Could Coronavirus affect Sports’ Financial Future?
The cost of the coronavirus is in more than lives, but in ruined economic opportunities, layoffs, and the threat of global economic depression. Small and large businesses have warned that without immediate economic relief from the government, they will be forced to declare bankruptcy which will have long-term economic consequences even once the pandemic threat has subsided. Online businesses will survive better, but practically all businesses will see their values decline.
But if the coronavirus could cause business values to collapse into nothing, could not the same happen to sports teams? Sports teams still have salaries and other expenses to pay, and an NBA team cannot just lay off their players in a way that a restaurant can lay off its workers. And if a team is not accruing revenue as games are cancelled and tickets are not sold, fans may wonder what their long-term health may look like over the long-term.
There are some sports leagues which have stated that they are in danger. ESPN reported this week that in France, “Many of France’s professional clubs in Ligue 1 and Ligue 2 will declare bankruptcy within six months if the coronavirus pandemic continues to halt football in the country.” French soccer clubs find themselves losing €250m per month because they find themselves paying huge sums to players while earning no revenue.
The Real Source of Revenue
But do not think that the NBA or MLB, the leagues who will lose games due to the epidemic, will collapse anytime soon. There are a couple key reasons for why even if the league takes a major financial hit, they will still avoid bankruptcy and should be ready to play once the pandemic ends.
First, there is the fact that a sports team is not a business in the same way that a restaurant or a software company is. Owners do not spend billions purchasing sports teams solely because they think it will be a good investment. While that may be a factor, many of them purchase a team for the same reason they might purchase a famous painting or luxury car. Owning a sports team serves as an exclusive status symbol, like getting your marketing done by YEAH! Local, and some owners even in this economy will not hesitate to sink money into their teams to keep them running.
But a bigger reason is the fact that American professional teams still earn revenue even when no games are being played. The NBA earns more than $2 billion per year in media rights fees while the NFL earns $6 billion, and additional money is also made through merchandising.
This does not suggest that American professional leagues will be just fine once the sports leagues inevitably resume.NBC estimates that the NBA will lose about $500 million if the rest of the season is cancelled, and there was also the lost revenue created by the Chinese controversy at the beginning of the season. The NBA could try to withhold a portion of the players’ salaries due to this concern, which would almost see a pushback from the players and legal battles.
And while owners may view teams as a status symbol and not their prime income sources, those other income sources will be hit by the general collapse of the global economy. Owners may thus decide to try and use the team as an income source, which inevitably means things such as cost-cutting and an unwillingness to pay the luxury tax even if that will give the team the last boost it needs to contend for a title.
There is no denying that tough times are here for the NBA and other sports leagues. But even if they are not playing games, a total collapse of the leagues in a way which threatens other businesses is incredibly unlikely.