could create their own sports content and generate their own sports buzz.

It didn’t stop with fans either. City, state/provincial and even federal politicians got all caught up in the sports buzz and many of them took a ‘if you build it they will come’ attitude and several cities built, largely with taxpayer money, sports stadiums and arenas. Some cities didn’t even have pro sports franchises but built them in hopes of attracting one (see Las Vegas and Kansas City who are looking for hockey or basketball franchises for their mostly empty arenas). Sports leagues accepted many cities offers and expanded, landing themselves huge expansion fee revenue in the process.

But things are changing. The boon in professional sports has coincided with an overall boon in personal consumption of everything from big houses, to big SUVs to big screen TVs, and spending hundreds of dollars, several times a year to go watch a sporting event. The result is that the savings rate for individuals has fallen from 10+ percent in the early 1980s to the point where the American savings rate was negative meaning people on average spend more of their disposable income than they actually had. As you can imagine, this isn’t sustainable for very long and the end result is what we have now: an economic collapse.

So what happens if people, and businesses, decide they can no longer spend without concern for the future and decide that instead of spending every penny they have, and then some, they should save money closer to historical norms, 8-10%, how is this going to affect professional sports? It is quite possible that we see an unravelling of much of what has happened in the professional sports industry over the last 20-30 years. If people decide, as they pretty much have to, to spend less money, not only will that mean they will likely choose to go to fewer sporting events, but also they will be buying fewer cars, taking fewer vacations, going out to dinner less frequently, buying fewer ‘designer’ items. That in turn will put business in a crunch while will force them to cut advertising budgets (if no one is buying, there is no need to advertise anyway) and advertising revenue for sports franchises will take a significant hit. It will also mean less advertising revenue for sports media outlets which will result in those media outlets being less interested in paying big bucks for broadcasting rights.

As the North American economy shifts from a largely consumption based economy back to a more balanced consumption/savings based economy professional sports will have to adjust. This is not just going to be managing through a one to two year recession; which will have a quick and immediate impact on league revenues. This will also entail a more long-term adjustment process where individuals will value saving money as much or more than spending it. Adjustments have begun to occur as well both within sports leagues and franchises and in related industries (one of the first, and once highly successful, all-sports radio stations, WDFN in Detroit, has eliminated all local content). The professional sports heyday is over and an era of recession likely followed by a decade stagnation is likely in store for professional sports.

  6 Responses to “Has Pro Sports seen its Heyday?”

  1.  

    It’s certainly possible that pro sports has seen it’s heyday, but sports is still very much a part of the culture. Until that starts to change, I don’t think we’ll see an “unraveling” any time soon. Certainly the economic situation will have its affect on ticket sales in the short term, but I believe MLB and the NHL are near, or above, their all-time attendance highs.

  2.  

    I don’t think professional sports is going to disappear but I do see it taking a step backwards and then plateauing. I suspect the rapid growth we have seen through the 1990′s and into this decade is a thing of the past.

    The counter argument is maybe people decide to ditch the pricey vacation and choose to save money by going to local sporting events instead. That may end up being true, but I suspect ticket buyers will likely become more price conscious.

  3.  

    Well i won’t speak about sports other then hockey but i really don’t see the worlds recession hurting the nhl. I do think it will show which cities are true hockey markets and which ones aren’t, but i view this as a positive all it means is we’ll see a nashville be moved somewhere else and it hard to get any worse then nashville.

    Contraction will never happen in the nhl, one owners lose big money when it happens and droping below the 30 team mark really makes the nhl appear weak compared to basketball especially.

    Another positive is the salary cap being in place afterall it is designed to make sure the league has the same percentage of revenues. beauty of this is the lower the revenues the lower player salaries will become and cheaper ticket prices become so it really if anything benefits the common fan. unless for us who live in hockey die hard areas vancouver, montreal toronto esp will never get cheap tickets.

    then looking at the talent thats starting to come into the nhl we might be seeing some of the most pure offensive gifted players well since lemieux anyways . ovechkin malkin crosby tavares just to name a few all appear to have offensive talents that even make a great player like iginla look like a normal guy.

    But i do see one major major problem on the horizon and it’ll be really interest to see how they attempt to correct it. David as you’ve seen in everyones posts cap space is becoming a big big problem alot of gms rushed out of the gate when the cap was skyrocketing and handed out huge annual salaries for decades in some cases. It’s only a matter of time with this recession that the cap will drop below the 50 million mark. how is a team like the rangers suppose to fill out a roster?

    Everyone in hockey is saying they except a cap of around 50 million in the 10-11 season well lets say there right the rangers have 35 million roughly committed to only 6 players in the 10-11 season. that leaves 15 million left to sign 14 active guys not including scratches. there plenty of major market teams in a similar situation. Now i can’t see 80% of players in the nhl at 1 mill or less and i know the nhlpa won’t want such a difference between so called stars in the nhl and second tier guys which in this case would be a really solid player like a kesler in vancouver for example.

    Now whats a possible solution to all this i can think of only one but it’s completely new and would completely change sports finances and make it difficult for casual fans to follow .
    I say instead of signing a player to say a 7 million a year contract for 5 years with a current cap of 50 million. I say u sign that same guy to a percentage of your cap. so instead of 7 million he’s signed to 7.14% of your total cap space. so if the cap is at 50 he makes 7 million for the season if the cap goes up to 60 million then that same player would now make 8.4 million.

    the whole point of this is it now means gm’s no longer need to factor in which way the cap will go all they need to decent is how valueble a player is to there team just like they do now. hense avoid gm from crippling there teams when u have a sudden downward spiral like were about to see in the new few years.

    david would like u here if this idea interests you or if it seemed just flat out stupid to you

  4.  

    Mark, I think that when the next CBA gets negotiated there is going to be a lot on the table. There are 2 years left in the current CBA which means that the NHL and NHLPA will be negotiating during the 2010-11 season. Negotiations are going to be near impossibly because no one will be happy with the state of the league if the salary cap drops to 50 million.

    There are already a number of things the players don’t like about the current CBA beyond the obvious of how the cap places a drag on salaries. The players this year are having 18% of their salaries held back in escrow and unlike previous years they are not going to get this money back. If the cap drops over the next couple seasons it isn’t going to get any better either.

    If the forecast is for the salary cap to fall, unrestricted free agents this summer and next are really going to feel the effect as there won’t be much money available to give them. Don’t be surprised if some really good players are forced to sign bargain basement contracts. Players are going to hate this.

    If the salary cap falls, several teams are going to be in deep trouble as you point out. The Rangers, Flyers, etc. are going to have to find some salary cap room and the only way they will be able to do this is send quality NHL players to the AHL. The NHLPA isn’t going to enjoy seeing guys Wade Redden or Daniel Briere playing in the AHL, but it may happen if the cap drops enough. The owners are also going to hate having to pay big bucks to players who aren’t even playing on their team.

    The players are already upset about not being able to have any say in growing revenues (i.e. via where franchises are located). The big market teams may soon jump on this bandwagon as they grow tired of propping up small market teams through revenue sharing. Add to that that the small market teams drag down the salary cap which forces the big market teams to have to dump big priced players to the AHL and the NHL could face an internal power struggle.

    Now, how this all pans out will be interesting. The solution you present is certainly a viable one and may be the best solution because the system we are currently under works OK when revenues are rising but will prove to fail miserably when revenues are falling. The next CBA negotiation could become real messy without some real creative thinking and the development of a solution such as this one.

    Now whats a possible solution to all this i can think of only one but it’s completely new and would completely change sports finances and make it difficult for casual fans to follow .

    I actually don’t think people will find it that difficult to follow. Everyone can add to 100% and the 100% stays the same every year, unlike the salary cap. I currently have know idea how much salary cap space the Leafs have heading into this off season because I have no idea what next years cap will be. But if I knew they had 66% of next years cap spent I would know that they had up to 34% to allocate. I kind of like the idea really.

  5.  

    hey david you mentioned teams sending good players to the ahl and yes this will start to happen for sure. but i can’t see it becoming the mainstream idea and i think bettman will start strongly frowning on the teams that are using this method to get rid of bad contracts. afterall if this becomes the popular choice among teams u could see huge dollars in extra salaries from as many as possibly half the teams in the nhl. and at the end of the day it cuts into league profits and instead of the players making 56% of league revenue can’t remember the exact number it will be over 60 and i can’t see the league just going along with teams doing this especially not when it’s exceeding 50 million through all the teams combine or even higher. rangers alone could hve as much as 20 million if they send down say redden rosival and gomez plus a few smaller contract guys.

  6.  

    Actually, I believe players getting paid on NHL contracts, regardless of whether they play in the NHL or not, count against the player percentage of revenue, it just doesn’t count against the cap.

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