There will be a need to reflect properly on the long-term weaknesses in sporting governance, structures and finances that may have been exposed
Mark OliverMark Oliver is the chairman and founder of Oliver & Ohlbaum Associates, leading the firm’s advice on media, entertainment and sports investments to both investors and target companies/organisations, covering over £20 billion of deals since 1995.
Over the last two months, against the background of the coronavirus pandemic, the world of live sport has gone through its own version of the five stages of grief - denial, anger, bargaining, depression and finally acceptance.
Out of eventual acceptance three main strands of short-term response are now clear to see – change the annual schedule, deal with any cash crunch, and give fans something, anything, to engage with in lockdown. But traumas like this one can have long-term effects, and some sports may never be the same again. That may not be a bad thing in itself.
A large number of sporting events have been either postponed to later in 2020 or to 2021 or have been cancelled altogether. On current plans there is likely to be a glut of sporting events this autumn, but all that could change if the fear, or actual appearance, of a second Covid-19 wave means further postponements or cancellations.
Some sports are trying to minimise the schedule shunting by planning to go ahead with no spectators and a limited number of quarantined playing, support and officiating staff, plus the all-important TV crews to ensure matches are televised to millions of sports-deprived fans.
Schedule postponements and the absence of spectators will cause either a delay or one-off permanent reduction in ticket and hospitality revenues.
Media rights fees are likely to be delayed and/or slightly reduced if there are postponements, and reduced significantly if events are cancelled or seasons curtailed. And, given that many media fee payments are made in advance, some sports will be asked to give monies back, monies they have often already spent.
However, commercial sponsorships may be better protected, especially if they are based more on sponsor product affinity and association than media exposure or hospitality.
Analysts suggest the sports industry could lose a third of its planned revenue for 2020, even if things get back to near normal by the autumn
Overall, analysts suggest the sports industry could lose a third of its planned revenue for 2020, even if things get back to near normal by the autumn. If that does not happen revenue could be less than half that predicted.
To deal with this problem, and in the absence of relevant insurance cover, sports are looking to preserve cash by furloughing or letting go of non-playing staff, and asking players to accept either a pay deferment or a one-off reduction in pay, while the season or event is delayed.
In some cases, they are looking to renegotiate media deals, offering to extend current contracts by a year or two, so that any reduction in fees in 2020 can be smoothed across a longer contract period – i.e. “pay us something now, and you can have an extra year on your contract, and you can either reduce or at least not increase your subsequent annual payments within that longer contract.”
Some sports are even going to the capital markets for help, ranging from short-term credit facilities to equity injections in commercial rights vehicles. Others are able to draw early upon strategic/back-up funds held by their global governing bodies, especially those whose quadrennial global event income was spared the lockdown.
Last, but not least, the absence of live action, and the need of media partners to be broadcasting something, plus clubs’ concern at keeping their fans engaged and entertained at a challenging time and keep sponsors happy, many of whom are having their own financial crisis, has led to a huge expansion in archive access and digital activity.
This ranges from best sporting moments TV programmes to player/pundit podcasts to virtual events powered by data-driven outcome prediction algorithms to esports tournaments often involving some of the players themselves.
In short, sports are doing their best to manage a very difficult situation. But once they are through this immediate crisis period, there will be a need to reflect properly on the long-term weaknesses in sporting governance, structures and finances this crisis may have exposed, and how they ought to be reformed.
Three come to mind immediately:-
First, too many sports are living hand-to-mouth, and some events/leagues have very precarious longer-term finances. Sports need to strengthen their balance sheets with a combination of long-term cost control, effective reserve build-up and drawdown mechanisms and access to third-party capital – debt and/or equity.
Secondly, many sports are too fragmented, and some calendars are not crisis-resistant enough. Part of the financial fragility relates to the tendency of sports to fragment income, commercial exploitation and value across many independent competitions and events, which reduces the effective pooling of risk and overall resilience to a crisis. Some calendars cluster events too much into one or two quarters of the year, perhaps not making full use of the climate variation across the globe. Sports need to look again at their calendars and the financial linkages between the many events and competitions.
Thirdly, sports need a deeper direct engagement with fans and a more diversified content strategy. The relationship needs to go way beyond the consumption of the live event on TV. Direct-to-consumer video strategies are valuable for the data and fan interaction they can provide. Esports, especially using compelling virtual versions of the sport itself, plus well-made, high-budget documentaries can keep fans busy and interested, as can well-curated podcasts.
There is no getting away from the problems this crisis is causing global sport and the next few months will be very challenging. But, if the right lessons are learnt, it could yet bring some longer-term benefits to the industry and its fans.