Monday, October 06, 2008

The Financial Crisis and Pro and College Sports

The positive side to this story is that all of our games provide great distractions from what's been going on in the equity and debt markets. We all have teams to root for -- even if they are the little league teams our kids play for -- and they are a great distraction to things that are well beyond our control.

But how does the turmoil in these markets affect our games? For example, how will these crises affect ticket sales, especially corporate ticket sales? How will this crisis affect sponsorships, naming rights, stadium expansions, donations to major college athletic programs? My guess is that the financial crisis will affect all of these things.

1. Alumni Donations. Yikes. These will drop, as you have to believe that even mega-net worth people will be worried and just won't show sufficient largesse. But let's break that comment down into two parts, one of which is much more troublesome than the other. The easier of the two problems for a university is that it won't receive future gifts or future pledges. The harder problem is where a university has started a project based on the pledge of future gifts, and, all of a sudden, the donor is unable to fulfill the pledge. What does the school do, only half build a natatorium? Booster clubs will suffer, as might season-ticket sales, even at places where you wouldn't think that to be likely. This crisis has hit everyone, and some of the biggest boosters also might be some of the most highly invested and leveraged people on the planet. With the markets the way they are, those monies might not be forthcoming.

2. Sponsorships. Mixed. Most certainly, the sports that depend on the formerly gilt-edged sponsors will suffer. I'm thinking golf, mostly, and even tennis, to a degree (you have to believe that even the luxury goods market might suffer in this environment). But the banks are in bad shape -- commercial and investment alike -- and the millions that they don't spend to put their name on a tournament they could deploy somewhere else. This doesn't mean, however, that all sports advertising goes away. First, check your local sports page -- there are hardly any ads, because mostly men read those pages and men just don't shop the way women do. Second, sports advertising is the lifeblood for certain companies, such as beer companies. So, assuming that those companies are generally healthy, they'll continue to advertise. Those that sell luxury items, though, might be in a pickle.

3. Naming Rights. The names to certain locations will change, but you wonder about new venues and those places where the naming rights might be up for renewal. Again, depending upon the cost, a company might deploy the funds elsewhere.

4. Ticket Sales. Mixed. On the one hand, sports are a distraction, and people might view their expenditure on tickets as sacrosanct. On the other hand, they aren't a necessity, and individuals and businesses alike might cut back on purchases to save an extra dollar. Those cutbacks would hurt teams' revenues two ways. Directly, the team won't make as money. Indirectly, they won't sell as much as the concession stands. Right now, there's a gap in renewals for the major pro sports. People already would have re-upped for pro basketball and hockey tickets, football season is almost one-third of the way gone, and re-upping for baseball won't happen for a while. That said, I would suspect that both companies and individuals will drop all sorts of full and partial season-ticket plans within the next year. Those drops could hurt free agents and a team's ability to sign them (after all, teams have owners, and you just don't know how the financial mess will affect the pocketbooks of those who pump money into teams to enable them to pay big signing bonuses).

5. Merchandise. Yikes, perhaps. The business press already has reported that retailers are expecting a dismal holiday season. The last time I stopped at my local Dick's Sporting Goods, a "real" Philadelphia Eagles game jersey cost $110. I found that hard to believe, so I asked the cashier if people actually bought them. The reply: "we sell a lot of them." That answer reminded me of the back-and-forth between Eddie Murphy and Bronson Pinchot in Beverly Hills Cop about a piece of sculpture Pinchot was trying to sell at an art gallery. When Pinchot told Murphy what the object d'art cost, Murphy replied with a classic, "Get the *&^%#! out of here." Somehow, families will buy holiday presents, but they won't buy as many of them and they won't spend as much. My guess is that Dick's either drops its price on the $110 Brian Westbrook jersey or will have a lot of them left over after the season.

Naturally, I hope that none of this will be the case, that colleges will be able to enhance all sorts of programs for students to stay fit and for elite athletes to compete. I also hope that pro sports will remain very vigorous, fully able to compete for free agents and buoyed by solid season-ticket and advertising revenues and revenues from the sale of merchandise. But the ramifications of the financial crisis have yet to fully play out, so universities must be bracing about what their solicitations will yield, and pro teams will be praying that there isn't too big a dropoff in people coming back and buying logo merchandise.

Good luck to everyone -- hang in there!


Corry Cropper said...

Re financing at universities: a lot of salaries are "endowed"--in other words, money comes from an untouched sum that generates enough interest to pay salaries, maintenance costs on stadiums, etc. Usually these are low-risk investments, but even that money could be affected by the recent crisis. Maybe Nick Saban will have to go a little lighter on the after-game parties this year.

And perhaps college athletics are too leveraged in terms of corporate and donor sponsorships--too much reliance on outside funding. They could use this crisis as a wake-up call and start cutting back on some of the exorbitant salaries paid to head-coaches and athletic fund-raisers (especially given that collegiate athletic departments have a dubious tax-exempt status).

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