Why Are Sports Leagues Eager to Return Without Fans?

When sports ceased at the beginning of the COVID pandemic, many hoped and expected that it would be a relatively short break before being able to come back the same way everything had been before. Instead, European soccer leagues are wrapping up, baseball is starting, and the NHL and NBA playoffs are coming soon, but all are without fans. From a health standpoint it’s obvious why this is happening, but why is it so important to the leagues that they come back if they won’t have any fans in stadiums and are unable to generate ticket revenue?

While it’s nice to think that this is a matter of sports seeing themselves as needed distraction during this time, it is instead quite clearly about the money involved. As I wrote previously, the income streams of professional sports have changed dramatically over time. While tickets and associated game day revenue remains important, TV and sponsorship revenue has become more and more important.

It’s also important to think of this in economic terms - the loss of ticket revenue is similar to a sunk cost. To be clear, that loss was substantial – the NBA will reportedly lose $185 million in gameday revenue. There was no realistic path to recovering any of that money, so at that point leagues needed to recover anything they could and avoid additional losses.

Those additional losses could have been substantial, especially when it comes to TV rights. The NBA is reported to receive enough revenue from National TV alone to cover their player salary expenditures. Meanwhile, the English Premier league generates ~60% of its revenue from TV contracts.

Much of that revenue was potentially at risk due to the pandemic. The English Premier League, as an example, would potentially have owed $1.2 billion to broadcasters if they had been unable to continue their season. The structure of American sports, with teams as franchises, likely would better position them to absorb their losses; meanwhile, in Europe there was the danger that multiple teams would be in serious financial jeopardy if the season did not resume so that TV money was received.

In the case of the NHL and NBA, there is also the prestige of the championships that remained to be determined and prize money for the players. Similar financial impacts were even more pronounced in European soccer leagues, where European competition places and relegation/promotion was still to be decided. While there were solutions to determining that if leagues didn’t return, there was no way to satisfy those who would be directly impacted.

To use the English Premier League as an example again, there is a drastic difference in the financial power of the Premier League vs English Championship. Teams reaching the Premier League reportedly see an increase of $216 million, largely due to the large amount of TV money distributed to the clubs. Teams also give themselves guaranteed money moving forward, as teams relegated from the Premier League receive “parachute payments” to help offset the losses. Meanwhile, teams at the top of the table also have a lot to play for financially. Teams that reach the final of the Europa League will receive ~$5.2 million, while even reaching the group stage is worth $3.4m. The money in the Champions League is even more pronounced, with $5.8M going to teams who are eliminated in the last round before the Group Stage.

Clearly, leagues and teams had a large amount of money at risk if they were unable to return at all this season. In some cases, the survival of those entities was at stake. While they are all risking potential PR nightmares, especially in the US where the pandemic is not yet under control, the money involved from TV contracts is clearly driving why they are willing to take those risks. It remains to be seen whether or not that will turn out to be worth it.

#sportsbusiness #covid19 #economics

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