The coronavirus pandemic has sent shockwaves across the world, resulting in a public health crisis that has killed tens of thousands and plunged the international market into what the International Monetary Fund warns would be the sharpest downturn since the Great Depression.
Not surprisingly, COVID-19 has also upended the sporting calendar, with professional leagues everywhere suspending their activities to limit the spread of this virus. The Summer Olympics, typically one the world’s most-watched sporting broadcasts, has been pushed back a year.
The worldwide value of the sports sector has been estimated to be 471bn in 2018 — an increase of 45% since 2011 — and earlier coronavirus stopped play, the only trajectory seemed to be upwards.
The business model of sports
Now, every component of the sporting value chain was changed, from athletes, teams and leagues, to the media that broadcast and cover matches.
Professional sports leagues are similar to entertainment firms, where every team in a league is like another channel. The teams have their own identities, workers and fan bases, but the entire’programming program’ (the rules of the game and the fixture list) are determined by the leagues. This comparison might not please the purists, but the fact in both sports and entertainment is the more eyeballs on the item, the more precious it is.
The significant sports are reliant on broadcasting earnings, as demonstrated by earnings data from the largest leagues within the past five decades. The international value of sports media rights is about $50bn — but 60 percent of this is accounted for by only 10 sports leagues.
Each game monetizes differently, but the general principle is that the coordinating body distributes its total income between its participating clubs. This is normally structured as minimum guaranteed payment with performance- or competition-related bonuses on top. Individual clubs are of course able to create their own earnings, by competing in different tournaments, signing their own sponsorship agreements or creating their own direct-to-consumer (D2C) media subscriptions. But basically, the financial success of any individual club depends upon its participation in an overarching league.
The collective power of these leagues to market media rights is extraordinary. The NBA’s recent TV deal is worth $24 billion over nine decades. The English Premier League agreed a new contract with broadcasters last year equal to $12 billion over three decades. Major League Baseball has a seven-year media arrangement worth over $5 billion.
Some have questioned the sustainability of those deals, taking into consideration the acceleration in”cord-cutting” as media consumption increasingly goes online. But they underline the importance of sports rights as a”linchpin” holding many standard television bundles together.
Anything more than a temporary shutdown would see the leagues not able to fulfill their obligations to broadcasters, restricting their capacity to distribute income back to the clubs. The effect on the industry would be striking: no games mean no TV deals and no matchday income; no income implies no nightclubs.
With this in mind, what strategies is the business adopting in response to the disturbance?
The industry is attempting to capitalize on the spike in media consumption by discovering new ways to engage customers. In the absence of live games, this means deepening the pool of content accessible to fans. By way of instance, sports broadcasters like ESPN and Fox Sports are showing classic games, archived content, documentaries, esports and market competitions in an attempt to keep consumers viewing. The NFL is making every match because 2009 available for streaming on its direct-to-consumer station Game Pass, a strategy which resulted in a 500-fold growth in daily sign-ups for the service.
Mark Tatum, Deputy Commissioner and Chief Operating Officer of the NBA explained the league’s strategy into the World Economic Forum:”We have launched an NBA 2K contest [an esports form of the game]. We have expedited production to bring forward the launch of a Michael Jordan documentary. We are hosting live quarantine parties on social websites with former and current players, and we are showing classic games each night — all things to continue to engage our fans during this time.”