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.